Superior Court Dismisses Successor-by-Merger’s Claims Where Underlying Contract Contained Anti-Assignment Clause

Morris James LLP

MTA Royalty Corp. v. Compania Minera Pangea, S.A. DE C.V., C.A. No. N19C-11-228 AML CCLD (Del.  Super. Sept. 16, 2020)

Plaintiff’s predecessor-in-interest conveyed mineral rights to Defendant. Under the agreement, Defendant owed a conditional additional $1 million at a future date. Before the payments became due, the predecessor was merged out of existence. As a result, Defendant asserted it had no obligation to pay the additional amount because the sale agreement included an anti-assignment provision that barred assignment absent Defendant’s consent, which was lacking.

In prior litigation, the Superior Court dismissed claims by the predecessor’s former stockholders seeking the payments. There, the Court concluded that the stockholders were not parties who could enforce the agreement directly; and any purported transfer of rights was prohibited by the agreement’s anti-assignment clause.

Here, too, the Court found that the anti-assignment clause prohibited any relief and dismissed the claims. Although the anti-assignment clause did not reference mergers directly, the clause expressly prohibited assignment “by operation of law.” The Superior Court explained that Delaware courts generally agree that this phrasing includes “mergers where the contracting company is not the surviving entity” unless such a reading creates ambiguity between the anti-assignment clause and the remainder of the agreement. Although Plaintiff argued that the agreement’s references to “successors” created ambiguity, the Court concluded that those references could only be reasonably read to include valid successors and that to read the agreement otherwise would nullify the “by operation of law” language.

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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