A recent Delaware Court of Chancery decision provides many useful statements of Delaware corporate law. The opinion in the matter of Cedarview Opportunities Master Fund, L.P. v. Spanish Broadcasting System, Inc., C.A. No. 2017-0785-AGB (Del. Ch. Aug. 27, 2018), extends to 57-pages, but for purposes of this short blog post, I intend to highlight only a few points that should be of widespread interest to corporate and commercial litigation practitioners:
· The court provided two key contract interpretation principles that are applied when construing certificates of designation such as those that define the rights of preferred stockholders. See Slip op. at 25-29. These contract interpretation principles are somewhat different in a nuanced manner than general contract interpretation principles.
· The two approaches to interpret ambiguous terms in a certificate of incorporation or certificate of designation, include: (i) contra proferentem; and (ii) although somewhat in tension with the prior method of construction, the second approach provides that the rights of preferred stockholders must be clearly expressed and will not be presumed. The “upshot of this principle is that the courts have been unwilling to recognize or read in implied rights, preferences or limitation in certificates of designations.” See footnote 100 and accompanying text.
· The court acknowledged the “potential clash of these interpretive principles” and explained how that clash can be resolved. See Slip op. at 27-29.
· Also important, is a description of how damages for breach of contract can be addressed for breach of a violation of a “right to consent.” Hypothetical negotiations have been used by the court in this context to determine damages. The court also recognized the possibility of a “consent fee” that might have been “reasonably expected” in connection with the right to consent. See footnotes 112 and 113 and accompanying text.
· Based on the application of the foregoing principles, the motion to dismiss claims in this case was denied.