Several recent Delaware decisions, as noted on these pages earlier this week here, and commented on here, have added to the case law that still only amounts to a relatively modest body of law in Delaware, interpreting the phrase: “reasonable efforts” and various permutations on that phrase, often found in post-closing earn out disputes but prevalent in other contract disputes as well. A Delaware Court of Chancery decision two days ago has added again to the jurisprudence on this topic.
In the opinion styled In Re Oxbow Carbon LLC Unitholder Litigation, C.A. No. 12447-VCL (Del. Ch. Feb. 12, 2018), Delaware’s equity court published a 178-page magnum opus that has already been the subject of articles in Bloomberg and other legal publications. Prior Chancery decisions during the course of this hotly litigated case have been highlighted on these pages, and those rulings also provide background color. The opinion provides a comprehensive analysis of a factually complex dispute involving the billionaire William Koch and contractual rights of a minority member of an LLC in which Koch owned a majority. The post-trial tome deserves a robust synopsis, but in this short post I will only focus on the small aspect of the titular topic.
The following bullet points should entice readers to consult the full opinion if they need to know the latest iteration of Delaware law on these issues:
- The court relied on Delaware Supreme Court precedent (n. 602) applying “commercially reasonable efforts” to “impose an affirmative obligation on the parties to take all reasonable steps to complete a transaction.”
- Koch testified at trial that the Reasonable Efforts Clause involved required each party to “act in good faith to do what it takes….”
- The court found support in the record to conclude that Koch spent resources and energy to thwart the sale instead of using reasonable efforts. See Chancery opinion in WaveDivision cited at note 614 and accompanying text.
- This decision is also notable for its exemplary explanation and application of the following key Delaware concepts often involved in corporate and commercial litigation:
- (i) the implied covenant of good faith and fair dealing;
- (ii) unclean hands; and
- (iii) interpreting an LLC Agreement in a manner that avoids an inequitable result.