Vintage Rodeo Parent, Ltd. Liab. Co. v. Rent-A-Center, Inc. - No. 2018-0927-SG, 2019 Del. Ch. LEXIS 87 (Ch. Mar. 14, 2019)

Rule:

A party's obligation to use commercially reasonable efforts must be cabined by its bargained-for contractual rights. If an agreement to use commercially reasonable efforts to comply with obligations in a contract means that a party cannot exercise its bargained-for right to terminate that contract, that bargained-for right would be illusory.

Equitable estoppel is invoked when a party by his conduct intentionally or unintentionally leads another, in reliance upon that conduct, to change position to his detriment. The party asserting equitable estoppel bears the burden of proof, which is clear and convincing evidence. The party must demonstrate that: (i) they lacked knowledge or the means of obtaining knowledge of the truth of the facts in question; (ii) they reasonably relied on the conduct of the party against whom estoppel is claimed; and (iii) they suffered a prejudicial change of position as a result of their reliance. A court does not lightly turn to equitable estoppel to enforce contract rights which cannot be vindicated as the contract is written.

Facts:

Plaintiff Vintage Capital Management, LLC (Vintage Capital) indirectly owned stores offering consumer goods to the public under the trade name Buddy's—a rent-to-own retailer. This business model offered consumers an alternative to paying for goods with cash or credit and taking immediate title. Vintage Capital, through two affiliates (collectively with Vintage Capital, Vintage or the Vintage Entities), entered a merger agreement to acquire Defendant Rent-A-Center, Inc. ("Rent-A-Center), a bigger player in the rent-to-own market. Because of the overlap of these competing retail operations, the parties knew that Federal Trade Commission (FTC) permission would be required for the merger, and that the review process could be lengthy. Therefore, in a negotiated provision, the merger agreement provided an "End Date," six months from signing, after which either party could terminate the merger agreement. At a meeting of Rent-A-Center's Board of Directors (Board) shortly before the End Date, the Board determined that it was, no longer in the corporate interest to proceed under the terms of the merger agreement. It decided not to elect extend the End Date, and should Vintage not elect to extend, to terminate the merger.  Plaintiffs sought declaratory judgment and brought claims for breach of the implied covenant of good faith and fair dealing and estoppel—all, in one way or another, to prevent Rent-A-Center's termination of the Merger Agreement. 

Issue:

Did Rent-A-Center lose its right to terminate the Merger Agreement?

Answer:

No.

Conclusion:

For Rent-A-Center to lose its right to terminate under Section 8.01(b)(i), its breach must be one that causes a failure to consummate the Merger by the End Date. The Defendants point out that what prevented consummation of the Merger by the End Date was the ongoing antitrust approval process, with respect to which Rent-A-Center was using commercially reasonable efforts. As a result, the Defendant's termination of the Merger Agreement pursuant to Section 8.01(b)(i) was valid.  Rent-A-Center's efforts toward closing was a breach of the commercially reasonable efforts provision. If Rent-A-Center had not entered into the Joint Timing Agreement, participated in meetings with Vintage, and shared financial information, it would have, by such inactions, presumably breached the commercially reasonable efforts clauses of the Merger Agreement. A party's obligation to use commercially reasonable efforts must be cabined by its bargained-for contractual rights. If an agreement to use commercially reasonable efforts to comply with obligations in a contract means that a party cannot exercise its bargained-for right to terminate that contract, that bargained-for right would be illusory. Furthermore, Plaintiffs claimed that equitable estoppel barred the Defendant from terminating the Merger Agreement. Equitable estoppel is invoked 'when a party by his conduct intentionally or unintentionally leads another, in reliance upon that conduct, to change position to his detriment.’ As the party asserting equitable estoppel, the Plaintiffs bear the burden of proof, which is clear and convincing evidence. The Plaintiffs "must demonstrate that: (i) they lacked knowledge or the means of obtaining knowledge of the truth of the facts in question; (ii) they reasonably relied on the conduct of the party against whom estoppel is claimed; and (iii) they suffered a prejudicial change of position as a result of their reliance." What Rent-A-Center believed about the End Date would have been immaterial had Vintage merely exercised its contractual right and sent a written notice explicitly extending the End Date. Vintage negotiated for this right and was constructively aware of it. Therefore, the Plaintiffs cannot have reasonably relied on the demeanor of Rent-A-Center's principals. Nor did they change positions based on any reliance.