Chertok, et al. v. OnSolve, LLC, C.A. No. 2020-0417-PAF (Del. Ch. Apr. 21, 2026) (Fioravanti, V.C)

In this post-trial memorandum opinion, the Court of Chancery (the “Court”) held that a corporation breached its certificate of incorporation by conditioning merger consideration on stockholders’ execution of a joinder, indemnification and release agreement. 

Background

In 2017, SWN Communications Inc. (“SWN” or the “Company”) was acquired by OnSolve, LLC (“OnSolve” or the “Defendant”).  Pursuant to the merger agreement, stockholders were entitled to consideration consisting of a closing payment of $250 million, subject to certain adjustments set forth in the agreement, including adjustments for amounts to be held in escrow and a $16 million change in control payment to management.  However, the merger agreement conditioned stockholders’ entitlement to consideration on their execution and delivery of “Required Deliveries,” including stock certificates, a Joinder, Indemnification, and Release Agreement (the “Joinder Agreement”), letter of transmittal, and Form W-9.

After the transaction was announced, the Plaintiff served an appraisal demand on the Company.  The transaction closed on June 1, 2017, and the Plaintiff withdrew his appraisal demand on July 29, 2017.  However, the Company never provided the Plaintiff any merger consideration.  Nor did the Plaintiff provide the Company with any of the Required Deliveries.

Three years later, on May 5, 2020, the Plaintiff sent SWN a letter asserting he was owed merger consideration along with interest accrued from October 1, 2017—the deadline to file an appraisal action pursuant to Section 262 of the Delaware General Corporation Law (“DGCL”).  In response, SWN tendered a check for $491,076.06, the amount it believed represented the Plaintiff’s consideration entitlement.  SWN declined, however, to provide interest accrued.  The Plaintiff returned the check and filed suit for breach of contract in the Court of Chancery of the State of Delaware.

Analysis

First, the Court concluded that the Plaintiff had stated a claim for breach of contract because the Company breached its certificate of incorporation by conditioning the receipt of the merger consideration on the execution and delivery of the Joinder Agreement. The Court explained that such a condition was incompatible with the provisions of the DGCL, which are incorporated into every certificate of incorporation.  Specifically, the Court explained that OnSolve’s insistence that the stockholders deliver the Joinder Agreement following the timely withdraw of the Plaintiff’s appraisal demand conflicted with Section 262(e) of the DGCL. 

However, the Court rejected the Plaintiff’s contention that he was entitled to merger consideration without deductions for expenses such as the change in control and escrow payments.  The Court explained that the Plaintiff was “not entitled to receive per share Merger consideration that is greater than what is provided for in the Merger Agreement,” and doing so would provide the Plaintiff a windfall not provided to other stockholders. 

Additionally, the Court awarded the Plaintiff prejudgment interest as a matter of right for prevailing on the breach of contract claim.  While entitlement to prejudgment interest is not subject to judicial discretion, the Court may exercise its equitable powers to determine the appropriate rate of prejudgment interest.  Here, the Court rejected the Plaintiff’s request for interest compounded monthly from July 29, 2017, at a rate of 8.625% and instead awarded simple interest at 6.75% (the rate in effect on July 29, 2017), because the Plaintiff (i) waited nearly three years before demanding payment and filing suit; (ii) refused to engage in settlement discussions with the Defendant when it attempted to provide the amount the Plaintiff demanded without the condition of Required Deliveries; and (iii) “delayed in pressing his claims.”  Finally, the Court denied the Plaintiff’s request for attorney’s fees because he failed to establish an exception to the American Rule.

Chertok v. OnSolve makes it clear that merger agreements may not condition the receipt of merger consideration on stockholders’ execution and delivery of a release of claims.

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