In a recent decision, the Delaware Court of Chancery determined that an agreement that required a release to be signed as a condition precedent to receiving severance benefits was enforceable, and that the failure to sign the release was a defense to the payment of severance benefits. An important aspect of this decision was that the requirement of a release was an explicit provision in the agreement between the parties, as compared to a situation where a release might be requested but when it was not a condition precedent in any pre-existing agreement.

In Roth v. Sotera Health Company, C.A. No. 2022-1192-LWW (Del.Ch. Sept. 23, 2024), the court also declined to rule before trial on a material issue of fact about whether the vesting conditions for the restricted stock under the same agreement were satisfied.

The following selected highlights of this decision may be useful to those who litigate these types of cases:

Highlights

• The Court explained why the signing of a release that was a condition precedent in the agreement of the parties, was not satisfied—thereby serving as a defense to payment of the severance benefit. Slip op. at 8, as well as pages 25-26 and footnotes 111 to 113.
• Recitation of the truism that contract interpretation is appropriate for a motion for summary judgment. Slip op. at 17-18 and footnotes 79-81.
• Basic contract interpretation principles focus on the four-corners of an agreement to determine if ambiguity exists. Slip op. at 19-20 and footnotes 83-89.
• The court observed the principle that when one agreement incorporates another agreement, under certain circumstances they will be interpreted together. Slip op. at 22-23 and footnotes 97-98.
• The validity of restrictions on shares pursuant to Section 202 of the Delaware General Corporation Law was addressed. Slip op. at 24-25.