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, here, here, here and 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 applied.

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 timely.

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 rescind.

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 waiver."

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 Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X. Pileggi, of Eckert Seamans.

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