Current Month (May 2026)
Delaware Court of Chancery Analyzes Whether a Type II (Preliminary) Agreement Will Support Specific Enforcement
By Sarah Garton, Garrett, PLLC; and Shawn Garrett, Garrett PLLC
On May 13, 2026, the Court of Chancery of Delaware issued its decision in the case of Postbit, Inc. (“Postbit”) v. Look Dynamics, Inc. (“Dynamics”) and awarded Postbit attorneys’ fees, costs and expenses, reliance damages, and pre- and post-judgment interest.
In December 2023, the parties entered into a term sheet under which they agreed to negotiate in good faith to execute a definitive merger agreement. Pending execution of the definitive merger agreement, the parties also agreed that Dynamics would sell to Postbit an exclusive license to all its technology. Postbit paid $360,605.12 to Dynamics based on assurances that Dynamics was committed to executing the exclusive licensing agreement, but in May 2024 Dynamics told Postbit that they had decided to look elsewhere, and that the term sheet had expired in January.
Postbit filed suit asserting claims for breach of contract, breach of the implied covenant, and promissory estoppel, and requested specific performance and, in the alternative, damages. In January 2025, the Court denied Dynamics’s motion to dismiss except for the request for specific performance. The Court reasoned that since the term sheet is a Type II agreement (a preliminary agreement preceding a definitive agreement), it does not lend itself to specific enforcement and that the better claim is for damages.
Following Dynamics’s failure to obtain substitute counsel after its retained counsel withdrew, the Court entered default judgment on the issue of liability. On April 17, 2026, the Court held a hearing for remedies. Postbit sought attorneys’ fees, costs, and expectation damages or, in the alternative, reliance damages, plus pre-judgment and post-judgment interest on any damages award. The Court awarded Postbit attorneys’ fees due to Dynamics’s “dilatory litigation conduct” as well as costs as the prevailing party. Citing Siga Technologies v. PharmAthene, the Court acknowledged that in a breach of contract, expectation damages can be established if the plaintiff proves the existence of damages with reasonable certainty, even if the amount is an estimate. However, here the Court found that Postbit failed to present any meaningful evidence to support expectation damages. Postbit submitted evidence that Dynamics had promised to “change the world” and that its technology could minimize software limitations, thus presenting an attractive opportunity, but that evidence was insufficient to prove expectation damages. Taking into account the “inherently speculative task of awarding expectation damages for a breach of a Type II agreement,” the Court denied Postbit’s request for expectation damages. The Court did find that Postbit had met its burden with respect to reliance damages and awarded the full amount of $360,605.12 that Postbit had paid to Dynamics, in addition to pre- and post-judgment interest.
Chancery Court Rejects Corporation’s Attempt to Bind Stockholders to Release Attached to Parties’ Merger Agreement
By Lisa R. Stark, Hirschler Fleischer
Joinder agreements are often deployed in mergers and acquisitions to attempt to bind target stockholders to indemnification agreements, releases and waivers of appraisal rights by buyers seeking recourse against the target’s stockholders for breaches of the target’s representations and warranties, and to minimize post-closing deal litigation. In a recent decision, Chertok v. OnSolve, LLC, C.A. No. 2020-0417-PAF (Del. Ch. April 21, 2026), the Delaware Court of Chancery held that a target stockholder who asserted, but then withdrew, a demand for appraisal rights could not be forced to sign a joinder agreement containing, among other things, a release and waiver of appraisal rights as a condition to receiving his merger consideration even where the joinder was attached to the merger agreement and the merger agreement expressly conditioned the stockholders’ receipt of the merger consideration upon the signing of a joinder agreement. A target stockholder who had chosen not to comply with the corporation’s demands later sued the corporation, asserting claims for breach of the certificate of incorporation and for unjust enrichment. The corporation withdrew the conditions after the stockholder filed suit but contended that it was not required to pay prejudgment interest. The stockholder, on the other hand, maintained that he was not only entitled to interest, but also to damages exceeding the per share consideration provided for in the merger agreement on the basis that he was not bound by the provisions of the merger agreement that deducted transaction expenses, including management bonuses, from the merger consideration via escrow holdbacks.
Here, the Court held that: (1) there was no consideration for the release contained in the joinder agreement, and (2) the merger agreement violated the target’s certificate of incorporation by conditioning the stockholder’s receipt of the merger consideration on the signing of the release contrary to Delaware law. According to the Court, Delaware’s appraisal statute entitles stockholders to the merger consideration upon withdrawal of the demand within sixty days of the effective date, a requirement plaintiff met. However, the Court rejected plaintiff’s claimed entitlement to merger consideration without any deduction for expenses under escrow provisions in the merger agreement, finding that plaintiff was bound by the provisions of the merger agreement providing for those deductions. The Court ordered defendant to pay plaintiff his merger consideration plus simple interest at 6.75 percent, which was the legal rate on July 29, 2017, when plaintiff was entitled to payment of the merger consideration.
The Court of Chancery’s decision in Chertok built on its earlier decision in Cigna Health & Life Insurance Co. v. Audax Health Solutions, Inc., 107 A.3d 1082 (Del. Ch. 2014), in which the Court held that stockholders could not be bound to uncapped and indefinite indemnification obligations and a release via a letter of transmittal where the letter of transmittal was not attached to the merger agreement or supported by consideration. Here, unlike Cigna, the merger agreement attached the joinder agreement containing the release as an exhibit to the merger agreement, but the Court found that there was no consideration for the release.
