Aspen Advisors LLC v. United Artists Theatre Company

Supreme Court of Delaware · 2004 · Corporations

861 A.2d 1251 (2004)

Updated August 22, 2026

CorporationsWarrantsImplied covenant of good faith and fair dealingAnti-destruction clausesAppraisal rightsTortious interferenceanti-destruction clauseSection 2(c)

Facts

After United Artists restructured, plaintiffs received warrants to buy common stock at $10 per share; the warrants included an anti-destruction clause providing that after certain transactions, a holder exercising the warrant would receive the shares, securities, or property the holder would have received had the warrant been exercised immediately before the transaction. Anschutz-controlled entities later entered into an Exchange Agreement, to which United Artists was not a party, exchanging their United Artists equity, warrants, and options for Regal Entertainment securities. Months later, Regal Entertainment used its over-90% ownership of United Artists to effect a short-form merger under Delaware law, cashing out minority common stockholders at $14 per share and giving stockholders notice of statutory appraisal rights. Plaintiffs were told that under Section 2(c), each warrant was thereafter exercisable only for the difference between the $14 merger consideration and the $10 exercise price.

Issue

Did United Artists breach the implied covenant of good faith and fair dealing by not allowing plaintiffs to participate in the Exchange Agreement, and did Section 2(c) of the warrants require United Artists to give warrantholders either more than the $14-per-share merger consideration paid to stockholders or an independent right to seek fair value analogous to statutory appraisal? If not, could the non-United Artists defendants be liable for tortious interference with the warrant contract?

Rule

The implied covenant of good faith and fair dealing is breached only by arbitrary or unreasonable conduct that prevents the other party from receiving the fruits of the contract, and it cannot be used to add rights the parties did not secure in their agreements. Warrantholders are not stockholders and have only the contractual rights stated in the warrant; absent express language, they do not have statutory appraisal or quasi-appraisal rights. Under a standard anti-destruction clause like Section 2(c), a warrantholder is entitled only to the same merger consideration actually received by stockholders had the warrant been exercised immediately before the merger.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Screens, Inc., a Delaware corporation based in Chicago, issued warrants allowing holders to buy common stock at $12 per share. The warrants included an anti-destruction clause covering reclassification, reorganization, merger, or similar corporate reorganization. Later, the company’s controlling stockholder, Nora Benton, exchanged her own Lakefront Screens shares and warrants with a newly formed holding company in Denver under an agreement to which Lakefront Screens was not a party; the company’s capital structure did not change.

A minority warrantholder sues, arguing the company breached the implied covenant of good faith and fair dealing by not letting all warrantholders participate in the controller’s exchange. Which is the strongest answer?

Explanation. The majority held that the implied covenant is a limited doctrine and cannot be used to add rights omitted from detailed agreements. Where a separate exchange agreement is not a covered transaction under the warrant language, does not reclassify or change the issuer’s securities, and the issuer is not even a party, warrantholders have no explicit or interstitial right to participate. The relevant question is whether the conduct arbitrarily or unreasonably deprived them of the fruits of the contract; here, it did not because they retained the contractual warrant rights they bargained for.