Last month, I blogged about the Chancery Court’s decision in Yatra Online v. Ebix, (Del. Ch.; 9/21), in which the court held that a target’s decision to terminate a merger agreement deprived it of any recourse for the buyer’s alleged breaches of that agreement. This Weil blog reviews that decision, along with a couple of recent decisions from other jurisdictions interpreting the effect of contractual termination language. This excerpt discusses a 9th Cir. decision on the termination provisions of an NDA signed as part of a sale process:
BladeRoom Group Limited v. Emerson Electric Co., 11 F.4th 1010 (9th Cir. Aug. 30, 2021) (applying English law), involved a typical nondisclosure agreement that prohibited the disclosure of confidential information obtained during the consideration of a potential acquisition transaction. The NDA was governed by English law. After the deal failed to materialize and negotiations were terminated, the potential purchaser was alleged by the potential target to have misappropriated and used confidential information obtained during the negotiation of the potential acquisition. The district court found in favor of the target and awarded substantial damages. One of the issues at trial was the impact of the following termination provision in the NDA:
The parties acknowledge and agree that their respective obligations under this agreement shall be continuing and, in particular, they shall survive the termination of any discussions or negotiations between you and the Company regarding the Transaction, provided that this agreement shall terminate on the date 2 years from the date hereof.
The potential acquirer argued that under the plain language of this termination provision, its confidentiality obligation ended 2 years after the date the NDA was signed (apparently there was some question as to whether the use and disclosure of the confidential information occurred before or after that 2 year period and the potential acquirer had sought to exclude any evidence regarding that use or disclosure after the 2 year period). The district court, however, held that despite the proviso terminating the agreement after 2 years, “the purpose of the contract [was] to protect information, not provide for its release after 2 years.” Thus, according to the district court, “the NDA’s confidentiality obligations survived beyond two years.” To hold otherwise, according to the district court, “would lead to an absurd result and would create some inconsistency with the rest of the [NDA].”
But the Ninth Circuit, applying well-recognized principles of English contract interpretation precedent, reversed the district court, holding that the termination provision’s “natural meaning unambiguously terminated the NDA and its confidentiality provision two years after it was signed.”
While English law applied to this particular agreement, the blog says that those principles generally track the approach taken by U.S. courts. The blog goes on to discuss an 8th Cir. decision involving the termination provisions of an executive employment agreement containing a covenant not to compete. Here’s a spoiler alert – the decision doesn’t have a happy ending for the company.
– John Jenkins