Sarissa Capital Domestic Fund L.P. v. Innoviva, Inc.

Court of Chancery of the State of Delaware · 2017 · Corporations

CorporationsDelawarecorporationsboard authorityactual authorityapparent authorityoral contractsettlement agreement

Facts

Sarissa, a dissident stockholder, launched a proxy contest to elect three nominees to Innoviva's seven-member board before the 2017 annual meeting. As the vote tightened, Innoviva's board authorized Vice Chairman Tyree, its lead negotiator with Sarissa, to pursue a settlement under which Innoviva would expand the board to nine seats, appoint two of Sarissa's nominees, drop its demand for a standstill, and issue a conciliatory joint press release. During a phone call the afternoon before the annual meeting, Tyree conveyed those terms, Denner accepted on Sarissa's behalf, and both said they had a deal, after which counsel began memorializing it. Later that day, after Innoviva learned BlackRock had voted for management's slate and the board expected to win, Innoviva abandoned the settlement and proceeded with the stockholder vote.

Issue

Did Tyree have authority to bind Innoviva to an oral settlement agreement with Sarissa, and if so, did the parties form a valid and enforceable oral contract during the April 19 phone call? If a binding settlement existed, was specific performance an appropriate remedy?

Rule

A corporate director may bind the corporation to a settlement if he has actual or apparent authority. A valid contract under Delaware law requires a bargain with sufficiently definite terms and objective manifestations of mutual assent; an oral settlement is enforceable even if the parties contemplate later memorializing it in writing, absent a positive agreement that no contract will exist until execution. Specific performance is available upon clear and convincing proof of a valid enforceable contract, clear essential terms, no adequate legal remedy, readiness and ability to perform, and a balance of equities favoring relief.

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Redwood Biologics, Inc., a Delaware corporation based in San Diego, faces a proxy fight from stockholder Owen Park. During a board call, the directors authorize vice chair Lena Ortiz to offer settlement on these terms: expand the board from 6 to 8 seats, appoint any two of Park's three nominees, dismiss related inspection litigation, and issue a joint conciliatory statement. Ortiz calls Park from Phoenix, conveys those terms, Park accepts immediately, and both say they have a deal; the board later tries to back out before any writing is signed.

Is Redwood most likely bound by the oral settlement?

Explanation. The corporation is most likely bound. Under the majority opinion, a director may bind the corporation if he or she has actual authority, which exists when the principal manifests assent that the agent act on its behalf and the agent reasonably understands that assent. Here, the board itself authorized Ortiz to offer specific settlement terms, and she conveyed those exact terms. The later absence of a signed writing does not defeat formation absent a positive agreement that no contract would exist until execution. (Derived from Sarissa Capital Domestic Fund L.P. v. Innoviva, Inc. (n.d.).)