This article is Part XIV of the Musings on Contracts series by Glenn D. West, which explores the unique contract law issues the author has been contemplating, some focused on the specifics of M&A practice, and some just random.
In a single sentence of a recent Delaware Court of Chancery decision, Meteora Capital Partners, LP v. Roadzen Inc.,[1] Vice Chancellor Laster invokes the frog-and-scorpion fable: “A frog must account for a scorpion’s character, particularly when the frog has sophisticated lawyers, and the scorpion lays out what it can do in detailed agreements.”[2] Although the fable is widely known, the case suggests a different moral than the traditional one.
The Case in Brief
Meteora Capital Partners involved a typical de-SPAC transaction.[3] The merger agreement required that, “after giving effect to any redemptions,” “the SPAC have at least $50 million available at closing.”[4] Based on the redemption requests submitted, that condition would apparently not be met.[5]
To meet the minimum cash condition, the SPAC entered into a transaction with a hedge fund comprising a forward contract and a subscription agreement.[6] The transaction effectively “operat[ed] like a synthetic long put option.”[7] It was extremely complicated, and I am not sure I fully understand all its ins and outs. But the bottom line was that the transaction enabled the company to meet the minimum cash condition—at least for closing purposes.[8]
The transaction agreements created many opportunities for the hedge fund to benefit. The most important of those opportunities appeared to involve the hedge fund exercising discretionary rights.[9] The transaction agreements, in short, represented a “crazy-good deal for [the hedge fund] and a terrible deal for the Company.”[10]
But the company had been advised by “two major law firms” and “[a]ll of the risks of [the transaction] were plain from the Transaction Documents.”[11] Vice Chancellor Laster’s decision in this case arose from a summary judgment motion by the hedge fund seeking a “decree of specific performance enforcing the surviving company’s obligation to remove the transfer restrictions from shares that [the hedge fund] holds.”[12]
Under Delaware law, “[i]f a writing is plain and clear on its face, i.e., its language conveys an unmistakable meaning, the writing itself is the sole source for gaining an understanding of intent.”[13] And “[p]arties have the right to enter into both good and bad contracts, and the law enforces both.”[14]
Despite these well-established principles in most major jurisdictions, the company attempted to recast the purpose of the transaction agreements as more akin to a long-term capital investment and asserted that the hedge fund’s interpretation of those agreements was “absurd.” According to the company, the hedge fund’s interpretation of the benefits it derived from the transaction agreements was absurd because “it cannot be true that [the hedge fund] could sell shares and drive down the market price to benefit from a low Settlement Price at the end of a Valuation Period[;] [d]riving the market price down would inhibit the Company’s ability to raise capital.”[15]
Vice Chancellor Laster, however, suggested that “it is the Company’s position, not [the hedge fund’s], that could be viewed as absurd.”[16] Indeed, “[t]he Company’s understanding is so at odds with the Forward Agreement as to suggest that the Company executed the transaction without reading the documents or understanding their implications.”[17] “The Transaction Agreements are complex, and they take time to read and explain, but their meaning is clear.”[18] “All the Company had to do was map it out.”[19] And there was no suggestion of a “mutual mistake.”[20]
According to Vice Chancellor Laster:
[The hedge fund] is not a supportive supplier of patient capital, and [it] was never [making] a long-term or strategic investment. [The hedge fund] bridged the Minimum Cash Condition in exchange for rights that would turn Gordon Gekko green with envy. [The hedge fund] wielded its rights in its own interest to maximize its return. . . .
Through the Transaction Agreements, the Company entered into a zero-sum relationship with [the hedge fund]. A frog must account for a scorpion’s character, particularly when the frog has sophisticated lawyers, and the scorpion lays out what it can do in detailed agreements.
The Company cannot escape the Forward Agreement’s clear and unambiguous terms by claiming that the outcome is absurd. Impressively one-sided, yes. Absurd, no.[21]
Retelling the Frog-and-Scorpion Fable
A common version of the frog-and-scorpion fable goes something like this: The scorpion asks the frog if he can ride on the frog’s back across the pond. The frog is reluctant at first, fearing the scorpion would sting him. But the scorpion tells the frog that scorpions do not swim. The frog therefore agrees to carry the scorpion across the pond. After all, if the scorpion stings him, both will drown. Midway across, however, the scorpion stings the frog. As the now-paralyzed frog sinks in the pond with the scorpion on its back, the frog asks why the scorpion would sting him and doom them both to a watery grave. The scorpion answers, “Sorry, but you knew I was a scorpion, and that’s what we do.”[22]
The traditional moral of this story is that some people tend to hurt others and follow that instinct even when it’s not in their own self-interest. I am not a psychologist or a sociologist, so I have no comment on whether that traditional moral translates into real-life examples of self-destructive people hurting others they may depend on, when cooperative behavior would be better for everyone.[23] What I am, however, is a contract nerd, and this is part of my Contract Musings series, which means I am rejecting that traditional moral in favor of one more in keeping with a contract theme.
And, as it turns out, everyone may have gotten the traditional moral of the story wrong, assuming the scorpion drowned with the frog. While it is apparently true that a scorpion cannot swim, it can survive for at least forty-eight hours underwater (it has tremendous lung capacity)—and, without swimming, it could presumably crawl along the bottom of the pond to the shore after sinking with the frog. That’s why you are cautioned never to flush a scorpion down the toilet.[24]
With that additional information, the moral of the story changes when applied to contracts. Now the moral becomes this: Understand who your counterparty is and what they do (i.e., their business model), and make sure your contract protects you from the kinds of opportunistic conduct that counterparty is known for and has expressly retained the right to engage in (if you decide to contract with that counterparty at all)—that is, wear a protective cover on your back (or borrow a turtle’s shell) if you intend to allow the scorpion to hitch a ride.[25]
Where Is “Good Faith” in All of This?
Some of the company’s claims against the hedge fund in related litigation in other jurisdictions (and asserted as affirmative defenses to the hedge fund’s claims in the Delaware case) appeared to be premised, at least in part, on allegations that the hedge fund violated the implied covenant of good faith and fair dealing.[26] But the claims in the related litigation were apparently dismissed.[27] And Vice Chancellor Laster made clear that “the implied covenant is not at issue in this motion.”[28] Presumably, there could be no implied covenant claim if everything the hedge fund did was permitted by the express terms of the contract and, in exercising its discretionary rights, the hedge fund acted in its own legitimate self-interest, not solely to harm the company.[29]
Nonetheless, Vice Chancellor Laster took this opportunity to place the hedge fund’s exercise of its express rights within the framework of classic contract theory. First, he invoked the concept that “[t]he act of contracting is presumptively a cooperative endeavor intended to create and allocate joint surplus.”[30] He then noted that “[a] legal regime reduces that surplus when it forces parties to be perpetually on their guard against opportunistic actions by their counterparties.”[31]
This classic contract theory is the basis for Judge Richard Posner’s famous interpretation of the implied covenant:
[C]ontracts do not just allocate risk. They also (or some of them) set in motion a cooperative enterprise, which may to some extent place one party at the other’s mercy. . . . The office of the doctrine of good faith is to forbid the kinds of opportunistic behavior that a mutually dependent, cooperative relationship might enable in the absence of [the] rule. “Good faith” is a compact reference to an implied undertaking not to take opportunistic advantage in a way that could not have been contemplated at the time of drafting, and which therefore was not resolved explicitly by the parties.[32]
But Judge Posner’s interpretation of the implied covenant is far more utopian than the pedestrian way Delaware courts have traditionally applied it[33]—that is, implying terms to fill gaps consistent with the contract’s express terms and policing the exercise of discretion so that the party wielding that discretion advances its legitimate business objectives rather than solely harms its counterparty.[34]
But even if we accepted Judge Posner’s more utopian view of the implied covenant, not all contracts “set in motion a cooperative enterprise.”[35] And, according to Vice Chancellor Laster, not all contracts necessarily create a surplus. “Some contracts,” according to Vice Chancellor Laster, “are zero sum.”[36] In a zero-sum contract, “what is good for one [party] will necessarily be bad for the other.”[37]
Vice Chancellor Laster characterized the forward contract and subscription agreement as a zero-sum contract.[38] While “[t]he implied covenant still applies to those contracts[,] . . . the nature of the contract matters for purposes of a party’s reasonable expectations.”[39] Perhaps so. But I would argue that even if the forward contract and subscription agreement did not constitute a zero-sum contract (i.e., even if some economic theory holds that those transaction agreements created a surplus),[40] the more important point is that the transaction did not “set in motion a cooperative enterprise.”[41] Moreover, how could there be “an implied undertaking not to take opportunistic advantage in a way that could not have been contemplated at the time of drafting”[42] if those “opportunistic advantages” were expressly set forth in the contract?[43]
Even if anti-opportunism is the goal of the implied covenant, it is not necessarily opportunistic for a party to exercise rights expressly bargained for in the parties’ written agreement, which were therefore part of the counterparty’s “reasonable expectations.”[44] “Indeed, the uncertainty inherent in any [good-faith] doctrine to regulate opportunistic behavior may itself be opportunistically invoked.”[45]
Conclusion
When I was practicing, I sometimes cautioned clients to walk away if they had not previously engaged in certain types of transactions where more experienced “scorpions” plied their trade. Whatever the scorpion promises to pay for that ride on your back may simply not be worth the risk that they will do what they have expressly retained the right to do. That advice still looks pretty good. And in the contractarian retelling of the frog-and-scorpion fable, referring to someone as a scorpion is just a recognition of the nature of their business model; and the benefits that they bargain for as part of that business model are simply the price of obtaining the benefit you are seeking from contracting with them in the first place.
The objective theory of contract holds thus:
The words parties use to bind themselves together in a contractual relationship matter. This is especially so when sophisticated parties have engaged in extensive negotiations that produce a bespoke contract. And it is so even when one of those parties later swears that all involved in the relationship intended the contract to say something other than what is captured in its clear and unambiguous terms.[46]
One justification for the objective theory of contract is that “[t]he promisee’s affairs can be planned based on what is spoken or written, communications that can also be subsequently referenced when questions regarding performance and obligation arise[,] [and] [s]ubjective, internal equivocations or doubts . . . cannot create havoc in the parties’ reasonable expectations.”[47] This means that the objective meaning of what is said in a contract is what creates the parties’ reasonable expectations, not any subjective, unexpressed meaning they may have intended.
When contracting, words matter, whether you are the scorpion or the frog. And lest we think only the frog needs to be cautious when making a contract with a scorpion, the scorpion also needs to consider the frog’s business model; some frogs include scorpions in their diet.[48]
So perhaps my not-uncommon invocation of Sergeant Phil Esterhaus’s admonition is appropriate for both the frog and the scorpion as contracting parties: “Let’s be careful out there!”[49]
Meteora Capital Partners, LP v. Roadzen Inc., No. CV 2025-0421-JTL, 2026 WL 2530118 (Del. Ch. Aug. 27, 2026). ↑
Id. at *29. ↑
Id. at *2. ↑
Id. ↑
Id. ↑
Id. ↑
Id. at *10. ↑
See id. at *3. ↑
See, e.g., id. at *5 (“The Forward Agreement gave [the hedge fund] the right to accelerate the Valuation Date, either after specified acceleration events or unilaterally in its ‘sole discretion.’”). ↑
Id. at *27. ↑
Id. at *11. ↑
Id. at *1. ↑
Id. at *20 (quoting City Inv. Co. Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993)). ↑
Id. at *27 (quoting Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010)). ↑
Id. at *28. ↑
Id. ↑
Id. ↑
Id. at *16. ↑
Id. at *11. ↑
Id. at *19. ↑
Id. at *28–29 (emphasis added). ↑
See The Scorpion and the Frog, Wikipedia (last visited Sept. 4, 2026). ↑
Id. ↑
Katarina Betterton, Can Scorpions Swim? 10 Facts About How They Handle Water, A-Z Animals (Dec. 5, 2023). ↑
In earlier Persian versions of the story, the frog was a turtle and the attempted sting by the scorpion failed. But in at least one of the Persian versions, the turtle dove underwater following the scorpion’s attempted sting and shook the scorpion off its back. See The Scorpion and the Frog, supra note 22. ↑
See Meteora Cap. Partners, 2026 WL 2530118, at *15, *19. ↑
See Roadzen, Inc. v. Meteora Cap. Partners, L.P., No. 25-CV-7867 (JPO), 2026 WL 1983435, at *1 (S.D.N.Y. July 9, 2026), appeal filed. ↑
Meteora Cap. Partners, 2026 WL 2530118, at *29. ↑
See Glenn D. West, The ‘Officious Bystander’ and the Implied Covenant of Good Faith and Fair Dealing, Bus. L. Today (May 20, 2026). ↑
Meteora Cap. Partners, 2026 WL 2530118, at *28. ↑
Id. ↑
Mkt. St. Assocs. Ltd. P’ship v. Frey, 941 F.2d 588, 595 (7th Cir. 1991) (emphasis added) (internal quotations and citations omitted). ↑
See Daniel Markovits, Good Faith as Contract’s Core Value, 2021 Mich. St. L. Rev. 1, 19 (2021) (distinguishing between the pedestrian and utopian versions of the implied covenant). ↑
See West, supra note 29. ↑
Mkt. St. Assocs., 941 F.2d at 595. ↑
Meteora Cap. Partners, 2026 WL 2530118, at *29. ↑
Paul S. Davies, The Basis of Contractual Duties of Good Faith, 1 J. Commonwealth L. 1, 22 (2019) (“Some contracts represent a zero-sum game, what is good for one will necessarily be bad for the other.”). ↑
Meteora Cap. Partners, 2026 WL 2530118, at *29. ↑
Id. ↑
See John Enman-Beech, The Good Faith Challenge, 1 J. Commonwealth L. 35, 59 (2019) (“All contracts involve parties co-operating to make a pie and then competing over how to divide it. In the simplest transaction, say I pay a dollar for a chocolate bar, the pie can be seen as the net utility gain of the parties. Presumably I value the chocolate bar at over a dollar (say $1.10) and the shop values it at less (say ¢90). By making this trade we’ve made a (twenty cent) pie and divided it (equally).”). But I am not so sure this idealized pie-making formula is always present in every contract. ↑
Mkt. St. Assocs. Ltd. P’ship v. Frey, 941 F.2d 588, 595 (7th Cir. 1991). ↑
Id. ↑
See MERA USA, LLC v. MCS Burbank, LLC, No. CV 2024-0188-MTZ, 2026 WL 2547077, at *22 (Del. Ch. Aug. 28, 2026) (“Where the contract reflects that the parties contemplated whether one party might take a particular action with particular consequences, the implied covenant should not be deployed.”); McKenzie v. BDO USA, P.C., No. 2025-0264-LWW, 2026 WL 191010, at *5 (Del. Ch. Jan. 26, 2026) (citations omitted) (“[I]f the scope of discretion is specified, there is no gap in the contract as to the scope of the discretion, and there is no reason for the Court to look to the implied covenant to determine how discretion should be exercised.”). ↑
Meteora Cap. Partners, 2026 WL 2530118, at *29. But see LanzaTech Glob., Inc. v. Vellar Opportunity Fund SPV LLC, No. 24-CV-6362 (JPO), 2025 WL 2323834, at *6 (S.D.N.Y. Aug. 12, 2025) (a case involving a similar forward contract in which the court refused to dismiss an implied covenant claim because “based upon facts alleged by LanzaTech, the intentional use of price depreciation alongside the threat of using the Seller VWAP Trigger Event to gain an advantage in negotiations surrounding the continued [forward purchase agreement] could be legally sufficient to constitute an attempt to ‘destroy[ ] or injur[e] the right of [LanzaTech] to receive the fruits of the contract’ by changing the terms of the original agreement under pressure that Vellar created” (internal citation omitted)). ↑
Davies, supra note 37, at 22. ↑
Zohar II 2005-1, Ltd. v. FSAR Holdings, Inc., No. CV 12946-VCS, 2017 WL 5956877, at *1 (Del. Ch. Nov. 30, 2017). ↑
Wayne Barnes, The Objective Theory of Contracts, 76 U. Cin. L. Rev. 1119, 1130 (2008). ↑
See American Bullfrog, Wikipedia (last visited Sept. 4, 2026) (“Bullfrog stomachs have been found to contain rodents, small lizards and snakes, other frogs and toads, . . . scorpions, tarantulas and bats. . . .” (emphasis added)). ↑
Hill Street Blues (MTM Enterprises 1981–1987) (statement of Sgt. Phil Esterhaus, played by Michael Conrad (recurring catchphrase across multiple episodes until Michael Conrad’s death in 1983)); see Glenn D. West, Contract Drafting 101—It Doesn’t Matter What You Actually Meant by What You Said; It Only Matters What Is Determined to Be Meant by What You Actually Said, Weil Glob. Priv. Equity Watch (Sept. 19, 2016) (one of my early invocations of Sgt. Esterhaus’s admonition as applied to deal lawyers). ↑
