08/22/2011 09:40:00 AM EST
Delaware Supreme Court Finds Waiver of Merger Deadline for Election of Stock or Cash
Amirsaleh v. Board of Trade of the City of
New York, Inc., No. 75, 2010 (Del. Supr. Aug. 16, 2011),
read Delaware Supreme Court opinion here.
Prior decisions by the Court of Chancery (and a video/audio clip of trial court
proceedings), were highlighted on these pages here,
Issue Addressed: The issue addressed is whether the deadline established
for participants in a merger to elect a form of consideration was waived based
on an arbitrary extension of the contractual deadline that was not uniformly
Brief Overview of Background: The
Board of Trade of the City of New York, Inc. ("NYBOT") entered into a merger
agreement with Intercontinental Exchange, Inc. ("ICE"). The merger
agreement provided that each NYBOT member was permitted to elect a form of
consideration: either stock or cash. One could refrain from
indicating a preference and instead receive whatever form of consideration that
a pro rata reallocation required. There was a problem, however, with
mailing the Election Forms so that many of the members did not receive the
Election Forms on a timely basis. The initial deadline was January 5,
2007. At first, the Defendants decided not to extend the deadline but
after several election forms were received after the deadline, many members
threatened to sue if the Election Forms were not honored.
Five days after the merger closed, on January 17, the
Defendants decided to waive the initial deadline. There was some
confusion about whether notice of the new deadline was received, and whether
the Election Forms were received on a timely basis. After follow-up calls
between Amirsaleh's assistant and NYBOT Member Services, and others, Amirsaleh
received an e-mail on January 18 with a copy of the Election Form, notifying
him to fax, and send via overnight mail, a completed Election Form, even though
they could not guarantee that it would be accepted. Three hours after
that e-mail, an Election Form from Kevin Davis was received and was deemed
That Election Form was the last Election Form deemed
timely. Davis was an important client of ICE and he was also the CEO of
one of the world's largest commodity exchange clearing firms. Davis'
Election Form was also deficient in several respects. Amirsaleh faxed his
Election Form on January 19. Approximately one hour later, Davis corrected
the deficiencies in his earlier submission and it was accepted after those
corrections were made. However, as a result of Amirsaleh's Election Form
not being accepted, he lost his NYBOT trading rights and did not receive any
shares of ICE common stock in exchange for his NYBOT membership interests.
The three prior Chancery decisions in this case
summarized at the above links addressed summary judgment motions and also
include the ruling that gave Amirsaleh standing even though he was not a party
to the merger agreement.
Highlights of Legal Analysis
Although the parties primarily focused on the implied
covenant of good faith and fair dealing, the Supreme Court reformulated the
issue to be decided as one of contract waiver. The Court explained that
the Defendants' failure to set and communicate a new, clear election deadline
constituted a waiver of the deadline which thereafter they did not effectively
The Court recited the definition for waiver of contract
conditions or requirements. The three elements required for invoking the
waiver doctrine are: "(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." (See footnote 21.)
The Court reasoned that this case reflects that all three
of those elements were established. The initial deadline to submit the
Election Form was a condition with substantial consequences for failing to
satisfy that condition. The Defendants knew of that condition and they
decided to waive that condition by extending the initial deadline.
They did not retract that waiver. The prerequisite
for retracting a waiver is that the retracting party give reasonable notice to
the non-waiving party before that party has suffered prejudice or materially
changed his position. See footnote 31. The Court explained that "a
waiving party typically is prohibited from retracting its waiver if the
non-waiving party has suffered prejudice or has relied to his detriment on the
The Court concluded that the Defendants engaged in an ad
hoc, "suboptimal process" to establish the new deadline retroactively. As
a result, Amirsaleh suffered the prejudice of losing his NYBOT trading
rights. Because the Defendants waived the initial deadline, and the
retraction of that waiver was invalid as a matter of law, the Election Form
that Amirsaleh submitted on January 19 was properly filed and timely
received. The Defendants were required by the Court to honor that
Election Form. The Court of Chancery's decision was, therefore, reversed
and the matter was remanded.
Read more Delaware business
litigation case summaries and commentary on Delaware
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Pileggi, of Eckert Seamans.
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