DealLawyers.com Blog

I have heard that the Chancery Court’s 246-page decision in Akorn v. Fresenius is the longest opinion ever issued by the Court.  While most commentators have focused on the Court’s analysis of the MAE clause at issue in the case, I thought it was impressive that Steve Quinlivan scoped out an interesting sidebar discussion of “efforts clauses” that doesn’t appear until page 212 of that opinion. Here’s an excerpt from Steve’s recent blog:

Describing how many deal lawyers think, the Court cited the ABA Committee on Mergers and Acquisitions which ascribed the following meanings to commonly used standards:

– Best efforts: the highest standard, requiring a party to do essentially everything in its power to fulfill its obligation (for example, by expending significant amounts or management time to obtain consents).
– Reasonable best efforts: somewhat lesser standard, but still may require substantial efforts from a party.
– Reasonable efforts: still weaker standard, not requiring any action beyond what is typical under the circumstances.
– Commercially reasonable efforts: not requiring a party to take any action that would be commercially detrimental, including the expenditure of material unanticipated amounts or management time.
– Good faith efforts: the lowest standard, which requires honesty in fact and the observance of reasonable commercial standards of fair dealing. Good faith efforts are implied as a matter of law.

The Court noted that commentators who have surveyed the case law find little support for the distinctions that transactional lawyers draw. Consistent with this view, in Williams Companies v. Energy Transfer Equity, L.P., the Delaware Supreme Court interpreted a transaction agreement that used both “commercially reasonable efforts” and “reasonable best efforts.” Referring to both provisions, the high court stated that “covenants like the ones involved here impose obligations to take all reasonable steps to solve problems and consummate the transaction.” The high court did not distinguish between the two.

I salute Steve for reading this entire opinion – I’m only on page 120. Also, it looks like the folks at Kirkland & Ellis have read it cover-to-cover too – check out their memo addressing the efforts clause discussion in Akorn.

– John Jenkins