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Amirsaleh v. Board of Trade: Delaware Supreme Court Emphasizes Requirements for a Waiver of Contractual Rights to be Retracted

October 31, 2011

In Amirsaleh v. Board of Trade, No. 75, 2010 (Del. Sept. 12, 2011), the Delaware Supreme Court held that appellee Board of Trade of the City of New York, Inc. (“NYBOT”) had not validly retracted its previous waiver of a contractual deadline by which its members were supposed to elect the form of consideration they would receive in connection with NYBOT’s 2007 merger with Intercontinental Exchange, Inc. (“ICE”). The Supreme Court therefore reversed a prior decision of the Court of Chancery and remanded the case for proceedings consistent with its opinion. 

Defendants-below/appellees ICE and NYBOT (collectively, the “Defendants”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) on September 14, 2006. The Merger Agreement provided that NYBOT’s predecessor would be merged with and into a wholly owned subsidiary of ICE. Prior to the merger, plaintiff Mahyar Amirsaleh was a member of NYBOT, owning two “membership interests” in the commodities and futures exchange, which represented not only his proportionate interest in NYBOT but also gave him the right to trade on the NYBOT exchange. 

The Merger Agreement gave NYBOT members the option to receive either cash or ICE common stock in exchange for their NYBOT membership interests. In order to make this election, NYBOT members were required to submit a form (the “Election Form”) designating their consideration preference by January 5, 2007. The Merger Agreement contained a maximum amount of cash consideration that would be paid in the merger, and provided that any member who failed to submit their Election Form by the election deadline would automatically be allocated the form of consideration that was undersubscribed. Importantly, in order to retain trading rights on NYBOT each former member would be required to own a minimum amount of shares of ICE common stock after the merger. 

Once the deadline for submission of Election Forms passed, it became clear that several NYBOT members (including Amirsaleh) had failed to return their Election Form. Thereafter a back and forth ensued between the Defendants about whether or not to accept the Election Forms received after the Initial Deadline. Ultimately, the Defendants determined to extend the Election Form deadline to January 18, although they did not inform the members of the new deadline. By this time it had become evident to the Defendants that the cash portion of the merger consideration had been undersubscribed. 

Amirsaleh submitted his Election Form, electing to receive 100% stock consideration, on January 19. However, because his Election Form was deemed untimely, Amirsaleh was automatically allocated the undersubscribed form of consideration (cash) and subsequently lost his trading rights. Amirsaleh sued in the Court of Chancery, alleging breach of contract and breach of the implied covenant of good faith and fair dealing. 

The Court of Chancery found in favor of the Defendants on the breach of contract claim, deciding that there was no issue of material fact as to whether the Defendants “mutually agreed” to stop accepting Election Forms at some point prior to the time Amirsaleh submitted his form. After a three day trial, the Court of Chancery also found for the Defendants on Amirsaleh’s breach of the implied covenant claim. 

The Supreme Court reversed on appeal. Repeatedly criticizing the “suboptimal” process followed by the Defendants, the Court held that Defendants had explicitly and unambiguously waived the initial deadline for submission of Election Forms under the Merger Agreement. The Supreme Court confirmed, however, that Delaware law imposes requirements on a party attempting to retract such a waiver: In general, a waiving party “may retract the waiver by giving reasonable notice to the non-waiving party before that party has suffered prejudice or materially changed his position.” After finding that Amirsaleh had not received notice of the later-imposed deadline for submission of Election Forms and that he had suffered prejudice through the loss of his trading rights, the Court concluded that the Defendants had not properly retracted their waiver.