Del. Court Says Merger is Assignment “By Operation of Law”
A recent Delaware Superior Court decision serves as a reminder that, under Delaware law, a merger may well involve an assignment by operation of law — even if the contract itself doesn’t specifically use the term “merger” in the language defining assignments. In MTA Canada Royalty Corp. v. Compania Minera Pangea, (Del. Super.; 9/20), the Delaware Superior Court held that a merger involved an impermissible assignment of rights under a mineral rights royalty agreement.
The Court rejected the plaintiff MTA’s argument that the anti-assignment clause did not extend to an “amalgamation” effected under Canadian law because the agreement did not expressly include mergers or amalgamations within the agreement’s non-assignment clause, and because the defendant did not suffer any unreasonable risk of harm as a result of the merger.
Instead, the Court determined that, under Delaware law, language in the contract prohibiting assignments “by operation of law” covered a merger in which the party in question did not survive. The Court also rejected the plaintiff’s contention that customary language allowing the agreement to be enforced by “successors and assigns” created an ambiguity as to whether the non-assignment clause was intended to cover successorship situations. To the contrary, it found that the defendant’s interpretation of the non-assignment clause’s successorship language was the only reasonable one: “successors and assignees can enforce the contract if they are valid successors or assignees.”
MTA also attempted to raise the unfairness of the result — it would let CMP off the hook for a payment that it would have otherwise been required to make. The Court wasn’t sympathetic:
In sum, CMP’s motion raises a straightforward issue of contract interpretation. Section 6.12 plainly prohibits assignments, including by operation of law, and that phrase unambiguously includes assignment through merger. MTA’s convoluted analysis does not create an ambiguity. Faced with this plain language that its predecessor voluntarily negotiated, MTA’s only “hook” is the apparent unfairness of allowing CMP to avoid making a payment it allegedly owes. But it is not this Court’s function to save sophisticated contracting parties from an unfair or unanticipated result of their own corporate transactions.
The Court said the parties could have avoided this result through careful drafting during the negotiating process or by using a different structure for the amalgamation. They didn’t, so the court held MTA to its bargain.
-John Jenkins, DealLawyers.com September 24, 2020
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