Shearman & Sterling LLP | M&A and Corporate Governance Litigation Blog | Delaware Court Of Chancery Orders Specific Performance, Finding Plaintiff Did Not Breach Its Contractual Obligation To “Reasonably Cooperate”<br >  
M&A and Corporate Governance Litigation
This links to the home page
FILTERS
RECENT POSTS
Delaware Supreme Court Holds MFW Is Applicable To Controlling Stockholder Transactions Even Outside Of Freeze-Out Context
Delaware Requires Compliance With DGCL Provisions Governing Board Negotiation And Board And Stockholder Approval Requirements For Merger Agreements
Delaware Chancery Court Applies Entire Fairness To State Of Incorporation Conversions

  • Delaware Court Of Chancery Orders Specific Performance, Finding Plaintiff Did Not Breach Its Contractual Obligation To “Reasonably Cooperate”
     
    09/18/2017
    On September 11, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery ordered defendant, Comdata, Inc. (“Comdata”), to specifically perform under, and pay damages for its termination of, its merchant agreement with plaintiff, TA Operating LLC (“TA”).  TA Operating LLC v. Comdata, Inc., C.A. No. 12954-CB (Del. Ch. Sept. 11, 2017).  Specifically, the Court held that defendant’s termination of the merchant agreement could not be excused because plaintiff had not materially breached its obligation to “reasonably cooperate” with defendant to implement new technology “as soon as reasonably practical.”  In making this determination, the Court engaged in a “fact-specific inquiry” and relied in part on the parties’ “course of conduct,” finding that plaintiff had “made good progress” before encountering technological issues that caused delays and highlighting that defendant stayed “silen[t]” until it purported to terminate the agreement.   

    TA, a highway travel center operator, and Comdata, a provider of fuel cards to the trucking industry, had been parties to a merchant agreement pursuant to which Comdata would process fuel transactions for TA in exchange for transaction fees.  In 2011, Comdata approached TA proposing the implementation of radio frequency identification (“RFID”) transaction processing.  In December 2011, the parties entered into an RFID agreement and, “at TA’s request,” an amendment to their merchant agreement, which extended the term and reduced the transaction fees Comdata was entitled to charge TA.  The RFID agreement provided that TA and Comdata would “reasonably cooperate” to complete the integration of the RFID technology with TA’s point-of-sale system “as soon as reasonably practical.”  According to the Court, TA and Comdata “performed” under the amended merchant agreement and the RFID agreement for nearly five years, during which TA “encountered a number of difficulties” with the integration.  In September 2016, Comdata sent a notice of default asserting that TA had breached its obligation to integrate and launch the RFID system.  Comdata “terminated” the merchant agreement shortly thereafter.  TA filed suit for breach of contract, seeking specific performance and damages.

    Pursuant to choice-of-law provisions in both contracts, the Court applied Tennessee law. The Court found that the RFID agreement had been consideration for the merchant agreement amendment, but held that defendant’s termination of the merchant agreement would have been excusable only if plaintiff had materially breached its obligations.  As to this latter point, the Court determined that what constitutes “reasonabl[e] cooperat[ion]” to perform “as soon as reasonably practical” is a “fact-specific inquiry” that depends upon “the subject matter of the contract, the situation of the parties, their intention in what they contemplated at the time the contract was made, and the circumstances attending the performance.”  The Court found that TA had “made good progress” before it encountered technological issues that caused delays and that TA “acted reasonably” in not launching the RFID software while it worked to address problems that had arisen in its own point-of-sale system (with which the RFID technology was to have been integrated).  The Court also highlighted that the “course of conduct pursued by the parties” is “strong[] evidence” of their original intent.  In this regard, the Court emphasized that “Comdata’s three-year silence” before its notice of default “fundamentally undermines its contention that TA did not reasonably cooperate to complete the RFID installation as soon as reasonably practical, or that the purported delay was material.”

    Further, the Court found that “termination of the merchant agreement would have a devastating and immediate impact on TA’s business and its customers.”  The Court therefore held that TA is entitled to specific performance of the merchant agreement, in addition to damages incurred.
    CATEGORY: Deal Disputes

LINKS & DOWNLOADS