DealLawyers.com Blog

The Twitter v. Musk litigation continues to churn on through seemingly endless discovery disputes, but there’s at least one related case that has given deal lawyers something substantive to sink their teeth into.  Last week, In Crispo v. Musk (Del. Ch.; 10/22), Chancellor McCormick somehow found time to issue an opinion involving Musk’s motion to dismiss a Twitter stockholder’s purported class action claims seeking specific performance of the merger agreement or, in the alternative, damages.  The case raises an issue that Delaware is still sorting out – the circumstances under which a stockholder will or will not be permitted to assert a claim as a third-party beneficiary under an acquisition agreement.

The plaintiff’s efforts to specifically enforce the merger agreement were premised on the argument that stockholders were intended third-party beneficiaries of that agreement.  That claim faced one big problem, the language of Section 9.7 of the agreement, which provides that, subject to certain exceptions not relevant to the plaintiff’s claims, the merger agreement is “not intended to and shall not confer upon any Person other than the parties hereto any rights or remedies hereunder.”

In response to that language, the plaintiff cited Delaware precedent recognizing that stockholders can be third-party beneficiaries despite such a disclaimer, and argued that it should apply to its claims against Musk. Specifically, the plaintiff cited the Chancery Court’s decisions in Amirsaleh v. Board of Trade, (Del. Ch.; 9/08), Arkansas Teacher Retirement Sys. v. Alon USA (Del. Ch.; 6/19), and Dolan v. Altice, (Del. Ch.; 6/19). In Amirsaleh, Chancellor Chandler held that stockholders could enforce certain obligations under a merger agreement despite a no third-party beneficiaries clause because the agreement manifested “an unambiguous intent to benefit” the stockholders. The Chancery Court’s decisions in Alon and Dolan – which I previously blogged about – also permitted stockholder third party beneficiary claims to move forward in the face of motions to dismiss.

Chancellor McCormick distinguished these cases and rejected the plaintiff’s claims that they supported third-party beneficiary status with respect to the Twitter deal’s merger agreement. Her opinion discussed each of these cases individually and pointed out that the Alon agreement didn’t include a third-party beneficiaries disclaimer. This excerpt summarizes her conclusion concerning why neither the Amirsaleh nor Dolan decisions supported the plaintiff’s argument:

Like Amirsaleh and Alon, the Dolan decision involved an unusual contract. The Dolan plaintiffs participated in merger negotiations independently from the target company and specifically negotiated the contractual language that they later sought to enforce. Plaintiff here does not plead that he or any other stockholder independently secured the contractual commitments that he now seeks to enforce. Also, as in Amirsaleh, had the Dolan court dismissed the plaintiffs’ claims on the basis of a lack of third-party standing, no one else was positioned to enforce the contractual language at issue. Here, again, Twitter itself is vigorously seeking to enforce the same Merger Agreement as Plaintiff. Dolan does not support Plaintiff’s position.

In addition to citing Delaware precedent, the plaintiff pointed to Section 8.2 of the Twitter agreement, which defines damages to include lost stockholder premium.  In response to this claim, Chancellor McCormick concluded that the best case for the plaintiff was that this language gave it standing to pursue a damage claim, but not specific performance.

However, she also observed that whether language like that contained in Section 8.2 intended to confer third-party beneficiary status as to damage claims is a “thorny legal issue.”  She went on to recount the response to the 2nd Cir.’s notorious Consolidated Edison decision and the manner in which deal lawyers responded to it and requested further briefing from the parties on these issues, which the Court had raised sua sponte.

– John Jenkins