Posted on March 10, 2009 by Francis G.X. Pileggi

Delaware Supreme Court Affirms Chancery Court in AT & T Case Involving Stock Options

AT & T  Corp. v. Lillis, (Del. Supr., March 9, 2009), read opinion here. In a rare split decision, the Delaware Supreme Court ruled 3-2 to affirm the original decision of the Chancery Court  that was initially reversed by the Supreme Court (also a procedural rarity). 

This case involves an attempt by former officers and directors of MediaOne Corp. (the "Option Holders") to seek compensation from AT & T for the value of their stock options.

The bottom line of this procedurally quirky case is as follows: the Supreme Court originally reversed the Chancery Court and instructed it on remand not to base its decision on certain admissions made by AT & T in its pleadings that were later amended. After remand, the Chancery Court changed its orginal decision and found in favor of AT & T. Now, however, in its second decision, the Supreme Court has reasoned that the Chancery Court was right the first time and thus Delaware's High Court must affirm the original decision of the Chancery Court in favor of the Option Holders. ( Of course, the dissenting Justices in this opinion see it differently.)

The multiple prior decisions in this case have been highlighted here,  with the most recent Chancery Court opinion here, explaining in detail the procedurally unusual posture of this matter. Notably, the prior decision in this case decided by the Supreme Court was a unanimous en banc opinion highlighted here.

This opinion is must reading for any litigator that  needs to address any of the following issues:

  • lasting impact of admissions (if any) in a pleading that is later amended;
  • "the law of the case" doctrine
  • whether legal positions taken in a case have any impact on divining the parties'  intent in a contract at the time the parties entered into that contract
  • "course of conduct" as a contract interpretation principle
  • whether a position taken in a pleading, which is later amended, can be used as "course of conduct" to interpret the intent of the parties in an agreement
  • whether an admission in a pleading, later amended to withdraw the admission, can still be used as "evidence"--as compared to a legal admission. (see FN 17 in the majority opinion and FN 10 in the dissenting opinion)

 

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Posted on February 7, 2009 by Francis G.X. Pileggi

Chancery Court Grants Motion to Enforce Settlement

Fox v. Paine, (Del. Ch., Jan. 22, 2009), read opinion here.

This Chancery Court opinion involves the breakup of the wealth management partnerships between Saul Fox and Dexter Paine. On the even of trial, the parties entered into a settlement agreement in the form of a "memorandum of understanding" (MOU). Although everyone agreed that the MOU was binding, it  was supposed to be the basis for a more formal document that was never finalized. The MOU contemplated the sale of assets and the assumption of liabilities. A dispute arose as to the liabilities that had to be assumed  based on disputed terms of the MOU, and a Motion to Enforce Settlement was filed.

The court's opinion provides a helpful summary of Delaware contract interpretation principles, especially regarding the use of extrinsic evidence.

 In describing the juxtaposition of the parties' arguments (that, perhaps, only a lawyer would not be turned-off by) , the court summarized an aspect of the dispute as follows: "the parties agree that the provisions at issue are unambiguous, but disagree as to their meaning". Would anyone other than a lawyer be confronted with a situation where both sides take opposite positions on the meaning of particular words in a document, but both sides also argue that those same terms are unambiguous?

Importantly, the court noted the truism that: "Simply because the parties disagree, however, does not render the language in the provision ambiguous". (FN 34).

I am willing to wager that many lawyers, including experienced business litigators, would not think that courts would consider extrinsice evidence when a contract is UNambiguous. Well, the astute reader can learn from this court decision that in Delaware, courts may consider extrinsic evidence even when the contract is unambiguous,  in two situations:

(i) to review undisputed background facts to put the contract in context (FN 31); and

(ii) to confirm  the court's conclusion that there is no ambiguity in the agreement (FN 32).

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