United Rentals, Inc. v. RAM Holdings, Inc. et al.
December 21, 2007
In United Rentals, Inc. v. RAM Holdings, Inc. et al., C.A. No. 3360-CC (Del. Ch. Dec. 21, 2007), the Court of Chancery denied the plaintiff’s petition for specific performance of a merger agreement it had entered into with affiliates of Cerberus Partners, L.P. URI and RAM signed a merger agreement on July 22, 2007. Subsequently, on November 14, 2007, RAM delivered URI notice that it did not intend to complete the merger on the economic terms set forth in the merger agreement, and offered to either renegotiate the deal or pay a $100 million reverse termination fee called for by the merger agreement. The dispute centered on whether the merger agreement limited URI’s remedy to the $100 million reverse breakup fee, or whether URI could seek specific performance.
The issue before the Court was the remedy afforded URI under the merger agreement for RAM’s failure to perform. URI argued that the merger agreement permitted it to obtain specific performance against RAM since RAM had not claimed any material adverse change in the business of URI. RAM argued that URI had surrendered the right to specific performance in the definitive transaction documents.
The Court determined that because of conflicting language regarding available remedies in the merger agreement, both parties’ interpretations of the available remedy under the merger agreement were reasonable, and accordingly the merger agreement was ambiguous as to whether the parties had agreed that specific performance was intended to be an available remedy. As a result of the ambiguous nature of the merger agreement, the Court reviewed the extrinsic evidence, including the drafting and negotiating history of the merger agreement, equity commitment letter and limited guarantee. The Court determined that the extrinsic evidence was not clear enough to conclude that there was a single, shared understanding with respect to the availability of specific performance under the merger agreement. In addition, the Court determined that the evidence concerning the negotiations demonstrated that under the "forthright negotiator" principle of contract interpretation (i) the defendants did not know or have a reason to know that plaintiff believed specific performance was an available remedy under the merger agreement, (ii) the plaintiff knew or should have known that the defendants believed that specific performance was not to be available, and (iii) in the face of the foregoing, the plaintiff failed to clarify its position affirmatively. Accordingly, the Court concluded that the plaintiff had failed to meet its burden of demonstrating that the common understanding of the parties permitted specific performance and denied the plaintiff’s petition.