Sarraf 2019 Family Trust v. RP Holdco, LLC ( 2022 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
SARRAF 2018 FAMILY TRUST, )
GABRIELLA AND ALESSIO TRUST, )
and THE SSD IRREVOCABLE )
TRUST, )
Plaintiffs, )
)
v. ) C.A. No. N21C-02-006
) PRW CCLD
RP HOLDCO, LLC, ROYAL )
INTERCO, LLC, ROYAL PAPER )
CONVERTING LLC, AND )
DOUBLETREE PAPER MILLS, LLC, )
Defendants. )
Submitted: October 6, 2022
Decided: October 17, 2022
Upon Plaintiffs Sarraf 2018 Family Trust et al.’s Motion for Summary Judgment,
DENIED.
Upon Defendants RP Holdco, LLC et al.’s Motion for Summary Judgment,
GRANTED.
MEMORANDUM OPINION AND ORDER
David B. Stratton, Esquire, James H. S. Levine, Esquire, TROUTMAN PEPPER
HAMILTON SANDERS LLP, Wilmington, Delaware, Attorneys for Plaintiffs Sarraf
2018 Family Trust, Gabriella and Alessio Trust, and The SSD Irrevocable Trust.
S. Michael Sirkin, Esquire, Anthony M. Calvano, Esquire, ROSS ARONSTAM &
MORTIZ LLP, Wilmington, Delaware; Evan I. Cohen, Esquire, FINN DIXON &
HERLING LLP, Stamford, Connecticut, Attorneys for Defendants RP Holdco, LLC,
Royal Interco, LLC, Royal Paper Converting LLC, and Doubletree Paper Mills,
LLC.
WALLACE, J.
Plaintiffs Sarraf 2018 Family Trust, Gabriella and Alessio Trust, and the SSD
Irrevocable Trust (collectively, the “Trusts” or “Plaintiffs”) bring this breach-of-
contract action against Defendants RP Holdco, LLC, Royal Interco, LLC, Royal
Paper Converting LLC, and Doubletree Paper Mills, LLC (collectively, the
“Company” or “Defendants”). Plaintiffs allege Defendants breached the parties’
Contingent Payment Agreement (“CPA”) when Defendants refused to pay Plaintiffs
a lump sum of $5 million. Defendants claim that the triggering condition did not
occur, so the $5 million payment never came due.
Plaintiffs moved for summary judgment on Count I (breach of contract),
Count II (breach of the implied covenant of good faith and fair dealing), and
Defendants’ Affirmative Defenses. Defendants also moved for summary judgment
on Count I and Count II. For the reasons set forth below, Defendants’ Motion for
Summary Judgment is GRANTED, and Plaintiffs’ Motion for Summary Judgment
is DENIED.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. THE PARTIES
The Trusts are a collective of individual trusts, including the Sarraf Trust, the
Gabriella and Alessio Trust, and the SSD Trust.1 All three trusts are settled in the
1
See Complaint (“Compl.”) ¶¶ 6-8, Feb. 1, 2021 (D.I. 1).
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State of Nevada and are overseen by one sole trustee, Keyvan Gabbay.2 The
Company is an umbrella term for a collective of entities. RP Holdco and Interco are
both Delaware LLCs with their principal places of business in the State of
Connecticut.3 Royal Paper and Doubletree are Arizona LLCs with their principal
places of business in the State of Arizona.4
B. FACTUAL BACKGROUND
In mid-2018, a private equity firm, Gridiron Capital, through its affiliate,
Gridiron RP Investor, LLC, made an offer to purchase the Trusts’ interests in RP
Holdco.5 RP Holdco held interests in Interco, Royal Paper, and Doubletree.6 Each
of these companies manufacture, market, and sell tissue and other paper products to
consumers in the United States.7 The Trusts ultimately accepted Gridiron RP
Investor’s offer.8
On June 15, 2018, the Trusts and Gridiron RP Investor entered into a
Membership Interest Purchase Agreement (the “MIPA”) to consummate Gridiron
RP Investor’s purchase of the Trusts’ equity interests in RP Holdco (and, by
2
Id.
3
Id. ¶¶ 9-10.
4
Id. ¶¶ 11-12.
5
Id. ¶ 16.
6
Id. ¶ 17.
7
Id.
8
Id. ¶ 18; Answer ¶ 18, Mar. 22, 2021 (D.I. 8).
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extension, the Company).9 Allegedly, to “induce” the Trusts to enter into the MIPA,
Gridiron RP Investor caused the Company to enter into the CPA with the Trusts
because the Trusts were unwilling to sell their equity in the Company under the
MIPA unless there was potential for additional consideration set forth in the CPA.10
Ultimately, the Trusts sold their equity in RP Holdco (and, by extension, the
Company), which was purchased by Gridiron RP Investor through the MIPA. The
Trusts then wanted the Company to purchase U.S. Alliance, as explained below.
With that purchase, the Trusts stood to receive a Contingent Payment of $5 million
under the CPA.11
Section 2 of the CPA addresses the potential “Contingent Payment” of $5
million to which the Trusts believe they’re entitled.12 Section 2.1 states that “[u]pon
satisfaction of the Contingent Payment Conditions [in Section 3 of the CPA] during
the Payment Period, the Company will pay to the Trusts . . . an amount equal to Five
Million Dollars ($5,000,000.00) in the aggregate.”13 Section 3.2 governs the “U.S.
Alliance Transaction,”14 which is the transaction at the center of this litigation (the
9
Compl. ¶ 19.
10
Id. ¶¶ 20-21.
11
See Defs.’ Opening Br. in Supp. of Mot. for Summ. J. (“Defs.’ Mot. for Summ. J.”), Ex. A §
2.1, Aug. 5, 2022 (D.I. 61).
12
See id.
13
Id.
14
Id., Ex. A § 3.2.
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“Transaction”).15 Specifically, Section 3.2 states that the Contingent Payment
Condition (hereinafter the “Condition” or the “U.S. Alliance Transaction
Condition”) is deemed satisfied (entitling the Trusts to the $5 million payment) if
any of the following occurs during the Payment Period:
(i) . . . the Company or its Affiliates consummate a Transaction with
U.S. Alliance; or
(ii) . . . the Company or its Affiliates fails to make a written proposal to
U.S. Alliance on terms consistent with those in Section 3.2(b) regarding
a Transaction within such 150-day period; or
(iii) . . . the Company or its Affiliates declines, refuses or fails to pursue,
either orally, in writing or by failing to take any action toward
consummation of, a Transaction with U.S. Alliance on commercially
reasonable and customary terms, other than as provided in Section
3.2(d) below.16
The next subsection of Section 3.2 that is relevant for these motions is Section
3.2(d), which states:
If the Company and/or an Affiliate enters into a letter of intent with
U.S. Alliance and the Company or an Affiliate then declines or fails to
pursue a Transaction with U.S. Alliance in accordance with [the
parameters laid out in this Section] below, such declination or failure
shall not be considered to be a satisfaction of the U.S Alliance
Transaction Condition [in Section 3.2(a)] (i.e., the US Alliance
Transaction Condition shall not be satisfied).17
15
See Pls.’ Opening Br. in Supp. of Mot. for Summ. J. (“Pls.’ Mot. for Summ. J.”) at 6, Aug. 5,
2022 (D.I. 60). Many of the Exhibits attached to Defendants’ and Plaintiffs’ respective Motions
for Summary Judgment are the same. The Court herein cites primarily to Defendants’ Exhibits
solely for the purpose of convenience.
16
Defs.’ Mot. for Summ. J., Ex. A § 3.2(a) (underlining in original).
17
Id., Ex. A § 3.2(d).
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On August 6, 2018, the Company submitted a due diligence request list to
U.S. Alliance in preparation for a letter of intent.18 On December 12, 2018, the
Company submitted a letter of intent to U.S. Alliance (the “First LOI”).19 The First
LOI proposed a purchase price of $52 million based on a 7.0x multiple of U.S.
Alliance’s 2017 adjusted EBITDA of $7.395 million.20 Thereafter, on January 7,
2019, U.S. Alliance sent a return letter to the Company regarding the First LOI.21
This letter is a major point of contention. The Trusts insist this letter was an
“inquiry” and not a counteroffer.22 The Company says this letter was a rejection and
counteroffer.23 The letter states, in pertinent part, “It was great to speak to [the
Company] last Friday on your [First LOI] regarding the potential acquisition of US
Alliance paper [sic], Inc. This letter is to summarize our conversation and our
counter offer to your proposal.”24 This letter from U.S. Alliance sought $60 million,
18
Id. at 5, Ex. H.
19
Id. at 6, Ex. J; Pls.’ Mot. for Summ. J. at 8, Ex. 5.
20
Defs.’ Mot. for Summ. J at 8; Pls.’ Mot. for Summ. J., Ex. 5. “EBITDA” is an abbreviation
for “earnings before interest, taxes, depreciation, and amortization.” See Adam Hayes, EBITDA:
Meaning, Formula, and History, INVESTOPEDIA (Aug. 10, 2022),
www.investopedia.com/terms/e/ebitda.asp.
21
See Defs.’ Mot. for Summ. J. at 6-7, Ex. L; Pls.’ Mot. for Summ. J. at 8, Ex. 6.
22
See Pls.’ Mot. for Summ. J. at 18; Pls.’ Br. in Opp’n to Defs.’ Mot. for Summ. J. (“Pls.’
Answering Br.”) at 18, Sept. 7, 2022 (D.I. 69). It should be noted that, for the first time, in an
Answering Brief, Plaintiffs raise the argument that this letter is governed by the laws of New York,
not Delaware, because “U.S. Alliance is a New York, not Delaware, corporation,” and therefore
“New York law applies to [the] January 7, 2019 inquiry.” Pls.’ Answering Br. at 18.
23
See Defs.’ Mot. for Summ. J. at 6-7.
24
Pls.’ Mot. for Summ. J., Ex. 6 (emphasis added); Defs.’ Mot. for Summ. J., Ex. L (emphasis
added).
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approximately an 8.0x multiple of the 2017 adjusted EBITDA.25
On January 25, 2019, the Company rejected the $60 million proposal by U.S.
Alliance.26 During the following months, it appears the Company and U.S. Alliance
continued to stay in contact and discuss a possible sale.27 Then, on August 6, 2019,
the Company submitted a new letter of intent (the “Second LOI”).28 The Second
LOI included language the First LOI didn’t; specifically, that the offer was “subject
to confirmatory diligence and adjustments to reflect the current state of the
business.”29 The Trusts take issue with this language because they believe it violates
CPA Section 3.2(b). This Section states that Gridiron RP Investor “will or will cause
the Company to make a written proposal to U.S. Alliance regarding a Transaction
with the Company or its Affiliates on commercially reasonable and customary terms
with a purchase price reflecting an enterprise value for U.S. Alliance of at least 7.0x
U.S. Alliance’s 2017 EBITDA.”30
In August 2019, in connection with negotiations spurring from the Second
25
Pls.’ Mot. for Summ. J., Ex. 6.
26
Defs.’ Mot. for Summ. J. at 7-8, Ex. M.
27
Defendants frame this time period as one where U.S. Alliance attempted to restart negotiations.
See id. at 8-10. Plaintiffs frame it as one where U.S. Alliance stated to the Company it didn’t reject
the First LOI, and that the Company continued to pursue the U.S. Alliance Transaction while the
Company acknowledged it “could have used that rejection to declare the U.S. Alliance Condition
not satisfied.” Pls.’ Mot. for Summ. J. at 8-10.
28
Defs.’ Mot. for Summ. J. at 11, Ex. W.
29
Id., Ex. W at 1.
30
Pls.’ Mot. for Summ. J., Ex. 3 § 3.2(b).
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LOI, the Company requested31 and received full-year financials for 2018 and year-
to-date financials for 2019.32 This is another point of contention because the Trusts
believe the Company violated Section 3.2(b) of the CPA33 and the Company says it
didn’t violate the CPA in any way.34 U.S. Alliance signed the Second LOI, but the
Trusts did not.35
Considering the 2018 and 2019 financial data, the Company proposed a
revised purchase price of $33.5 million, down from an initial $52 million offer in the
Second LOI, based on an approximately 7.0x multiple of U.S. Alliance’s adjusted
2019 EBITDA.36 On June 30, 2020, U.S. Alliance informed the Company it was
rejecting the Company’s $33.5 million offer to purchase.37 On July 7, 2020, the
Company sent the Trusts a memo summarizing its evaluation and adjustments
relating to the 2018 and 2019 financial data (the “July 7 Memo”).38 The July 7
Memo states that the adjustments were necessary in light of the impact of increased
31
Defs.’ Mot. for Summ. J., Ex Y.
32
Id. at 12-13; see Pls.’ Mot. for Summ. J. at 18.
33
Pls.’ Mot. for Summ. J. at 19-20.
34
See Defs.’ Br. in Opp’n to Pls.’ Mot. for Summ. J. (“Defs.’ Answering Br.”) at 12-20, Sept. 6,
2022 (D.I. 68).
35
Pls.’ Mot. for Summ. J. at 18.
36
Defs.’ Mot. for Summ. J. at 14, Ex. AC.
37
Id. at 14, Ex. O at Tr. 176-78.
38
Id., Ex. AC.
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costs associated with U.S. Alliance’s raw materials, labor, and freight costs.39
According to the Company, those adjustments resulted in an adjusted 2017 EBITDA
of $967,636.00 and an adjusted 2019 EBITDA of $4,780,306.00.40
The July 7 Memo also stated that because U.S. Alliance rejected the
Company’s offer the CPA’s U.S. Alliance Transaction Condition wasn’t satisfied
and the Company didn’t have to pay the Trusts the $5 million Contingent Payment.41
Moreover, the Company stated in the July 7 Memo that even if U.S. Alliance did not
terminate negotiations, the adjustments to the 2017 EBITDA were sufficient to
trigger CPA Section 3.2(d)(iii), which gives the Company in such a circumstance
the unilateral right not to pursue the Transaction and would result in nonsatisfaction
of the U.S. Alliance Transaction Condition.42
On September 1, 2020, the Trusts sent a letter to the Company (1) disputing
the Company’s contentions that U.S. Alliance rejected the offer and (2) disputing
the $52 million valuation was overstated.43 Moreover, the letter demanded that the
39
Id.; see also id. at 14.
40
Id. at 14.
41
See id., Ex. AC.
42
Id.; see also id., Ex. A § 3.2(d)(iii) (“The Company will then calculate the implied multiple
based upon the . . . diligence findings by dividing the [adjusted valuation] by the Adjusted 2017
EBITDA, and if such implied multiple is more than 10% greater than the LOI Multiple, the
Company . . . may elect, in [its] sole and absolute discretion: (1) not to pursue a Transaction, which
election shall not be considered satisfaction of the US Alliance Transaction Condition and no
Contingent Payment will be earned.” (emphasis in original)). The Defendants refer to this Section
3.2(d) as the “Safe Harbor Provision.” See Defs.’ Mot. for Summ. J. at 29-30.
43
See Compl., Ex. D.
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Company make the Contingent Payment to the Trusts without delay.44 On
September 25, 2020, the Company’s counsel responded, essentially holding strong
to the position that U.S. Alliance rejected the Company’s offer, that the valuation
was accurate,45 and that the Company had no obligation to make the Contingent
Payment.46
C. PROCEDURAL HISTORY
Last year, the Trusts filed their Complaint against the Company for breach of
contract (Count I) and breach of the implied covenant of good faith and fair dealing
(Count II) under the CPA.47 The Company’s Answer denies those allegations and
asserts numerous affirmative defenses.48
With discovery closed, the parties have now filed cross-motions for summary
judgment. The Court heard argument on those motions earlier this month and the
entire matter can be resolved by decision thereon.
II. STANDARD OF REVIEW
This Court may grant a moving party’s motion for summary judgment under
Delaware Superior Court Rule 56 only when no genuine issue of material fact exists
44
See id.
45
See id., Ex. E.
46
See id.
47
See Compl.
48
See Answer.
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and that party is entitled to judgment as a matter of law.49 Summary judgment “will
not be granted if there is a material fact in dispute”50 or if “it seems desirable to
inquire thoroughly into [the facts] to clarify the application of the law to the
circumstances.”51 The moving party has the burden of demonstrating “its claim is
supported by undisputed facts.”52 If the moving party meets its burden, the burden
shifts to the non-moving party to show there is a “genuine issue for trial.”53 In
determining whether such genuine issue exists, “the Court must view the facts in the
light most favorable to that non-moving party.”54 “Lastly, the Court accepts as true
the parties’ factual stipulations.”55
“While the Court may not be able to grant summary judgment ‘if the factual
record has not been developed thoroughly enough to allow the Court to apply the
49
Del. Super. Ct. Civ. R. 56; Motors Liquidation Co. DIP Lenders Tr. v. Allianz Ins. Co., 2017
WL 2495417, at *5 (Del. Super. Ct. June 19, 2017).
50
Radulski v. Liberty Mut. Fire Ins. Co., 2020 WL 8676027, at *3 (Del. Super. Ct. Oct. 28, 2020);
see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (“Only disputes over facts that
might affect the outcome of the suit under the governing law will properly preclude the entry of
summary judgment.”).
51
Ebersole v. Lowengrub, 180 A.2d 467, 468-69 (Del. 1962).
52
Radulski, 2020 WL 8676027, at *3 (citing Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979)).
53
Del. Super. Ct. Civ. R. 56(e); CNH Indus. Am. LLC v. Am. Casualty Co. of Reading, 2015 WL
3863225, at *1 (Del. Super. Ct. June 8, 2015) (“If the motion is properly supported, then the burden
shifts to the non-moving party to demonstrate that there are material issues of fact for resolution
by the ultimate fact-finder.”).
54
Radulski, 2020 WL 8676027, at *3 (citing Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del.
1977)).
55
Id.-10-
law to the factual record,’”56 “a matter should be disposed of by summary judgment
whenever an issue of law is involved and a trial is unnecessary.”57
“These well-established standards and rules for summary judgment apply in
full when the parties have filed cross-motions for summary judgment.”58 Cross-
motions for summary judgment do “not act per se as . . . concession[s] that there
[are]” no genuine factual disputes.59 “But, where cross-motions for summary
judgment are filed and neither party argues the existence of a genuine issue of
material fact, ‘the Court shall deem the motions to be the equivalent of a stipulation
for decision on the merits based on the record submitted with the[m].’”60 “So, ‘the
questions before this Court are questions of law not of fact, and the parties by filing
cross motions for summary judgment have in effect stipulated that the issues raised
by the motions are ripe for a decision on the merits.”61
56
Id. at *4 (quoting CNH Indus. Am. LLC, 2015 WL 3863225, at *1).
57
Jeffries v. Kent Cty. Vocational Tech. Sch. Dist. Bd. of Educ., 743 A.2d 675, 677 (Del. Super.
Ct. 1999); Brooke v. Elihu-Evans, 1996 WL 659491, at *2 (Del. Aug. 23, 1996).
58
Radulski, 2020 WL 8676027, at *4 & n.35 (collecting cases).
59
United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997).
60
Radulski, 2020 WL 8676027, at *4 (alteration in original) (quoting Del. Super. Ct. Civ. R.
56(h)).
61
Id. (quoting Health Corp. v. Clarendon Nat’l Ins. Co., 2009 WL 2215126, at *11 (Del. Super.
Ct. July 15, 2009)).
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III. PARTIES’ CONTENTIONS
A. THE TRUSTS’ MOTION FOR SUMMARY JUDGMENT
The Trusts seek judgment in their favor on (1) Count I (breach of contract),
(2) Count II (breach of the implied covenant of good faith and fair dealing), and (3)
the Company’s affirmative defenses.
First, the Trusts allege the Company breached Sections 2.1 and 3.2 of the
CPA.62 Specifically, Section 3.2 required the Company to make a written proposal
to U.S. Alliance on commercially reasonable and customary terms reflecting a value
of at least 7.0x U.S. Alliance’s 2017 EBITDA.63 The Trusts agree that such an offer
was made when the Company sent the First LOI.64 But the Trusts insist that U.S.
Alliance’s response, seeking a value of 8.0x U.S. Alliance’s 2017 EBITDA, was an
inquiry, not a rejection and a counteroffer as the Company suggests.65 The Trusts
complain further that the Company’s Second LOI did not comply with the terms of
the CPA.66 According to the Trusts, CPA Section 3.2 permitted the Company to
make an offer using only 2017 EBITDA data.67 In the Trusts’ view, the Company’s
62
Pls.’ Mot. for Summ. J. at 17.
63
Id. at 17, Ex. 3 § 3.2(b).
64
Id. at 17.
65
Id. at 17-18. The Trusts, in a footnote, also argue that the Company’s continued efforts to
pursue a transaction with U.S. Alliance constitutes a waiver, if any, to declare the U.S. Alliance
Transaction Condition not satisfied. See id. at 18 n.58.
66
Id. at 18-19.
67
Id. at 19, Ex. 3 § 3.2(b).
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use of 2018 and 2019 EBITDA data in constructing the Second LOI was a breach of
Section 3.2.68 To the Trusts, this move by the Company demonstrates breach
because: (1) the Company declined, refused, or otherwise failed to pursue the U.S.
Alliance Transaction on commercially reasonable and customary terms as required
by the CPA;69 and (2) the Company failed or refused to make the Contingent
Payment under Section 2.1.70
Second, the Trusts note the CPA does not contain express language allowing
or prohibiting the use of 2018 and 2019 EBITDA data and information to evaluate
U.S. Alliance’s value.71 The Trusts, as a result of this contractual silence, ask the
Court to fill this “gap” in the CPA by restricting the CPA to only 2017 data. 72 The
Trusts believe that when Section 3.2 is read as a whole, “it is clear that the intent of
the parties is to limit such data and information to 2017.”73 They argue that such a
gap-filler would prevent the Company from “unilaterally depriving [the Trusts] of
their bargained-for Contingent Payment.”74
Finally, the Trusts allege that none of the Company’s seven affirmative
68
Id. at 19-20.
69
Id. at 20; see id., Ex. 3 § 3.2(a)(iii).
70
Id. at 20; see id., Ex. 3 § 2.1(a).
71
Id. at 22; see generally id., Ex. 3.
72
See id. at 22.
73
Id.
74
Id.
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defenses preclude the Court from granting summary judgment in their favor. In
essence, the Trusts argue that each affirmative defense consists only of a single,
conclusory sentence that fails on its face in light of the Trusts’ claims for breach of
the CPA and breach of the implied covenant of good faith and fair dealing. 75 The
seven affirmative defenses are: failure to state a claim; failure of a condition
precedent; duplicative claims; ratification, waiver, acquiescence, laches or estoppel;
lack of legally cognizable injury or damage attributable to the Company; unclean
hands; and that the CPA itself bars the claims.76
B. THE COMPANY’S MOTION FOR SUMMARY JUDGMENT
The Company seeks judgment in its favor on (1) Complaint Count I (breach
of contract), and (2) Complaint Count II (breach of the implied covenant of good
faith and fair dealing).
First, the Company contends that the U.S. Alliance Transaction Condition was
not satisfied because U.S. Alliance rejected the First LOI.77 Specifically, the
Company says it satisfied its covenant under CPA Section 3.2(b) when it submitted
its First LOI,78 but under Section 3.2(a), the U.S. Alliance Transaction Condition
wasn’t satisfied because U.S. Alliance sent a rejection and counteroffer on January
75
Id. at 22-23.
76
See Answer (listing the Affirmative Defenses).
77
See Defs.’ Mot. for Summ. J. at 18.
78
Id. at 18-19.
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8, 2019.79 As such, the Company argues, any obligation it had to pay was terminated
with that rejection.80 The Company goes on that even if the CPA still applied to the
Second LOI (which the Company believes it does not), that was also pursued on
commercially reasonable and customary terms, and the Company already satisfied
the obligations of CPA Section 3.2(b) regarding the offer price with the First LOI.81
In that vein, the Company posits the only issue is whether the Company’s offer of
7.0x U.S. Alliance’s adjusted 2019 EBITDA was commercially reasonable, not
whether the revised offer of $33.5 million complied with Section 3.2(b).82 As a final
point on the breach-of-contract claim, the Company argues that, even if the July 7
Memo constitutes a failure to pursue a Transaction with U.S. Alliance and the
Company remained bound to Section 3.2(b) for the Second LOI, this failure to
pursue was excused by Section 3.2(d), the CPA’s “safe harbor provision.”83
Second, the Company suggests that the Trusts’ breach of the implied covenant
of good faith and fair dealing claim is entirely duplicative of the breach-of-contract
claim, and the evidence makes clear the Company acted in good faith within the
bounds of the CPA.84 Specifically, the Company argues that the Trusts fail to
79
Id. at 19.
80
Id. at 20-21; see also id., Ex. A § 3.2(a).
81
See id. at 21.
82
See id. at 23-24.
83
Id. at 29.
84
Id. at 35.
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identify any implied terms in the CPA that need to be filled,85 much less any breach
of such implied terms.86 Even if the Court finds the claim to be not duplicative, the
Company says, the evidence demonstrates it acted in good faith.87
IV. DISCUSSION
A. COUNT I: BREACH OF THE CPA
The elements of a breach-of-contract claim are: “(1) the existence of a
contractual obligation; (2) a breach of that obligation; and (3) damages resulting
from the breach.”88 “Delaware adheres to the ‘objective’ theory of contracts, i.e.[,]
a contract’s construction should be that which would be understood by an objective,
reasonable third party.”89 “When the contract is clear and unambiguous, [the Court]
will give effect to the plain-meaning of the contract’s terms and provisions.”90 But
when a contract is subject to multiple reasonable interpretations, the contract is
ambiguous.91 “Contract language is not ambiguous simply because the parties
85
Id. at 36.
86
Id.
87
Id.
88
Buck v. Viking Hldg. Mgmt. Co. LLC, 2021 WL 673459, at *3 (Del. Super. Ct. Feb. 22, 2021)
(citing VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003)).
89
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citing NBC Universal v.
Paxson Commc’ns, 2005 WL 1038997, at *5 (Del Ch. Apr. 29, 2005)).
90
Id. at 1159-60 (citing Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d
1192, 1195 (Del. 1992)).
91
Id. at 1160.
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disagree concerning its intended construction.”92 When the Court interprets a
contract, it “must ‘give priority to the parties’ intentions as reflected in the four
corners of the agreement.’”93
1. The First LOI
The first issue to resolve for the breach-of-contract claim is whether the U.S.
Alliance Transaction Condition under CPA Section 3.2 was satisfied by the
Company’s first proposal—i.e. the First LOI—and the response thereto. The Trusts
insist that the January 8, 2019, letter from U.S. Alliance was an inquiry in response
to the Company’s First LOI, not a rejection and counteroffer. The Company says it
was a rejection and counteroffer, so the U.S. Alliance Transaction Condition was not
satisfied.
The Company is right. The January 8, 2019, letter from U.S. Alliance to the
Company was a rejection and counteroffer, not an inquiry.
The Company sent U.S. Alliance its First LOI on December 12, 2018. It made
an offer to acquire U.S. Alliance for $52 million.94 Then, on January 8, 2019, U.S.
Alliance responded thusly: “This letter is to summarize our conversation and [U.S.
92
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 n.8 (Del. 1997).
93
Bathla v. 913 Mkt., LLC, 200 A.3d 754, 759 (Del. 2018) (quoting GMG Cap. Invs., LLC v.
Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012)).
94
See Defs.’ Mot. for Summ. J., Ex. J.
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Alliance’s] counter offer to [the Company’s] proposal.”95 In that letter, U.S.
Alliance proposed a $60 million acquisition.96
Under Delaware law, “a response to an offer that is not on the terms set forth
by the offeror constitutes a rejection of the original offer and a counter-offer.”97 The
First LOI was an offer made by the Company to U.S. Alliance to acquire it for $52
million. The return letter from U.S. Alliance asked for $60 million. In other words,
it was a “response to [the First LOI] that [was] not on the terms set forth by [the
Company,]” and thus “constitutes a rejection of the [First LOI] and a counter-
offer.”98
The Trusts suggest that because U.S. Alliance is a New York corporation, the
U.S. Alliance letter from January 8, 2019, must be governed by the laws of New
York.99 But the Court here need not engage in a choice-of-law analysis because the
Trusts’ argument fails under New York law just as it does under Delaware’s. New
York law states that “it is a fundamental tenet of contract law that a counteroffer
95
See id., Ex. L (emphasis added).
96
Id.97
Sandcastle Realty, Inc. v. Castagna, 2006 WL 2521437, at *2 (Del. Ch. Aug. 16, 2006)
(emphasis added); see also PAMI-LEMB I Inc. v. EMB-NHC, L.L.C., 857 A.2d 998, 1015 (Del.
Ch. 2004) (“A response to an offer that is not on the terms set forth by the offeror constitutes a
rejection of the original offer and a counteroffer.”); 1 Bradley W. Voss, Voss on Delaware
Contract Law, § 2.05[3][c][i] (Lexis 2020) (same).
98
See Sandcastle Realty, Inc., 2006 WL 2521437, at *2.
99
Pls.’ Answering Br. at 18.
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constitutes a rejection of an offer as a matter of law.”100 The January 8, 2019, letter
explicitly stated it was a counteroffer and modified the terms of the First LOI by
asking for an additional $8 million to acquire U.S. Alliance. The few off-point New
York cases the Trusts rely on to try to transmute that letter to a mere “inquiry” are
unhelpful to their cause.101 No doubt, under both New York and Delaware law the
letter from U.S. Alliance was a rejection and counteroffer.
Because the First LOI was rejected and a counteroffer was provided, Section
3.2(a) comes into play. This Section states that if “the Company makes a written
proposal to U.S. Alliance regarding a Transaction on terms consistent with those
described in Section 3.2(b) . . . and U.S. Alliance declines to pursue a transaction
with the Company or their Affiliates, the US Alliance Transaction Condition shall
not be satisfied.”102 Section 3.2(b) in essence states that the Company had to
approach U.S. Alliance and make an offer to acquire it on “commercially reasonable
100
Jericho Gp., Ltd. v. Midtown Dev., L.P., 820 N.Y.S.2d 241, 246-47 (N.Y. App. Div. 2006);
see also Thor Props., LLC v. Willspring Hldgs., LLC, 988 N.Y.S.2d 47, 49 (N.Y. App. Div. 2014)
(“If . . . offeree responds by conditioning acceptance on new or modified terms, that response
constitutes both a rejection and a counteroffer which extinguishes the initial offer.”); Solartech
Renewables, LLC v. Vitti, 66 N.Y.S.3d 704, 707 (N.Y. App. Div. 2017) (“[I]f the purported
acceptance is qualified with conditions, it is equivalent to a rejection and counteroffer.” (internal
quotations omitted)).
101
The Trusts cite to, for instance, Figueroa v. Prospct Billiards Corp., 2019 WL 3415985, at *4
(S.D.N.Y. July 12, 2019), for the proposition that a suggestion, request, or overture is not a
counteroffer. See Pls.’ Answering Br. at 18. But in that case, the court held that the email at issue
contained indefinite language, making it a suggestion, request, or overture. See Figueroa, 2019
WL 3415985, at *4. Not so here. U.S. Alliance’s January 8th letter can’t be any clearer; it is a
“counter offer to [the Company’s] proposal.” See Defs.’ Mot. for Summ. J., Ex. L.
102
Defs.’ Mot. for Summ. J., Ex. A § 3.2(a).
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and customary terms” with the purchase price reflecting a value of at least 7.0x U.S.
Alliance’s 2017 EBITDA.103 There is no dispute that the First LOI complied with
Section 3.2(b).104 There is no doubt that U.S. Alliance rejected the First LOI. In this
event—as CPA Section 3.2(a) makes clear—the U.S. Alliance Transaction
Condition was not satisfied and the Contingent Payment is not due to the Trusts.105
2. The Second LOI and Subsequent Negotiations
a. The CPA does not apply to the Second LOI.
The next issue is whether the CPA applied to the Second LOI, and if so,
whether the Second LOI complied with the CPA’s requirements. The Trusts contend
103
Id., Ex. A § 3.2(b).
104
See Pls.’ Mot. for Summ. J. at 17 (“The undisputed facts show that . . . a proposal [on
commercially reasonable and customary terms] was made on December 12, 2018 (in the form of
the [First] LOI).”); Defs.’ Mot. for Summ. J. at 19 (“[W]here, as here, the First LOI complied with
Section 3.2(b).”).
105
See Defs.’ Mot. for Summ. J., Ex. A § 3.2(a). Additionally, the Trusts argue that the Company
knowingly and intentionally waived any right to declare the U.S. Alliance Transaction Condition
as not satisfied after the First LOI because the Company’s counsel wrote in a letter, “The Company
could have used that [U.S. Alliance] rejection to declare the US Alliance Transaction Condition
not satisfied, but instead continued to pursue the Transaction.” See Pls.’ Answering Br. at 17-18;
Compl., Ex. E at 2. In the same letter, counsel wrote, “In sending this letter the Company . . .
reserve[s] all rights under the Agreement, the Purchase Agreement and generally.” Id., Ex. E at 4.
There was no waiver. Waiver requires: (1) a condition capable of being waived, (2) the
waiving party knows of such condition, and (3) “the waiving party intends to waive that . . .
condition.” Amirsaleh v. Bd. of Trade of City of N.Y., Inc., 27 A.3d 522, 529-30 (Del. 2011). Here,
the Company clearly did not intend to waive any CPA condition. The same letter that the Trusts
allege constitutes waiver also states a reservation of rights, i.e., no intent to waive. This, alone, is
not enough to meet the “quite exacting” demonstration of a “voluntary and intentional
relinquishment of a known right.” Id. at 529; see also id. at 530 (noting that the Amirsaleh
defendants explicitly waived an election form deadline to accommodate people who missed the
deadline, making their waiver “unmistakably clear”).
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that the CPA applies to the Second LOI and that the Company breached CPA Section
3.2 when it used 2018 and 2019 data and information to construct it. According to
them, the CPA would never permit the use of anything more than 2017 data and
information in any offer made. The Company says that the CPA does not apply to
the Second LOI because Section 3.2(b) was satisfied with the First LOI. And, even
if the CPA does apply, the Company’s use of 2018 and 2019 data was commercially
reasonable—so again there was no breach.
“Delaware adheres to the ‘objective’ theory of contracts, i.e.[,] a contract’s
construction should be that which would be understood by an objective, reasonable
third party.”106 “When the contract is clear and unambiguous, [the Court] will give
effect to the plain-meaning of the contract’s terms and provisions.”107 “Contract
language is not ambiguous simply because the parties disagree concerning its
intended construction.”108 When the Court interprets a contract, it “must ‘give
priority to the parties’ intentions as reflected in the four corners of the
agreement.’”109 The Court “must construe the agreement as a whole, giving effect
to all provisions therein.”110 Further, “the meaning which arises from a particular
106
Osborn, 991 A.2d at 1159 (citing NBC Universal, 2005 WL 1038997, at *5).
107
Id. at 1159-60 (citing Rhone-Poulenc Basic Chems. Co., 616 A.2d at 1195).
108
Eagle Indus., Inc., 702 A.2d at 1232 n.8.
109
Bathla, 200 A.3d at 759 (quoting GMG Cap. Invs., LLC, 36 A.3d at 779).
110
E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985).
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portion of an agreement cannot control the meaning of the entire agreement where
such inference runs counter to the agreement’s overall scheme or plan.”111
Under a plain reading of the CPA, Section 3.2 was intended to apply to only
the First LOI. To begin with, Section 3.2(b), titled the “Covenant to Pursue
Transaction,” states that within one hundred fifty (150) days of the Closing (unless
the parties agree to an extension), the Company will make “a written proposal” (an
LOI) to U.S. Alliance on commercially reasonable and customary terms, proposing
a price of at least 7.0x U.S. Alliance’s 2017 EBITDA.112 The parties did agree to
extend the one hundred fifty (150) day deadline in Section 3.2(b) by a month.113
Within that extension time, the Company submitted the First LOI.114 Section 3.2(b)
is the only Section of the CPA that refers to the controlling time to submit an LOI.
The plain language does not appear to account for any subsequent LOI outside the
Section 3.2(b)-defined period.
To be sure, in following case law guidance to not permit one provision to
control when it runs counter to the contract’s overall scheme, 115 no other section of
111
Id.112
Defs.’ Mot. for Summ. J., Ex. A § 3.2(b) (emphasis added).
113
Id. at 6; see also id., Ex. I.
114
Id. at 6-7.
115
See E.I. du Pont de Nemours & Co., Inc., 498 A.2d at 1113 (“Moreover, the meaning which
arises from a particular portion of an agreement cannot control the meaning of the entire agreement
where such inference runs counter to the agreement's overall scheme or plan.” (citations omitted)).
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the CPA clearly states a contrary result. To prove this point, Section 3.2(a), which
covers the U.S. Alliance Transaction Condition, states that if the Company makes a
written proposal to U.S. Alliance, and U.S. Alliance declines to pursue it, the U.S.
Alliance Transaction Condition is not satisfied.116 Again, U.S. Alliance rejected the
Company’s First LOI. Section 3.2(a), then, states that the Condition is not satisfied,
meaning the Trusts are not entitled to the $5 million Contingent Payment.117 It
follows that any subsequent LOI is not covered by the CPA because the rejection of
the First LOI constitutes a conclusion as to any potential Contingent Payment.118 It
would be unreasonable to construe the CPA such that U.S. Alliance could
continuously reject proposals and the Trusts’ Contingent Payment could still remain
on the table. If the parties intended such a result, they could have written it into the
CPA.
A plain reading of the CPA leads to one reasonable conclusion—it did not
cover the Second LOI.
b. Even if the CPA applies to the Second LOI, there was no breach.
Indulging for a moment that the Second LOI is governed by the language of
the CPA, the Court would have to resolve whether the Second LOI complied with
116
Defs.’ Mot. for Summ. J., Ex. A § 3.2(a).
117
See id.
118
See id. (describing the U.S. Alliance Transaction Condition); see also id., Ex. A § 2.1 (“Upon
satisfaction of the Contingent Payment Conditions during the Payment Period, the Company will
pay to the Trusts the Contingent Payments . . . .”).
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the “commercially reasonable and customary” language of the CPA. The Trusts
complain that the Second LOI did not comply, that this constitutes a failure to pursue
the Transaction by the Company, and that they are now entitled to the Contingent
Payment under Section 3.2(a)(iii).119 The Company counters that if the CPA applies
to the Second LOI, its only obligation was to pursue the Transaction on
commercially reasonable and customary terms because it already complied with
Section 3.2(b) when it submitted the First LOI.120
Section 3.2(b), titled the “Covenant to Pursue Transaction,” reads that the
Company will make a written proposal to U.S. Alliance “on commercially
reasonable and customary terms with a purchase price reflecting an enterprise value
of U.S. Alliance of at least 7.0x U.S. Alliance’s 2017 EBITDA.”121 The Second
LOI—submitted on August 6, 2019—suggested an initial purchase price of $52
million, which was roughly 7.0x U.S. Alliance’s 2017 EBITDA of $7.395 million.122
But the Company ultimately offered to purchase U.S. Alliance for $33.5 million,
which was 7.0x U.S. Alliance’s 2019 EBITDA of $4.8 million.123 Again, assuming
the CPA governed this offer—was the Company’s reliance on the 2019 data in
119
See Pls.’ Mot. for Summ. J. at 19-20.
120
Defs.’ Mot. for Summ. J. at 21.
121
Id., Ex. A § 3.2(b).
122
See id., Ex. W at 1.
123
Pls.’ Mot. for Summ. J. at 12; Defs.’ Mot. for Summ. J. at 14, Ex. AD at RFA Resp. 13.
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compliance with the CPA? It was.
Recall, the Company complied with the requirements of Section 3.2(b) when
it submitted its First LOI to U.S. Alliance. Namely, the First LOI set forth an offer
of $52 million that was based on the terms of Section 3.2(b), which required the offer
reflect at least 7.0x U.S. Alliance’s 2017 EBITDA.124 Section 3.2(b) references “a
written proposal to U.S. Alliance.” So nothing therein suggests that the Company
had to comply with Section 3.2(b) multiple times.125 And the Trusts do little to
support their postulation that the Company had to comply with Section 3.2(b) after
the First LOI.126
Next, the CPA does not define “commercially reasonable and customary
terms.”127 Instead, it references both “commercially reasonable” and “customary”
124
See Defs.’ Mot. for Summ. J., Ex. A § 3.2(b), Ex. J (“[The Company] would be prepared to
acquire 100% of US Alliance based on a total enterprise value of $52 million (‘LOI Purchase
Price’) . . . . This valuation represents approximately 7.0x (‘LOI Multiple’) LTM 12/31/2017A
Adjusted EBITDA of $7.395 million.”).
125
See id. (emphasis added), Ex. A § 3.2(b) (“[N]o later than one hundred fifty (150) days
following the Closing . . . [the Company will make] a written proposal to U.S. Alliance regarding
a Transaction with the Company . . . on commercially reasonable and customary terms with a
purchase price reflecting an enterprise value for U.S. Alliance of at least 7.0x U.S. Alliance’s 2017
EBITDA.” (emphasis added)).
126
See Pls.’ Reply Br. at 8-9 (“Plaintiffs argue that Section 3.2 requires any offer be based on U.S.
Alliance’s 2017 EBITDA and any adjustments to U.S. Alliance’s 2017 EBITDA are limited to
2017 information and data.”). As discussed further infra, this argument fails.
127
See generally Defs.’ Mot. for Summ. J., Ex. A.
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in various sections of the CPA.128 Even when read in context, one cannot glean a
particular meaning of the phrase. As such, under Delaware law, “courts look to
dictionaries for assistance in determining the plain meaning of terms which are not
defined in a contract.”129 Merriam-Webster defines “commercially reasonable” as
“fair, done in good faith, and corresponding to commonly accepted commercial
practices.”130 Further, “customary” is defined as “commonly practiced, used, or
observed.”131 Together, then, “commercially reasonable and customary terms”
essentially means the offer must correspond to commonly accepted business
practices.132
Here, assuming the CPA applied to the Second LOI, the Company’s reliance
128
See, e.g., id., Ex. A §§ 2.5 (Subordination), 3.1(b) (Covenant to Pursue Retention of a CEO),
3.2(a)(iii) (U.S. Alliance Transaction Conditions), 3.2(b) (Covenant to Pursue Transaction),
3.2(d)(i) (Excused Failure to Pursue Transaction).
129
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del. 2006); see id. (“This is
because dictionaries are the customary reference source that a reasonable person in the position of
a party to a contract would use to ascertain the ordinary meaning of words not defined in the
contract.”).
130
Commercially reasonable, MERRIAM-WEBSTER, www.merriam-
webster.com/legal/commercially%20reasonable (last visited Oct. 12, 2022); see also
Commercially Reasonable, Black’s Law Dictionary (11th ed. 2019) (defining “commercially
reasonable” as “in accordance with commonly accepted commercial practice”); Menn v. ConMed
Corp., 2022 WL 2387802, at *29 (Del. Ch. June 30, 2022) (noting that the Court of Chancery has
previously found that “commercially reasonable” “requires a showing that the determination was
in keeping with prevailing trade practice among reputable and responsible business and
commercial enterprises” engaged in similar businesses) (internal citations omitted).
131
Customary, MERRIAM-WEBSTER, www.merriam-webster.com/dictionary/customary (last
visited Oct. 12, 2022).
132
See Commercially reasonable, MERRIAM-WEBSTER, supra note 130; Customary, MERRIAM-
WEBSTER, supra note 131.
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on U.S. Alliance’s most-recent financial data and information when making a
proposed offer to U.S. Alliance is commercially reasonable and customary. Indeed,
according to the Trusts’ own certified public accountant: “it’s reasonable to think
[one] would use the periods most current to [a specific] valuation date” when
determining the appropriate value of a company.133 The Trusts contend that the
Company’s offer calculation made on August 6, 2019 (the Second LOI), should have
relied on only 2017 data.134 A company’s value can change over time. To restrict
an offer’s calculation to outdated financial data, when the CPA does not explicitly
require it, is not commercially reasonable.
As a final point, the Trusts suggest that in CPA-speak “commercially
reasonable and customary terms” equals “2017 EBITDA” data because to find
otherwise would be to ignore the “parties’ repeated use of and reference to 2017
EBITDA . . . in Section 3.2 of the CPA.”135 Not so.
Section 3.2 referenced “2017 EBITDA” a few times. First, it’s mentioned in
Section 3.2(b)’s “Covenant to Pursue Transaction,”136 which, as already explained,
was satisfied by the First LOI. Second, it’s mentioned in Section 3.2(d)’s “Excused
Failure to Pursue Transaction,” which sets out the equation that excuses the
133
Defs.’ Mot. for Summ. J., Ex. AF at Tr. 137.
134
See Pls.’ Mot. for Summ. J. at 19-20.
135
See id. (emphasis in original).
136
See Defs.’ Mot. for Summ. J., Ex. A § 3.2(b).
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Company’s failure to pursue a transaction with U.S. Alliance.137 Only once in the
CPA is “commercially reasonable and customary” paired with “2017 EBITDA
data.” That is in Section 3.2(b), which is already satisfied by the First LOI. And so
the Trusts’ contention that “commercially reasonable and customary terms” must
equal “2017 EBITDA” data138 has no clear basis in the CPA’s language.
Simply put, there is nothing in the CPA to suggest that the use of 2018 and
2019 data when later proposing an offer for $33.5 million is commercially
unreasonable or not customary. And the Trusts’ own accountant admits that using
the most recent financials to determine a company’s value is reasonable.139 Thus, if
the Court had to use the CPA to measure the Second LOI, the Company’s use of
more recent financial data is commercially reasonable and customary.
The Company did not breach the CPA when it submitted its Second LOI and
made a final offer for $33.5 million. The Trusts are, therefore, not entitled to the
Contingent Payment on this ground.
In sum, the Company’s Motion for Summary Judgment on the breach-of-
contract claim is GRANTED, and the Trusts’ motion on this claim is DENIED.
137
See id., Ex. A § 3.2(d).
138
See Pls.’ Mot. for Summ. J. at 18-19 (arguing that the “CPA was never amended or modified
to allow Defendants to make adjustments to U.S. Alliance’s 2017 EBITDA using 2018 and 2019
data and information, and all references in Section 3.2 of the CPA are to 2017” and proposing that
“commercially reasonable and customary” means only 2017 data).
139
See Defs.’ Mot. for Summ. J., Ex. AF at Tr. 137.
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B. COUNT II: BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR
DEALING
The Trusts argue that they are entitled to summary judgment on their implied
covenant of good faith and fair dealing claim. Specifically, the Trusts allege that the
CPA does not contain express language permitting or prohibiting the use of 2018 or
2019 EBITDA data and information to evaluate U.S. Alliance’s value. The Trusts
ask the Court to restrict the CPA to only 2017 data because they believe that the
clear intent of the parties was to limit U.S. Alliance’s valuation to 2017 data. On the
other side, the Company argues it’s entitled to summary judgment on this claim
because the Company acted in good faith and within the bounds of the CPA. Further,
the Company believes the Trusts failed to identify any implied terms that need to be
filled in, let alone the breach of any such terms. It also suggests this claim is
duplicative of the breach-of-contract claim.
Under Delaware law, “the implied covenant of good faith and fair dealing
attaches to every contract.”140 But to imply a term that was not contracted for by the
parties is a “cautious enterprise” that “should be [a] rare and fact-intensive” exercise,
which is governed solely by “issues of compelling fairness.”141 In implied covenant
140
GWO Litig. Tr. v. Sprint Sols., Inc., 2018 WL 5309477, at *5 (Del. Super. Ct. Oct. 25, 2018)
(citing Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441-42 (Del. 2005)).
141
Id. (quoting Dunlap, 878 A.2d at 442); see also Cincinnati SMSA Ltd. P’ship. v. Cincinnati
Bell Cellular Sys. Co., 708 A.2d 989, 992 (Del. 1998) (“Delaware Supreme Court jurisprudence
is developing along the general approach that implying obligations based on the covenant of good
faith and fair dealing is a cautious enterprise.”).
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matters, the “existing contract terms control.”142 “The implied covenant cannot be
used to re-write the agreement,”143 or “to circumvent the parties’ bargain.”144 “When
a sophisticated party ‘could have easily . . . drafted [the contract] to expressly’
provide a specific contractual protection, the failure to do so cannot be remedied by
employing the implied covenant.”145
The Court will resort to the implied covenant “only when a contract is truly
silent with respect to the contested issue,” and “only when the Court finds that the
parties’ expectations on the issue were so fundamental that they clearly would not
need to negotiate about nor memorialize them.”146 The Court “must assess the
parties’ reasonable expectations at the time of contracting and not rewrite the
contract to appease a party who later wishes to rewrite a contract [it] now believes
to have been a bad deal.”147
“To maintain an implied covenant claim, the factual allegations underlying
142
GWO Litig. Tr., 2018 WL 5309477, at *5; see also Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d
872, 888 (Del. Ch. 2009) (“The implied covenant [of good faith and fair dealing] cannot be invoked
to override the express terms of the contract.”).
143
GWO Litig. Tr., 2018 WL 5309477, at *5 (citing Nationwide Emerging Managers, LLC v.
NorthPointe Hldgs., LLC, 112 A.3d 878, 897 (Del. 2015)).
144
Dunlap, 878 A.2d at 441.
145
GWO Litig. Tr., 2018 WL 5309477, at *5 (alteration in original) (quoting Nationwide
Emerging Managers, LLC, 112 A.3d at 897).
146
Id. at *6 (citing Allied Cap. Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1032-33 (Del. Ch.
2006)).
147
Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010) (internal citation omitted).
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the implied covenant claim must differ from those underlying an accompanying
breach-of-contract claim.”148 Additionally, “[i]f the contract at issue expressly
addresses a particular matter, ‘an implied covenant claim respecting that matter is
duplicative and not viable.’”149
Here, the breach-of-contract claim and breach of the implied covenant claim
are similarly pled.150 Were one to look only at the Complaint, the claims would be
deemed duplicative.151 But, when the Court looks at the later gloss added to this
claim in the Trusts’ briefs, arguably they are not. The Trusts, with their breach of
the implied covenant claim, complain that the Company attempted to deprive the
Trusts of the benefit of the bargain.152 Specifically, the Trusts argue that their
implied-covenant claim arises from the Company’s use of 2018 and 2019 data in
formulating the $33.5 million offer—which the Trusts suggest was the Company’s
unilateral insertion of new terms into the CPA.153
148
GWO Litig. Tr., 2018 WL 5309477, at *6 (citing Cent. Mortg. Co. v. Morgan Stanley Mortg.
Cap. Hldgs. LLC, 27 A.3d 531, 539 (Del. 2011)).
149
Id. (quoting Edinburgh Hldgs., Inc. v. Educ. Affiliates, Inc., 2018 WL 2727542, at *9 (Del. Ch.
June 6, 2018) (dismissing an implied-covenant claim as entirely duplicative of a breach-of-contract
claim)).
150
See Compl. ¶¶ 50-54 (breach-of-contract claim), 55-57 (breach of implied covenant claim).
151
See id.152
Pls.’ Mot. for Summ. J. at 22 (“[T]he Court can and should use the implied covenant to fill this
gap and prevent Defendants from unilaterally depriving Plaintiffs’ of their bargained-for
Contingent Payment.”).
153
See id.; Pls.’ Answering Br. at 26.
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That allegation is highly similar to the Trusts’ allegation relating to the Second
LOI, where they argue that the Second LOI did not comply with the CPA because
the Company used 2018 and 2019 data in formulating the $33.5 million offer, and
such a move by the Company was a breach of the CPA entitling the Trusts to their
Contingent Payment under Section 3.2(a)(iii).154 But one might find some daylight
between the two counts. The breach-of-contract claim focuses on just that—a breach
premised on a failure to pursue on commercially reasonable grounds. Contrastingly,
the implied-covenant claim focuses on the Company allegedly modifying or
amending the CPA to allow for the use of 2018 and 2019 data without the Trusts’
consent. While this is a small distinction, “[the Trusts] pleaded various additional
facts . . . that provide a separate basis for [their] implied covenant of good faith and
fair dealing claim.”155 Thus, the Court will treat the implied-covenant claim here as
non-duplicative. But even so, that separate claim fails as a matter of law.
The Trusts’ implied-covenant claim fails because they are asking the Court to
“re-write the agreement.”156 Both parties agree the CPA contains no express
154
See Pls.’ Mot. for Summ. J. at 19-20.
155
Cent. Mortg. Co., 27 A.3d at 539. Although this case discusses an implied-covenant claim
under New York law, the requirement that such a claim may not be duplicative of a breach-of-
contract claim is also a tenet of Delaware law. See, e.g., Edinburgh Hldgs., Inc., 2018 WL
2727542, at *9 (“Thus, if the contract at issue expressly addresses a particular matter, an implied
covenant claim respecting that matter is duplicative and not viable.”); GWO Litig. Tr., 2018 WL
5309477, at *6 (same).
156
See GWO Litig. Tr., 2018 WL 5309477, at *5 (citing Nationwide Emerging Managers, LLC,
112 A.3d at 897).
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language allowing or prohibiting the use of 2018 and 2019 data and information to
evaluate U.S. Alliance’s value.157 This is not a case where the express terms of the
contract cover the complained-of conduct.158 So the Court must look to the parties’
reasonable expectations at the time of contracting.159
The Trusts tell the Court that when Section 3.2 is read as a whole, “it is clear
that the intent of the parties is to limit [U.S. Alliance] data and information to
2017.”160 To support this contention, the Trusts say that to read the CPA otherwise
would render meaningless the reference to “2017” before “EBITDA” and the
restriction on diligence to U.S. Alliance’s largest 2017 customer.161 The problem
with this contention is that it’s not true. While it is true that “2017” comes directly
before “EBITDA” in Sections 3.2(b) and 3.2(d) of the CPA, it does not follow that
these references require the CPA, as a whole, be read to exclude the use of 2018 and
2019 data. The Trusts do little to convince otherwise.
Additionally, the Trusts also point to the fact that the CPA closed on June 15,
2018, before 2019 data was available.162 And finally, the Trusts assert that they
157
See Pls.’ Mot. for Summ. J. at 22; Defs.’ Answering Br. at 14.
158
Cf. GWO Litig. Tr., 2018 WL 5309477, at *7 (dismissing an implied-covenant claim where
the express contract terms governed the complained-of conduct).
159
See Nemec, 991 A.2d at 1126.
160
Pls.’ Mot. for Summ. J. at 22.
161
Id.162
Pls.’ Answering Br. at 25-26.
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“would not have been willing to close on the MIPA without th[e] potential additional
consideration offered by the CPA.”163 But neither the closing date, nor the Trusts’
current casting of their then-mindset would allow for the insertion of a now-divined
term restricting the CPA in all aspects and forevermore to use only 2017 data and
exclude 2018 and 2019 data. If the Trusts intended that, they could have written it
into the CPA.164 And in light of all the facts and evidence, the Court cannot find
“that the parties’ expectations on the issue were so fundamental that they clearly
would not need to negotiate about nor memorialize them.”165
Simply put, if the CPA did govern the Second LOI, the Court cannot rewrite
it to preclude the use of 2018 and 2019 data when constructing that later offer. In
turn, the Trusts’ Motion for Summary Judgment on the breach of the implied
covenant of good faith and fair dealing claim must be DENIED, and the Company’s
Motion for Summary Judgment thereon GRANTED.166
163
Pls.’ Reply Br. at 12.
164
See GWO Litig. Tr., 2018 WL 5309477, at *5 (“When a sophisticated party ‘could have easily
. . . drafted [the contract] to expressly’ provide a specific contractual protection, the failure to do
so cannot be remedied by employing the implied covenant.” (alteration in original) (quoting
Nationwide Emerging Managers, LLC, 112 A.3d at 897)).
165
Id. at *6 (citing Allied Cap. Corp., 910 A.2d at 1032-33).
166
Because the Company’s Motion for Summary Judgment is granted with respect to both Count
I and Count II, the Trusts’ Motion for Summary Judgment on the Company’s Affirmative Defenses
is DENIED AS MOOT.
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V. CONCLUSION
The Defendants neither breached the CPA itself nor any implied covenant
thereunder. They were not and are not obliged to make a $5 million lump sum
payment to the Trusts because the Contingent Payment Condition was not satisfied.
Accordingly, judgment as a matter of law must be GRANTED to the Defendants.
IT IS SO ORDERED.
_________________________
Paul R. Wallace, Judge
cc: All Counsel via File and Serve
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