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Amirsaleh v. Board of Trade of the City New York, Inc., C.A. No. 2822-CC (Sept. 11, 2008) (Chandler, C.)

September 11, 2008

Defendants Board of Trade of the City of New York, Inc. (“NYBOT”) and IntercontinentalExchange, Inc. (“ICE”) sought summary judgment on claims arising out of a merger involving NYBOT’s predecessor and ICE. The total consideration to be distributed pursuant to the merger contained both a cash and an equity component, and the members of NYBOT’s predecessor had an opportunity to elect stock or cash consideration, subject to proration provisions in the merger agreement if either stock or cash were oversubscribed. The merger agreement gave defendants the discretion to set the time by which stockholders must return their election forms to elect either stock or cash consideration. The merger agreement provided that if either cash or stock was oversubscribed, then members who failed to make a timely election would receive the form of consideration that had not been oversubscribed. Plaintiff missed the election deadline, and because stock was oversubscribed, he received all cash merger consideration. Without ICE stock, plaintiff would not be allowed to trade on NYBOT. Plaintiff alleged that he did not receive an election form, that he did not have a meaningful opportunity to elect to receive stock rather than cash, and also that defendants breached the implied covenant of good faith and fair dealing because NYBOT and ICE accepted other late elections but did not accept his election. Plaintiff’s late election was received after the late elections that had been accepted, by which time defendants had determined not to accept any further late election forms. Defendants argued that it was necessary to fix a cutoff for the acceptance of late election forms so that they could calculate and distribute the merger consideration payable to each member.

Defendants argued that plaintiff lacked standing to sue since he was not a party to the merger

agreement. But the Court found that the merger agreement manifested an “unambiguous intent to benefit” NYBOT members, and that plaintiff had standing as a third-party beneficiary to enforce a right “clearly provided by” the merger agreement.

Defendants further argued, and the Court agreed, that there was no genuine issue of material fact as to whether defendants breached the express terms of the merger agreement with respect to the mailing, delivery, or rejection of plaintiff’s election form. The record established that defendants had caused election forms to be mailed to members in accordance with the terms of the merger agreement, and the merger agreement did not require that each and every member actually receive the election form. The merger agreement provided that members would be required to submit election forms by “such ... time and date as ICE and NYBOT may mutually agree,” and that members would receive cash if stock was oversubscribed. Thus, the Court found that defendants had complied with the literal terms of the merger agreement, and dismissed plaintiff’s claims asserting otherwise.

Noting that defendants had accepted late elections from other members, plaintiff argued that

defendants breached the implied covenant of good faith and fair dealing by declaring his election

untimely. While the merger agreement gave defendants discretion to determine when election forms were due, the Court explained that the implied covenant of good faith and fair dealing protects the spirit of an agreement, may be breached even when defendants have not violated express terms of an agreement, and is particularly important with respect to contracts that endow a party with discretion in performance. Viewing the summary judgment record in the light most favorable to plaintiff (as required on a motion for summary judgment), the Court determined that there was “a genuine question of material fact as to whether ICE and NYBOT acted fairly and in good faith,” because the limited summary judgment record left open questions about how, why, and when the defendants determined to stop accepting late election forms. Accordingly, the Court denied the motion for summary judgment on plaintiff’s claim for breach of the implied covenant and fair dealing and allowed that claim to go forward.

The full opinion is available here