United States: Blurring The Lines: Dolan v. Altice Demonstrates The Potentially Unexpected And Significant Impact That "Boilerplate" Provisions Can Have On Merger Agreement Interpretation

Last Updated: July 24 2019
Article by Jason M. Halper, Jared Stanisci and Tianyin Luo

Most Read Contributor in United States, August 2019

In a recent decision arising out of the sale of Cablevision,1 the Delaware Court of Chancery issued important guidance regarding the interplay between what are commonly regarded as boilerplate merger agreement provisions and “bespoke” provisions that are drafted specifically for the transaction at issue.  Here, Vice Chancellor Slights found that extrinsic evidence was necessary to determine whether a provision in the merger agreement (Section 6.4(f)) was still enforceable despite agreement from all parties that: (i) Section 6.4(f) was not listed in the agreement’s provision listing clauses that survived post-closing and (ii) the Dolan family, the beneficiaries of Section 6.4(f), were not identified as third-party beneficiaries of the merger agreement, nor was Section 6.4(f) carved out of the no-third-party-beneficiaries clause.  The decision underscores that contracting parties need to be careful when considering future interpretive minefields not to assume that a boilerplate provision will take second seat to a bespoke provision.

Background

The Dolan action arose out of an agreement and plan of merger (the “Merger Agreement” or “Agreement”) entered into between Cablevision Systems Corp. (“Cablevision”), one of the largest cable operators in the United States, and Altice N.V. and Neptune Merger Sub Corp. (collectively, “Altice”), which operates cable, fiber, telecommunications, content and media companies in the United States. In September 2015, Cablevision and Altice entered into the Merger Agreement pursuant to which Altice agreed to pay $34.90 per share of Cablevision stock, resulting in a total merger consideration of $17.7 billion.

Plaintiffs are members of the Dolan family, the founders and then-largest stockholders of Cablevision.  They sued to obtain specific performance of certain obligations they claimed were owed by Altice under the Merger Agreement and which, according to plaintiffs, Altice agreed to in order to induce the Dolans to sell Cablevision and vote their shares in support of the merger.  In particular, the Plaintiffs allege that Cablevision owned a group of regional cable news television channels, known collectively as News12 Networks LLC (“News12”), which serve approximately three million households in New Jersey, Connecticut and New York, including two boroughs of New York City and most of Long Island.  Protecting News12 and its legacy was of such importance to the Dolan family that during the early merger negotiations, the family attempted to carve out News12 from the transaction.  After “intense negotiations” with Altice, the Dolans eventually relented and agreed to include the stations in the Merger in exchange for assurances that Altice would continue to operate News12 “in a manner that preserved its employee base, quality reporting and programming.”  To that end, Altice agreed in Section 6.4(f) that at least through 2020 it would operate News12 “substantially in accordance with” the station’s then-existing business plan, which was incorporated into the Merger Agreement.  The Merger closed on June 21, 2016.  The Dolans were not parties to the Merger Agreement.

In the spring of 2017, Altice took several actions that were contrary to News12’s business plan, including terminating approximately 70 employees.  After these layoffs, Altice developed a plan to lay off 10% of News12 employees each year.  Plaintiffs argued that these terminations would negatively affect News12’s ability to maintain its historic levels of quality and news content and were in direct violation of Section 6.4(f).

After plaintiffs commenced the action, the defendants moved to dismiss on two main grounds.  First, Altice contended that Section 6.4(f) did not survive the consummation of the merger because it was not included in the list of provisions that survived closing as set forth in Section 9.1.  Second, Altice alleged that the plaintiffs lacked standing to assert claims under the Merger Agreement because they were not parties to the Agreement and Section 9.8 of the Agreement specifically disclaimed any intention to confer rights on third-party beneficiaries (save for inapplicable subjects such as Directors and Officers insurance and the rights of shareholders to receive merger consideration). 

The Court denied Altice’s motion to dismiss, finding that while “the goal of contract construction in instances like this is to ‘harmonize’ related contractual provisions,” “[t]hat simply cannot be done here by looking only within the four corners of the Merger Agreement,” and consequently, “[e]xtrinsic evidence will be needed to determine what Section 6.4(f) was intended to mean and how, if at all, it is to be enforced.”

The Relevant Provisions

Section 6.4(f)

(i)     Parent will operate News12 Networks LLC (“News12”) from and after [June 21, 2016] [(“]the Closing[“)] substantially in accordance with the existing News12 business plan (the “News12 Business Plan”), a true and complete copy of which is included in Schedule 6.4(f) of the Company Disclosure Letter, as the same may be adjusted as provided in Schedule 6.4(f), through at least the end of plan year 2020 within the current News12 footprint as of the date of this Agreement.

(ii)    The Company will operate News12 in accordance with the existing News12 Business Plan through the Closing.

(iii)   Either party may make reference to Section 6.4(f) and to Schedule 6.4(f) of the Company Disclosure Letter in connection with securing franchise and other regulatory approvals.

Section 9.1

This Article IX and the agreements of the Company, Parent and Merger Sub contained in Article IV and Sections 6.8 (Employee Benefits), 6.9 (Expenses) and 6.10 (Director and Officer Liability) shall survive the consummation of the Merger and the Transactions.  This Article IX and the agreements of the Company, Parent and Merger Sub contained in Section 6.9 (Expenses), Section 6.11 (Financing), Section 6.12 (Indemnification Relating to Financing) and Section 8.5 (Effect of Termination and Abandonment) and the Confidentiality Agreement shall survive the termination of this Agreement.  All other representations, warranties, covenants and agreements in this Agreement shall not survive the consummation of the Merger and the Transactions or the termination of this Agreement.

Section 9.8

Except (i) as provided in Section 6.10 (Director and Officer Liability) or Section 9.15 (Financing Sources) and (ii) for the right of holders of Shares as of the Effective Time, after the Effective Time, to receive the aggregate consideration payable pursuant to Article IV of this Agreement, which rights set forth in clauses (i) and (ii) of this Section 9.8 are hereby expressly acknowledged and agreed by Parent and Merger Sub, Parent and the Company hereby agree that their respective representations, warranties and covenants set forth in this Agreement are solely for the benefit of the other party hereto, in accordance with and subject to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any Person other than the parties hereto any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein.  . . . The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties hereto.

Takeaways

  • Contracting parties need to carefully consider relying on boilerplate or “bespoke boilerplate” provisions when those provisions may come into conflict with a bespoke contract provision. The Court recognized that, “[n]ot surprisingly, as with most contracts, the Merger Agreement features some boilerplate, some bespoke provisions and some bespoke boilerplate.  The question presented here is whether the boilerplate and bespoke boilerplate should be construed, as a matter of law, to render a bespoke provision superfluous.”  In other words, according to the Court, the issue was whether Section 6.4(f) was rendered “superfluous” by standard provisions regarding survival and third-party beneficiaries.  For reasons explained below, the Court refused to so find as a matter of law.  For that reason, to the extent contracting parties can foresee potential conflict between “bespoke” and “boilerplate” provisions, they should consider expressly agreeing which controls and state that clearly in the agreement.
  • A non-party to a Merger Agreement that disclaims third-party beneficiaries may nonetheless establish that it has standing to enforce provisions of the Merger Agreement. A threshold issue for the Court was whether the Dolans had standing to enforce Section 6.4(f) despite not being identified as third-party beneficiaries in Section 9.8 of the Merger Agreement.  The Court held that to demonstrate standing to enforce the contract as third-party beneficiaries, Plaintiffs must plead facts that allow a reasonable inference that: “(i) the contracting parties [] intended that the third party beneficiary benefit from the contract, (ii) the benefit [was] intended as a gift or in satisfaction of a pre-existing obligation to that person, and (iii) the intent to benefit the third party [was] a material part of the parties’ purpose in entering into the contract.”  Vice-Chancellor Slights found that the Dolans satisfied these criteria by alleging that (i) they would not have agreed to include News12 in the transaction if Altice had not promised to operate the stations in accordance with the News12 business plan, (ii) the inclusion of section 6.4(f) was in exchange for the Dolan’s agreement to vote their Class B shares in favor of adoption of the Merger Agreement and (iii) Section 6.4(f) was included in the Merger Agreement to “induce the Dolan family to sell their Cablevision stock, merge Cablevision and News12 into Altice and sign the Written Consent in favor of the Merger Agreement.” 
  • Seemingly boilerplate provisions, such as provisions that disclaim third-party beneficiaries, can be interpreted as having the force of more specific provisions. The Court’s inquiry also focused on the interpretation of Section 9.8 of the Merger Agreement, which provided that “the “representations, warranties and covenants” set forth in the Merger Agreement only run to and bind the parties to the Agreement.  Recognizing that Section 9.8 did not identify the Dolans as parties under the Agreement or carve out Section 6.4(f), Plaintiffs invoked “the canon that a specific provision of a contract trumps a general one in order to argue that Section 6.4(f) trumps Section 9.8.”  However, the Court concluded that the “canon does not fit here” because “both sections are specific.”  Section 9.8, the Court found, “is specific in identifying who is and who is not intended to be a third-party beneficiary to the contract.”  Accordingly, the Court held that parol evidence was required to aid it in harmonizing Sections 6.4(f) and 9.8 and determining “what Section 6.4(f) was intended to mean and how, if at all, it has to be enforced.”  Again, this determination demonstrates the importance of careful contract drafting, particularly with respect to common terms found in most types of agreements that may lead to unintended consequences. 
  • The fact that the Dolans were allegedly controlling stockholders did not transform them into parties to the Merger Agreement. The Court rejected the Dolans’ argument that, as former shareholders who participated in the negotiations and voted their shares to approve the Merger, they should be deemed de jure parties to the Merger Agreement.  This conclusion, supported by well-settled Delaware law, underscores the need for parties to clearly and expressly articulate when and for what purposes a non-party will be considered a third-party beneficiary of a contract.
  • Delaware courts may find, by relying on “canons of construction,” a provision not specifically listed in a survival clause to be enforceable post-closing. One of Altice’s primary arguments was that Section 6.4(f) was unenforceable because it was not listed in Section 9.1, which enumerates the provisions that survived the consummation of the Merger and that as a result, Section 6.4(f) was “simply a goodwill gesture and was in no way meant to bind Altice before or after the Merger closed.”  In response, Plaintiffs pointed out that the language of Section 6.4(f) “is not drafted as an expression of good will” but is instead drafted to state an obligation.  In considering the interplay between these two sections and arguments, the Court held that there was sufficient ambiguity to deny Altice’s motion to dismiss by using two canons of construction.  First, the Court found that under Altice’s theory, Section 9.1, the survival clause, would render Section 6.4(f) superfluous and that such a result is “inconsistent with the contractual cannon that discourages the court from construing a contract in a way that results in ‘mere surplusage.’” Second, the Court found defendants’ interpretation “also creates an arguably ‘absurd result’ by rendering meaningless the protections [Plaintiffs] allege they bargained for with respect to News12.”  Again, the parties could have avoided this uncertainty by clearly articulating in the Merger Agreement whether they intended for Section 6.4(f) to survive closing by, either, including it in Section 9.1 or indicating, via an “avoidance of doubt” provision, that it did not. 
  • Where there is an enforceable contract, Delaware courts will not entertain claims pled as alternatives to breach of contract, like breach of the implied covenant of good faith and fair dealing. Plaintiffs asserted six causes of action: breach of contract, breach of the implied covenant of good faith and fair dealing, equitable fraud, promissory estoppel, negligent misrepresentation and declaratory relief.  The Court dismissed all claims except for breach of contract and promissory estoppel explaining that “if there is an enforceable contract upon which Plaintiffs may rest their claims, then there is no gap to fill with the implied covenant, there is no need to bootstrap fraud and contract claims, and there is no special relationship to support equitable fraud.”  In particular, the Court reinforced longstanding Delaware precedent that the implied covenant is a “limited and extraordinary” legal remedy which applies only when “the contract is truly silent with respect to the matter at hand, and only when the court finds that the expectations of the parties were so fundamental that it is clear that they did not feel a need to negotiate about them” – circumstances that the Court found were not present in Dolan.  As Vice Chancellor Slights explained, the “Court ‘will not rewrite contractual language covering particular topics [under the guise of the implied covenant] just because one party failed to extract as complete a range of protections as it, after the fact, claims to have desired during the negotiation process.’”  On the other hand, plaintiffs’ promissory estoppel claim survived because defendants denied that plaintiffs had standing to enforce the contract; as a result, plaintiffs were entitled to pursue promissory estoppel as an alternative to breach of contract.

Footnotes

1   Dolan, et al. v. Altice USA, Inc., et al. and Cablevision Sys. Cop., et al., C.A. No. 2018-0651-JRS (Del. Ch. June 27, 2019).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions