DealLawyers.com Blog

Yesterday, in Grower v. Trux, Inc. (Del. Ch.; 6/26), the Delaware Chancery Court addressed a minority stockholder’s challenges to Viking’s acquisition of a majority of the outstanding stock of Trux on the basis that the selling stockholders breached a right of first refusal and co-sale agreement. The plaintiff stockholder’s claims were dismissed with prejudice in 2023, but one of the selling stockholders had intervened seeking a declaratory judgment that the purchase was void under the terms of the ROFR, and, though he stipulated to the dismissal, he filed cross-claims for breach of contract.

The company’s amended certificate of incorporation provided that a “sale, transfer or other disposition, in a single transaction or series of related transactions, by the stockholders of the [Company] of a majority of the outstanding shares of capital stock of the [Company] (determined on an as-converted basis)” was a “Deemed Liquidation Event.” This is relevant because Viking was a minority stockholder when the amended certificate was approved, and the ROFR made certain exceptions and gave Viking certain rights in connection with a Deemed Liquidation Event.

The decision responds to the summary judgment motions filed by both Trux and Viking to the intervening selling stockholder’s cross-claims. Trux and Viking pointed to the ROFR’s exceptions for a Deemed Liquidation Event and argued that the ROFR was not breached. And even if it was, they argued that the selling stockholder released his claims in the purchase agreement. Vice Chancellor Fiorvanti found the defendants’ arguments persuasive:

Richard’s Cross-Claims rise or fall on the applicability of Section 2.4. Under Section 2.4(a), a Proposed Transfer that is “not made in compliance with the requirements of [the ROFR] Agreement shall be null and void ab initio.” According to Richard, his transfers of stock to Viking and those of the Selling Stockholders are void. As a consequence, he argues that the Seller’s Release in his Stock Purchase Agreement is unenforceable, and all equitable defenses are inapplicable. Richard goes so far as to contend that he could invoke his own breach of the ROFR Agreement—several years after the Transaction—as a basis to void his sale to Viking along with those of the other Selling Stockholders.

Richard’s Cross-Claims fail as a matter of law. First, the Transaction was a series of sales of Transfer Stock pursuant to a Deemed Liquidation Event. Under Section 3.2 of the ROFR Agreement, “the provisions of Section 2 shall not apply to the sale of any Transfer Stock . . . pursuant to a Deemed Liquidation Event.” Because Richard’s voidness theory relies on the application of Section 2.4(a), Section 3.2 forecloses his claim. Second, even if Section 3.2 did not foreclose Richard’s theory, the Defendants did not breach Section 2.5 or Section 2.1(b). Third, and finally, Richard released his claims when he executed the Stock Purchase Agreement.

VC Fiorvanti also agreed with the defendants that the selling stockholder released his claims when he executed the stock purchase agreement since it included a release of any and all claims “based on acts, events or omissions occurring on or prior to this Agreement” and “relating to the Seller’s ownership of the Shares.” Since the purchase wasn’t void, neither was his release of claims, and his claims regarding the ROFR “fall squarely within this category of released, ownership-related claims.”

– Meredith Ervine