Amirsaleh v. Board of Trade of the City of New York, Inc., 2011 WL 3585598 (Del. Aug. 16, 2011)

In this en banc opinion reversing and remanding the Court of Chancery’s post-trial opinion, the Delaware Supreme Court held that a party to a merger agreement failed to provide the reasonable notice that was required to retract a waiver of a deadline for the delivery of a merger consideration election form. As a result, the Supreme Court determined that an election form delivered after both the initial deadline set by the defendant merging parties and an extended acceptance period was timely received and must be honored.

In September 2006, the Board of Trade of the City of New York, Inc. (“NYBOT”) entered into an agreement and Plan of Merger (the “Merger Agreement”) with Intercontinental Exchange, Inc. (“ICE” and, collectively with NYBOT, “Defendants”) pursuant to which NYBOT would be merged with and into a wholly owned subsidiary of ICE (the “Merger”). Pursuant to the Merger Agreement, each NYBOT membership interest would be converted into either newly issued shares of ICE stock or cash, or a combination of stock and cash. The Merger Agreement provided that each NYBOT member could elect the form of consideration (e.g., stock or cash) that the member preferred to receive by submitting an election form (the “Election Form”) by a specified date (the “Election Deadline”). The Merger Agreement fixed the total amounts of cash and stock that ICE would pay in connection with the Merger and provided for pro rata allocation if either consideration was over- or under-subscribed.

If a member failed to submit the Election Form specifying the consideration the member wished to receive by the Election Deadline, the member would automatically receive the undersubscribed form of consideration. Any NYBOT member who wished to retain trading rights after the Merger was required to own a certain number of shares of ICE stock and pledge the shares in accordance with a membership and pledge agreement. Members wishing to retain trading rights were, therefore, likely to choose at least an adequate amount of stock consideration for pledging purposes in connection with the merger. For such members, it was critical that they complete the Election Form and return it by the Election Deadline.

Approximately two months after ICE filed the Merger Agreement with the Securities and Exchange Commission, the Defendants filed a definitive joint proxy statement and prospectus (the “Proxy”) with the SEC and mailed copies to all NYBOT members. The Proxy notified the NYBOT members that the Election Form with notice of the exact Election Deadline date would follow in a subsequent mailing. The Election Forms were mailed to NYBOT members on December 19, 2006. Plaintiff Mahyar Amirsaleh (“Amirsaleh”), who owned two membership interests in NYBOT, each of which carried the right to trade on NYBOT’s exchange, alleged that he did not receive a copy of the Election Form mailed on that date. The Election Forms provided that the Election Deadline was January 5, 2007.

After the Election Deadline, the Defendants learned that some NYBOT members had not submitted Election Forms. On January 17, 2007, five days after the Merger closed and after receiving a number of late Election Forms from NYBOT members, the Defendants decided to accept the late Election Forms received to date and to reach out to the remaining NYBOT members who had not submitted forms in attempts to prompt them to do so. Through these actions, ICE intended to accommodate as many late Election Forms as possible, but there was a limited period of time available to process the forms: the Merger Agreement contractually obligated ICE to allocate the merger consideration within ten business days of the Merger’s closing. NYBOT Member Services immediately attempted to contact every NYBOT member individually who had not yet submitted Election Forms. On January 17 and again on the following morning, Member Services called and left messages for Amirsaleh. After Amirsaleh’s executive assistant returned the calls, Member Services sent an extra copy of the Election Form to Amirsaleh by email, which stated that, although Member Services could not guarantee acceptance of the late form, Amirsaleh needed to fax a copy of the attached Election Form “[i]n the attempt to save [his] Memberships.” Late that same evening or the following morning, Defendants determined they could no longer accept late elections because further delaying finalization of the allocation and distribution process would unduly risk jeopardizing the contractual deadline for distributing merger consideration.

In the afternoon of the next day, Amirsaleh faxed his Election Form electing to receive 100% stock for his NYBOT membership interests. Amirsaleh’s submission was deemed untimely. Because the stock component of the merger consideration was over-subscribed, Amirsaleh did not receive any shares of ICE stock for his membership interests. Amirsaleh declined to purchase shares in the market for purposes of pledging them and, consequently failed to pledge the requisite number of ICE shares and lost his NYBOT trading rights.

Amirsaleh commenced this action, seeking an order requiring the Defendants to honor his stock election and reinstate his trading rights. The Court of Chancery issued three memorandum opinions. In those opinions, the Court (i) dismissed Amirsaleh’s claims that the Defendants breached the Merger Agreement and allowed only that he pursue a claim for breach of the implied covenant of good faith and fair dealing in connection with Defendants’ failure to accept his Election Form despite their limited acceptance of late elections, (ii) denied Amirsaleh’s motion for summary judgment on an implied covenant of good faith and fair dealing claim, and (iii) after trial, concluded that the Defendants made a good faith attempt to accommodate all NYBOT members who had not submitted Election Forms by the Election Deadline, thereby fully discharging their implied contractual duties under the Merger Agreement.

Reviewing the Court of Chancery’s conclusions of law de novo, the Supreme Court determined the case was best decided based on the waiver doctrine, which the parties had not addressed at trial or on appeal, and not on the grounds of the implied covenant of good faith and fair dealing. The Court addressed the three elements necessary to invoke the waiver doctrine: “(1) that there is a requirement or condition capable of being waived, (2) that the waiving party knows of that requirement or condition, and (3) that the waiving party intends to waive that requirement or condition.” The Court held that each of those elements was satisfied and thus the Defendants waived the initial Election Deadline.

After determining that the Defendants waived the Election Deadline, the Court concluded that the Defendants did not retract the waiver before Amirsaleh submitted his election form. Prior to the time that a non-waiving party suffers prejudice or materially changes its position, a waiving party may retract the waiver by giving reasonable notice to the non-waiving party. The Court stated that a waiving party typically may not retract a waiver, however, if the non-waiving party has suffered prejudice or has relied on the waiver to his detriment. The Court determined that the Defendants failed to provide reasonable notice sufficient to retract the waiver. The Court determined that NYBOT Member Services’ warning that it could not guarantee that Amirsaleh’s Election Form would be accepted did not retract the waiver because the Defendants did not give Amirsaleh, or any other NYBOT member, reasonable notice of a new election deadline. The Court also found that Amirsaleh suffered the prejudice of losing his trading rights as a result of the manner in which Defendants determined to accept late elections, to contact members who had not submitted elections, and to cut off the acceptance of late elections. The Court held that, because the waiver retraction was invalid as a matter of law, Amirsaleh submitted his Election Form on time and the Defendants must honor it.

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