BLGH Holdings LLC v. enXco LFG Holding, LLC, 2012 Del. LEXIS 165 (Del. Supr. Mar. 27, 2012).
The issue presented here is one of contract interpretation: Does the provision in the LOI that conditioned a bonus payment on the consummation of a final agreement containing the indicative terms “as those terms may be modified, deleted or added to in each parties’ sole discretion”, require that the terms of the final agreement be substantially similar to the terms in the LOI? Answer: No.
A former associate of Eckert Seamans prepared this short summary.
BLGH and enXco, two Delaware LLCs, executed a letter of intent (LOI) to consummate a transaction whereby BLGH would sell its renewable energy business to enXco. The LOI provided for a bonus payment to BLGH if certain conditions were met, including that the “transaction outlined in Section 6.1(f) [of the Unit Purchase Agreement (UPA) must be] consummated.” However, Section 6.1(f) did not outline any transaction; rather, it merely referred to the LOI, which, in turn, referenced a separate document entitled “Indicative Terms for [the] Proposed Transaction.” None of these documents “outlined” a transaction.
The sole provision that the Supreme Court deemed to be important to this case required that the parties undertake a “good faith negotiation . . . of a definitive agreement . . . containing such terms and conditions as set forth on [the Indicative Terms for the Proposed Transaction] (as such terms may be modified, deleted or added to in each parties’ sole discretion).” (Emphasis added by Court.)
Brief Overview of Ruling
The Delaware Supreme Court answered the question presented, as describe above, in the negative, and reversed the ruling of the Delaware Superior Court, which held that the terms of the final agreement “[fell] sufficiently short of the indicative terms . . . [such that] it’s not reasonable to believe that the final deal justified or triggered the bonus clause in the UPA 1.7.” However, the Supreme Court found that BLGH had satisfied the requirements to receive the bonus payment because even though the terms of the final agreement were negotiated and ultimately modified (to the detriment of enXco), the parties did execute a final agreement as contemplated.
The Superior Court believed that enXco was not required to make the bonus payment because the terms of the final agreement (as modified) did not materially comply with (or were substantially different from) the Indicative Terms incorporated into the LOI. In disagreeing, the Supreme Court held that there was no materiality or substantiality (terms which the Court noted were interchangeable) requirement in the LOI. Rather, as the Court explained, “neither rigid (nor even substantial) adherence to the transaction terms indicated in the [LOI] was required. To the contrary, the UPA contemplated that the negotiated terms of the final agreement might differ materially from the indicative terms, without violating the [LOI].”
Following this reasoning, the Delaware Supreme Court reversed the Superior Court’s decision and remanded the case for further proceedings (including the amount of the bonus payment).