Chancery Agrees with Fiat on Formula to Buy Chrysler Shares

Fiat North America, LLC v. UAW Retiree Medical Benefits Trust, C.A. No. 7903-VCP (Del. Ch. July 30, 2013).

Issue Addressed:  How to interpret the formula in the call option agreement to determine the price for Fiat to purchase shares in Chrysler.

Short Comment:  The Delaware Court of Chancery applies New York contract law to this contract interpretation case in the procedural context of a motion for a judgment on the pleadings pursuant to Court of Chancery Rule 12(c).  Ordinarily this might not warrant coverage on this blog devoted to Delaware corporate and commercial litigation, but because this case has national and international significance, it was worth noting as a decision of a Delaware court and an example of how Chancery deals with an important commercial issue.  This case involves a call option that Fiat has to purchase shares in Chrysler from the UAW Benefits Trust, which obtained shares in Chrysler as part of a settlement reached in connection with the Chrysler bankruptcy. 

The Court observed that the formula in the agreement was designed to avoid disputes about valuation but the opposite result took place.  Applying New York law, the Court reviews the formula and on several key issues agrees with the interpretation of Fiat but reserves ruling on other issues which will require discovery and which will be addressed after discovery is completed.