Douglas M. Chertok and SDTC Advisors LLC v. OnSolve, LLC

Summary

In this post-trial memorandum opinion, the Delaware Court of Chancery holds that OnSolve breached the corporation’s certificate of incorporation by conditioning payment of merger consideration on a stockholder’s execution of a joinder and release agreement. The court concludes that the stockholder’s damages are limited to the merger consideration calculated under the merger agreement and awards prejudgment interest at the applicable legal rate without compounding. The court also holds that SDTC Advisors lacked standing to pursue the breach-of-contract claim and that the unjust-enrichment claim was duplicative.

Holdings

1. SDTC lacked standing because it was not a stockholder of SWN at the time of the merger; any remaining interest in the warrant belonged, if at all, to Chertok individually.
2. OnSolve breached the certificate of incorporation by conditioning payment of merger consideration on Chertok's execution and delivery of the Joinder, Indemnification and Release Agreement.
3. Chertok was not entitled to merger consideration exceeding the amount calculated under the merger agreement. His damages were $469,513.19 for his portion of the merger consideration and released escrow amounts, plus $29,044.83 in agreed distributions, for a total of $498,558.02.
4. The unjust-enrichment claim was dismissed as duplicative because the breach-of-contract claim provided an adequate remedy and the alleged wrong arose from relationships governed by contract.
5. Chertok was entitled to prejudgment interest as a matter of right, but the court exercised its discretion to award simple interest at 6.75%, the legal rate in effect when payment became due, rather than compound interest or the requested higher rate.
6. Plaintiffs were not entitled to attorneys' fees because they failed to show that OnSolve acted in bad faith or that another recognized exception to the American Rule applied.

Questions Presented

1. Whether SDTC Advisors LLC had standing to assert a breach-of-contract claim based on SWN's certificate of incorporation.
2. Whether OnSolve breached the certificate of incorporation by conditioning payment of merger consideration on execution of the Joinder, Indemnification and Release Agreement.
3. Whether Chertok was entitled to merger damages exceeding the per-share consideration calculated under the merger agreement by avoiding deductions for management bonuses, transaction expenses, and escrow obligations.
4. Whether Chertok was entitled to prejudgment interest and, if so, what rate and method of calculation applied.
5. Whether Plaintiffs were entitled to attorneys' fees under the bad-faith exception to the American Rule.

Disposition

other