MONTH-IN-BRIEF (Aug 2018)
Delaware Court of Chancery Exercises Broad Remedial Powers to Address Breach of a Contractual Right to an Exit Sale
By K. Tyler O’Connell, Morris James LLP
In a February 2018 post-trial decision, the Delaware Court of Chancery held that the majority member of Oxbow Carbon LLC–an entity controlled by billionaire William I. Koch–impeded a potential company sale in breach of an obligation in the parties’ limited liability company agreement to use “reasonable efforts” to sell the company, resulting in a lost liquidity opportunity. In a recent follow-on decision, In re Oxbow Carbon LLC Unitholder Litig., 2018 WL 3655257 (Del. Ch. Aug. 1, 2018), the Court canvassed available precedent in applying its broad remedial discretion to award a Court-monitored sale of the company as well as compensatory damages related to the frustrated sale process.
The Court first explained that it has broad powers to grant full, fair and just relief in all circumstances–authority with roots tracing back to the English monarchy’s practice of referring difficult disputes to a chancellor with greater discretion than the common law afforded. Here, the Court invoked that power to grant the minority members of the company specific performance of their bargained for right to exit the business, thus “enabling two warring factions to go their separate ways.” In doing so, the Court rejected Koch’s arguments that complex procedural steps in the parties’ agreement must be satisfied anew before any sale, reasoning that would provide Koch a “do over” rather than providing the minority with a sufficient remedy, and that such an approach also would imbue the remedy of specific performance “with the brittle stiffness of the old, common law writs.”