A recent decision of the Delaware Court of Chancery deals with a recurring source of litigation: Claims for post-closing contingent payments based on allegations that the requisite milestone was triggered. The merger in Fortis Advisors LLC v. Shire US Holdings, Inc., C.A. No. 12147-VCS (Del. Ch. Aug. 9, 2017), involved novel pharmaceutical products that were designed to treat dry-eye conditions.
Key Facts: At the time of the merger, some of the products involved had not received complete, final FDA approval, and therefore post-closing payments were based in part on whether or not the necessary final approvals would be obtained, as defined in the agreement.
In essence, the court determined that the defendant’s reading of the contract was the only reasonable one, and therefore the motion to dismiss was granted.
- The court observed that when the dispositive issue is one involving contract interpretation and the contract has only one reasonable construction as a matter of law, a motion to dismiss is an appropriate procedural approach.
- Several fundamental contract interpretation principles were applied, including: (1) the canon of construction that to express or include one thing implies the exclusion of the other. In Latin the expression is expresio unius est exclusio alterius. (Note that there is also an important exception to this canon of construction–that was not applicable in in this case.) See footnote 30.
- The second key principle was that the court will not interpret an agreement in a manner that renders some of the terms superfluous. See footnote 32.
- The next principle that the court applied was of a procedural nature but of major importance. Namely, an argument raised for the first time in oral argument and not included in the brief will not be considered. The court cited settled law at footnote 32 that a party waives an argument by not including it in its brief.
- The court relied on the rule that when schedules are attached to and incorporated into an agreement, they form part of the entire agreement equal to the terms in the body of the agreement. See footnote 40. The court also relied on the settled rule of contract interpretation which requires that the court prefer specific provisions over more general ones. See footnote 60.