Law School Case Brief
Sarissa Capital Domestic Fund LP v. Innoviva, Inc. - No. 2017-0309-JRS, 2017 Del. Ch. LEXIS 842 (Ch. Dec. 8, 2017)
A contract need not be in writing to be valid. Where the objective, contemporaneous evidence indicates that the parties have reached an agreement, they are bound by it, regardless of its form or the manner in which it was manifested. Thus, if an oral settlement agreement meets the requisites of a valid contract, it will bind the parties the same as a written settlement agreement.
A group of stockholders of defendant Innoviva, Inc., Sarissa Capital Management LP and certain of its investment funds (“Sarissa”), mounted a proxy contest to elect three director nominees to Innoviva’s seven-member board of directors at the company’s 2017 annual stockholder meeting. In early April 2017, three leading proxy advisory firms recommended that Innoviva stockholders vote for Sarissa's director nominees. Following the issuance of those recommendations, the parties began exploring a potential settlement of the proxy contest. The chief negotiators during these discussions were Sarissa's founder and Chief Investment Officer, Alexander Denner ("Denner"), and the then-Vice Chairman of Innoviva's Board, James Tyree ("Tyree"). Two days out from the annual meeting, the proxy solicitors in both camps reported that the vote was too close to call. This uncertainty drove the parties to intensify their settlement discussions. Denner and Tyree reconnected and spoke on the phone several times that day. During those calls, Denner offered that Sarissa would end its proxy campaign if Innoviva would (1) expand its Board from seven members to nine members; (2) appoint two of Sarissa's nominees to the Board as directors; and (3) forgo a "standstill." In response, Tyree indicated that Innoviva would be willing to expand its Board from seven to nine members, and to appoint two of Sarissa's nominees to the Board as directors, but insisted that Sarissa agree to a standstill and the issuance of a conciliatory joint press release announcing the settlement. Later that day, Tyree provided an update to the Board regarding the settlement discussions. The key area of disagreement at that point was the standstill—from both parties' perspectives, that term was a "deal breaker." On the day immediately before the meeting, Innoviva learned that one of its largest stockholders, The Vanguard Group, Inc, intended to vote in favor of Sarissa’s nominees. The board concluded it would therefore likely lose the vote of another key stockholder, BlackRock, Inc., and, as a result, would lose the contest entirely. The board resolved to offer to settle with Sarissa without insisting on a standstill provision. Innoviva would also agree to expand the board from seven to nine members and appoint any two of Sarissa’s three nominees to fill the new seats, but would require Sarissa to include a conciliatory quote about Innoviva in a joint press announcement regarding the settlement. Before adjourning their meeting, the board authorized its Vice Chairman to convey the settlement proposal to Sarissa. The Vice Chairman called Sarissa with the offer that afternoon, and Sarissa promptly accepted it. At the end of the call, the parties confirmed that they “had a deal”. Neither party indicated that the agreed-upon deal was contingent upon the execution of a written agreement or further board approval. Later that afternoon, Innoviva learned that, contrary to its expectations, BlackRock had decided to vote in favor of the board’s slate of director nominees. BlackRock’s vote effectively ensured that the board’s nominees—and not Sarissa’s—would win the impending election. With victory in hand, the Innoviva board changed course, ceased discussions with Sarissa, and decided to jettison the settlement and proceed with the stockholder vote at the annual meeting the following day. Innoviva’s Vice Chairman emailed Sarissa that evening with the news that the settlement was off. The next day, Innoviva’s annual meeting was held as scheduled and the stockholders voted to elect all of the board’s nominees. That same day, Sarissa filed this action under 8 Del. C. § 225 seeking (i) a declaratory judgment that the parties had entered into a binding agreement during their phone call the day before the annual meeting, which orally bound Innoviva to the agreed-upon settlement; and (ii) specific enforcement of the settlement agreement.
In a proxy dispute, did plaintiff dissident shareholder and defendant corporation's board of directors enter into a valid and enforceable settlement oral agreement, thus making it propert to grant the shareholder a decree of specific performance ordering the corporation to perform its obligations?
The court concluded that Tyree had actual and apparent authority to bind Innoviva to an oral settlement agreement with Sarissa when he telephoned Denner the afternoon of April 19, 2017. The court also found that Sarissa and Innoviva entered a binding oral settlement contract during that call in accordance with the terms agreed to by Denner and Tyree. Finally, the court was satisfied that the facts and circumstances of this case warranted specific enforcement of that contract.
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