When Boilerplate, Customized Clauses Collide in Media Merger Deals

Although they were not parties to the agreement, the Dolans were heavily involved in the negotiations. Among the assets Altice acquired in the merger was a collection of regional cable news channels, collectively known as News12 Networks LLC. News12 was of particular importance to the Dolans, who alleged that they initially sought to carve it out of the transaction, but subsequently agreed to include it in exchange for assurances in the merger agreement that Altice would continue to operate News12 "in a manner that preserved its employee base, quality reporting and programming."

To achieve that goal, Altice agreed in §6.4(f) of the merger agreement that it would operate News12 substantially in accordance with News 12's then-existing business plan at least through 2020.

The Dolans contend that §6.4(f) was included expressly for their benefit. But in spring 2017, a year after the merger closed, Altice took several actions contrary to the News12 business plan, including terminating a number of employees and planning additional, wide-scale downsizing of News12's workforce. The Dolans and two News 12 on-air anchors sued to specifically enforce §6.4(f) and enjoin Altice from terminating any News12 employees or otherwise operating News12 in a manner contrary to its business plan.

Altice moved to dismiss on two primary grounds. First, it asserted that §6.4(f) did not survive consummation of the merger because it was not among the provisions that survived closing as set forth in §9.1. The §9.1 survival clause stated: "This Article IX and the agreements of the Company, Parent and Merger Sub contained in Article IV and Sections 6.8 (Employee Benefits), 6.9 (Expenses) and 6.10 (Director and Officer Liability) shall survive the consummation of the Merger and the Transactions. This Article IX and the agreements of the Company, Parent and Merger Sub contained in Section 6.9 (Expenses), Section 6.11 (Financing), Section 6.12 (Indemnification Relating to Financing) and Section 8.5 (Effect of Termination and Abandonment) and the Confidentiality Agreement shall survive the termination of this Agreement. All other representations, warranties, covenants and agreements in this Agreement shall not survive the consummation of the Merger and the Transactions or the termination of this Agreement."

Second, Altice claimed that the plaintiffs, including the Dolans, lacked standing to assert claims under the merger agreement because they were not parties to that agreement and §9.8 specifically disclaimed any intention to confer rights on third-party beneficiaries. Except for stated exceptions dealing with "Director and Officer Liability," "Financing Sources" and shareholder rights, §9.8 stated that the parties signing the agreement "hereby agree that their respective representations, warranties and covenants set forth in this Agreement are solely for the benefit of the other party hereto, in accordance with and subject to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any Person other than the parties hereto any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein."

Chancery Court Vice Chancellor Joseph R. Slights III nevertheless denied Altice's motion to dismiss with respect to the Dolans' claims after dismissing the claims of the other plaintiffs. Reiterating Delaware's familiar contract interpretation standards, he wrote that although "the goal of contract construction … is to 'harmonize' related contractual provisions … that simply cannot be done here by looking only within the four corners" of the merger agreement. Instead, Vice Chancellor Slights explained, "Extrinsic evidence is required to determine what §6.4(f) was intended to mean and how, if at all, it is to be enforced."

The vice chancellor recognized that, "not surprisingly, as with most contracts, the merger agreement features some boilerplate, some bespoke [i.e., customized] provisions and some bespoke boilerplate. The question presented here is whether the boilerplate and bespoke boilerplate should be construed, as a matter of law, to render a bespoke provision superfluous." In this case, the question was whether §6.4(f) was rendered "superfluous" by more standard provisions regarding survival and third-party beneficiaries. The vice chancellor determined that he could not conclude, as a matter of law, that the comparatively boilerplate provisions removed any utility from §6.4(f).

One of the primary questions was whether the Dolans had standing to enforce §6.4(f) despite not being identified in that section or §9.8 as third-party beneficiaries. Citing language from the lawsuit complaint to demonstrate standing for enforcing a contract as a third-party beneficiary, the chancery court noted a plaintiff must plead facts that allow a reasonable inference that "the contracting parties intended that the third party beneficiary benefit from the contract, the benefit was intended as a gift or in satisfaction of a pre-existing obligation to that person, and the intent to benefit the third party was a material part of the parties' purpose in entering into the contract." Vice Chancellor Slights concluded that the Dolans met that standard by alleging that they would not have agreed to include News12 in the transaction if Altice had not agreed to operate it in accordance with its business plan, and that §6.4(f) was included in the merger agreement to "induce the Dolan family to sell their Cablevision stock, merge Cablevision and News12 into Altice and sign the written consent in favor of the merger agreement."

The chancery court also rejected Altice's argument that §6.4(f) was unenforceable because it was not listed in §9.1 enumerating the provisions that survived consummation of the merger, and that, as a result, §6.4(f) was "simply a goodwill gesture and was in no way meant to bind Altice before or after the merger closed." In response, the plaintiffs noted that §6.4(f) "is not drafted as an expression of good will" but instead unmistakably creates an obligation.

Evaluating these two sections and the parties' arguments, Vice Chancellor Slights applied two canons of construction to determine that the interplay between the two provisions was sufficiently ambiguous to deny Altice's motion to dismiss. First, the court determined that, under Altice's theory, the survival clause (§9.1) would render §6.4(f) superfluous because it would not be enforceable by anyone, and that such a result is "inconsistent with the contractual [canon] that discourages the court from construing a contract in a way that results in 'mere surplusage.'" Second, the court found Altice's interpretation "also creates an arguably 'absurd result' by rendering meaningless the protections the Dolan family allege they bargained for with respect to News12." If the parties had clearly expressed in the merger agreement whether they intended for §6.4(f) to survive closing, the result may have been different, but the court concluded that the agreement, as drafted, was not clearly unambiguous.

As seen in Dolan, no matter how many possible future events parties contemplate when drafting their agreements, some things may still fall through the cracks. To ensure that parties' expectations are met within Delaware's contract interpretation doctrine, they should carefully specify which provisions and obligations in agreements survive closing, and who has the right to enforce those obligations. Express disclaimers of third-party beneficiaries may be invalid if other provisions of the agreement would be rendered meaningless in the absence of an enforcement mechanism. And even the most mundane boilerplate provisions may impact the parties' rights and obligations if the alternative would render other provisions as surplusage.

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James H.S. Levine ([email protected]) and Douglas D. Herrmann ([email protected]) are attorneys with Pepper Hamilton based in the firm's Wilmington, DE, office. They concentrate their practice in the areas of corporate governance and commercial litigation, stockholder litigation, fiduciary duties, and partnership and limited liability company disputes.