[co-author: Elizabeth Cochrane]
In Brown v. Matterport, Inc., et al., C.A. No. 2021-0595-LWW (Del. Ch. Jan. 10, 2022), the Delaware Court of Chancery held that transfer restrictions restricting trade of stock “outstanding immediately” after a de-SPAC merger did not apply to an officer who received his stock more than 100 days after the merger. While the issues presented by SPACs and de-SPAC mergers may be new, in this case the court applied traditional principles of contract interpretation to decline to rewrite unambiguous contractual language.
In February 2021, Gores Holding VI, Inc., a special purpose acquisition company (SPAC) acquired a target company, Matterport Operating LLC (Legacy Matterport), in a de-SPAC merger. Following the merger, Legacy Matterport became a wholly owned subsidiary of the surviving entity, Matterport Inc. Legacy Matterport stockholders, including plaintiff William J. Brown, the CEO of Legacy Matterport, had the right to receive shares of Matterport Class A common stock.
In anticipation of the merger, Gores Holding adopted amended and restated bylaws. The new bylaws imposed transfer restrictions on shares of Matterport Class A common stock. The transfer restrictions prevented certain holders of Class A common stock “immediately following the closing” from trading their shares for 180 days post-merger. Brown brought suit against Matterport alleging (i) the transfer restrictions did not apply to him, (ii) the transfer restrictions were invalid, and (iii) individual defendants violated their fiduciary duties in connection with the merger.
The court bifurcated the matter, granting expedited review on the first claim – whether Brown’s shares were subject to the transfer restrictions. The defendants argued that Brown’s reading of the transfer restrictions would render it a nullity and produce an absurd result because no Legacy Matterport shareholder received shares “immediately following” the merger. Finding the language of the bylaws unambiguous, the court held that the transfer restrictions applied only to shareholders who held shares “outstanding immediately following the closing” of the merger. Unlike other shareholders who received their shares within a few days of closing, Brown did not receive his shares in Matterport until approximately three and a half months after the merger, after he sent a letter of transmittal to Matterport’s transfer agent, which the court concluded did not fit the plain language definition of “immediately.” As a result, the court concluded Brown did not obtain his shares “immediately” following the merger, and thus he was not bound by the transfer restrictions.
Brown's remaining claims, including his breach of fiduciary duty claims against Legacy Matterport’s former directors, are still pending before the court.
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