Chancery Enforces Parties’ Merger Agreement That Barred Claims Upon Termination of the Agreement

Morris James LLP

Yatra Online, Inc. v. Ebix, Inc., C.A. No. 2020-0444-JRS (Del. Ch. Aug. 30, 2021)

Agreements frequently specify how the termination of the agreement affects the parties’ rights and obligations. This case illustrates that Delaware courts generally enforce “effect of termination” provisions in merger agreements as readily as any other contract provision.

Yatra Online, Inc. and Ebix, Inc. entered a merger agreement that called for each share of Yatra stock to be converted into a right to receive a fixed ratio of shares of convertible preferred stock in Ebix. The preferred shares were to include a put right exercisable during the 25th month after closing.

The parties’ relationship soured before closing. According to Yatra, Ebix began a pattern of delay (including with the filing of an S-4 with the SEC which was a condition for the consummation of the merger). Following the decline of Ebix’s stock price during the COVID-19 pandemic, Ebix secretly negotiated a credit agreement that would undermine the put right -- making the deal less palatable to Yatra, too. Ultimately, Yatra terminated the agreement and filed the instant action asserting, among other things, that Ebix breached the merger agreement and an extension agreement, and that Ebix committed fraud.

Upon Ebix’s motion, the court dismissed all of Yatra’s claims. The contract claims failed because, upon termination, a provision of the merger agreement expressly barred any claims related to “the obligations of the parties.” the court concluded this language also barred claims under the parties’ extension agreement because that agreement was a slight modification of the merger agreement, not a standalone agreement. Therefore, once Yatra elected to terminate, it lost its right to sue for breach of any obligation under the merger agreement except for prior fraud. 

Yatra’s fraud claim fared no better. According to Yatra, Ebix promised that it was willing to renegotiate the merger agreement even though Ebix did not actually intend to consummate the merger on any terms. Yatra argued that, but for Ebix’s false promises, Yatra would have sought specific performance before Ebix undermined the deal. In the court’s view, however, Yatra could not have sought specific performance at the time of the misrepresentations because the SEC had not approved the S-4 registration statement for the shares to be issued in the merger. Hence, Yatra could not have been damaged by the loss of the ability to sue for specific performance. Because Yatra did not argue any other theory of fraud damages, the court also dismissed Yatra’s fraud claim.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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