Opinion ID: 1930614
Heading Depth: 1
Heading Rank: 5

Heading: Reformation of the Merger Agreement of MTI and Apollo

Text: This Court reviews de novo the granting of a summary judgment by the Court of Chancery. [43] Accordingly, we apply to the facts of this case the appropriate summary judgment review standard, together with the law on contract reformation. First, we turn to the element of the prior agreement. Cilurzo told Harris in writing that having the proceeds from the options and warrants go to MTI's stockholders was a condition to further negotiations, and Harris responded in his handwritten note on that writing: This looks fine. Absent any evidence that this term was eliminated in the negotiation process (and there is none on this record), it is certainly a permissible inference that the parties had a prior agreement relative to the proceeds from the options and warrants. Given the purpose of the clear and convincing evidentiary requirement that tends to uphold a contract as the parties' written expression of their intent, [44] documentary evidence of a prior agreement is particularly persuasive in overcoming that burden. Thus, Cerberus has offered more than a mere scintilla of evidence on this element. A rational trier of fact could have, after considering all the evidence adduced at trial, an abiding conviction that the truth of [the] factual contentions are `highly probable' [45] and that this was the real agreement of the parties. Moreover, Apollo's evidence is not persuasive in contradicting this evidence so as to make this an appropriate case for summary judgment by ruling out the possibility that clear and convincing evidence would develop at trial. Apollo points out that Joyce Johnson-Miller, Cerberus' representative for the negotiations, agreed that there's no binding agreement on the parties until the negotiations are done and everybody signs. The fact of an agreement and its legal significance are two separate matters. [46] It is also true that Harris testified that the merger agreement reflected his eventual understanding of the warrant and options proceeds, but Harris did not deny his agreement to Apollo's initial conditions for negotiations. Edwards, one of MTI's lawyers, testified that he was not aware of any agreement regarding the proceeds from the options and warrants other than that contained in the merger agreement. Given that such an admission would be tantamount to an admission of negligence, however, the trier of fact should consider Edwards' credibility. Moreover, Cilurzo's testimony that he gave Edwards and Davis a copy of the points set out in the November 26 letter and told them to incorporate that into the merger agreement contradicts Edwards' testimony. Thus, a rational trier of fact, after a trial with live witnesses whose credibility can be tested, could find that it was highly probable that MTI and Apollo had a specific prior agreement that MTI's stockholders would receive the proceeds from the options and warrants. Cerberus must show that MTI mistakenly believed that the merger agreement gave the proceeds from the options and warrants to its stockholders. Apollo concedes that at least part of the Consent Solicitation statement reflects such a mistake. Cilurzo's notes from a conference call with Pike and Davis regarding the consent solicitation also indicate such a mistaken belief. Given the complexity of the provisions that defined the merger price, it is not difficult to believe that lay persons, even ones as sophisticated as those on MTI's side of the negotiations, failed to understand all the provisions. Indeed, Pike described his discomfort with the pricing provisions in general, and that Davis had reassured him concerning them. Furthermore, if MTI understood that its stockholders were to get $6 million less from the merger than MTI previously expected, it seems odd that there is not, on this record, some discussion of that issue during the merger negotiations. In our view, a rational trier of fact would have expected to see some evidence that this point had been negotiated away, given Harris' original written agreement that This looks fine. There was none. Apollo points out that Davis and Edwards testified that there was no mistake. A rational fact-finder, again, could discount the credibility of these statements as self-serving, given the evidence to the contrary. Cilurzo's notes from a conference call at which Edwards was a party, as well as Cilurzo's testimony that Davis reacted to Apollo's post-merger position on the matter with shock and anger, contradicts Davis' testimony. Moreover, both Edwards and Davis very specifically testified that no one from MTI told them of such a belief after the first draft of the merger agreement. A rational fact-finder could infer from this testimony that they were indeed told of this belief before the first draft, and that MTI thought this point to be so basic it need not be brought up again. Apollo also refers to the admissions of Pike and Johnson-Miller that they never saw a specific provision in the merger agreement that gave the proceeds from the options and warrants to MTI's stockholders. Any mistake claim by definition involves a party who has not read, or thought about, the provisions in a contract carefully enough. [47] Moreover, at least Pike's testimony indicates that, while he was uncomfortable with the merger agreement's language, he became reassured by Davis' explanation of it. Finally, Apollo's citation of Cantor Fitzgerald, L.P. v. Cantor [48] is unpersuasive. In that case, the defendants asked the Court of Chancery to reform a contract to give them the right to compete with the plaintiff. [49] The defendants, however, admitted to having no understanding whether the contract did, or did not, give them this right to compete. [50] In requesting reformation, the plaintiff must show that he or she was mistaken and had a belief that is not in accord with the facts. [51] The plaintiff that has no belief is not mistaken. Here, by contrast, those on the side of MTI did indeed testify that they understood that the merger agreement gave the proceeds from the options and warrants to MTI's stockholders, although that belief turned out to be a mistaken one. Thus, a rational trier of fact could also find it highly probable that MTI did believe that the merger agreement gave its stockholders the proceeds from the options and warrants as previously agreed, a belief that turned out to be mistaken. Finally, Cerberus must show either that Apollo shared MTI's mistaken belief or that Apollo knew of MTI's mistake and remained silent. There was substantial evidence tending to show either conclusion. First, some evidence tended to show that Apollo shared MTI's mistaken belief, at least until the time the transaction closed. Several written documents, at various times throughout the merger negotiations, indicate that Apollo planned to pay $65 million for the merger. This figure is consistent with Cerberus' claim. On the other hand, the fact that Apollo notified MTI of its intention to pay less than MTI expected so soon after the transaction closed implies that Apollo was not mistaken about the effect of the merger agreement. If so, a rational fact-finder could question that Apollo did not know that MTI expected $6 million more than Apollo in a transaction worth only $60 million. This may be especially difficult for a rational fact-finder to believe, given the emphasis MTI placed on the matter at the outset of merger negotiations. If indeed Apollo was not mistaken, a finder of fact could rationally conclude that Apollo knowingly remained silent about the mistake, hoping to profit from it. That is the kind of conduct the unilateral mistake doctrine was designed to remedy. [52] Based on the summary judgment record before this Court, a rational trier of fact could find by clear and convincing evidence that Apollo shared MTI's mistaken belief, or that Apollo did not share MTI's mistaken belief but knew of it and remained silent.