A recent Court of Chancery decision allowed claims to proceed for the refusal to enable the seller of a business to exercise options in the new company. In Osios LLC v. Tiptree, Inc., C.A. No. 2023-0589-NAC (Del. Ch. June 12, 2024), the court described a factual background in which the buyers of a business, to use a colloquial phrase, stiff-armed the buyer and did not provide, at least according to the allegations, a good-faith basis to refuse to allow the exercise of the options described in the LLC agreement.
Highlights
- Form of Notice: The most noteworthy aspect of this decision is the court’s reasoning to support its rejection of the argument that the form of notice expressing an intent to exercise the options did not comply with the form of notice required under the agreement. The court determined that it need not decide whether “substantial compliance” with the notice provisions was satisfied due to the likelihood that the requirement was waived. See footnote 54 and accompanying text (also collecting cases on substantial compliance with notice.)
- This should be compared with the factually distinguishable notice issues in another recent Chancery decision, decided two days earlier, involving notice for an indemnification clause in an agreement that did not include a required form of notice. See recent Chancery decision in Trifecta case, highlighted on these pages, that addressed adequate notice when no requirement for the form of notice was provided in the agreement.
- Another noteworthy part of this decision involved a reference to the implied covenant of good faith and fair dealing as falling into two categories: (1) gap filling; and (2) protecting against arbitrary and bad faith exercise of discretion. See Slip op. at 13 and footnote 61.
- Lastly, always useful is a recitation of basic contract interpretation principles. See Slip op. at 8 – 9.