Luigi Crispo v. Elon R. Musk

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LUIGI CRISPO, )
)
Plaintiff, )
)
v. ) C.A. No. 2022-0666-KSJM
)
ELON R. MUSK, X HOLDINGS I, )
INC., AND X HOLDINGS II, INC., )
)
Defendants. )

OPINION

Date Submitted: June 23, 2023
Date Decided: October 31, 2023

Michael Hanrahan, Samuel L. Closic, John G. Day, Robert B. Lackey, PRICKETT,
JONES & ELLIOTT, P.A., Wilmington, Delaware; Max Huffman, Joseph A.
Pettigrew, SCOTT+SCOTT ATTORNEYS AT LAW LLP, San Diego, California;
Justin O. Reliford, Jing-Li Yu, SCOTT+SCOTT ATTORNEYS AT LAW LLP, New
York, New York; Counsel for Plaintiff Luigi Crispo.

Edward B. Micheletti, Lauren N. Rosenello, SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP, Wilmington, Delaware; Counsel for Defendants Elon R. Musk, X
Holdings I, Inc., and X Holdings II, Inc.

McCORMICK, C.
This decision addresses the question of whether a stockholder of a target

company has third-party beneficiary status to sue for lost-premium damages under a

merger agreement that expressly contemplates lost-premium damages. The question

arises in a curious procedural context—on a petition for mootness fees, where the

plaintiff-stockholder must demonstrate that his mooted claim was meritorious when

filed. The short answer is that the plaintiff’s claim was not meritorious when filed

because either he did not have third-party beneficiary status or his third-party

beneficiary rights had not yet vested. Thus, this decision denies the plaintiff’s

petition for mootness fees. The simplicity of the short answer runs the risk of

masking the analytical complexity of the question presented. For a full account of

this Gordian-knot of an issue and how the court cuts it, read on.

I. FACTUAL BACKGROUND

On April 25, 2022, Elon R. Musk, X Holdings I, Inc., and X Holdings II, Inc.

(collectively, “Defendants”) agreed to acquire Twitter, Inc. pursuant to an Agreement

and Plan of Merger (the “Merger Agreement”).1 On July 8, 2022, Defendants’ counsel

sent a letter to Twitter purporting to terminate the Merger Agreement.2 On July 12,

2022, Twitter filed a complaint against Defendants in this court seeking specific

enforcement of the Merger Agreement.3 That filing launched highly expedited

proceedings toward an October trial.4 By October 3, 2022, Musk had changed his

1 C.A. No. 2022-0666-KSJM, Docket (“Crispo Dkt.”) 1 (“Compl.”) ¶ 19.

2 Compl. ¶ 55.

3 Twitter, Inc. v. Musk, C.A. No. 2022-0613-KSJM, Docket (“Twitter Dkt.”).

4 See id.
mind again and decided to close on the original terms of the Merger Agreement.5 On

October 6, 2022, the court granted a stay of proceedings to allow Musk the

opportunity to consummate the deal.6 The deal closed on October 27, 2022.7

Before the deal closed, Plaintiff Luigi Crispo (“Plaintiff”) held 5,500 shares of

Twitter common stock.8 He filed suit on July 29, 2022, asserting two causes of action.9

Plaintiff claimed that Musk breached his fiduciary duties as a controller of Twitter

and that Defendants breached the Merger Agreement.10 Plaintiff sought specific

performance and damages.11

Defendants moved to dismiss Plaintiff’s complaint.12 The parties fully briefed

that motion as of September 8, 2022,13 and the court held oral argument on

September 19, 2022.

On October 11, 2022, the court issued a Memorandum Opinion dismissing most

of Plaintiff’s complaint (the “Dismissal Decision”).14 The Dismissal Decision held that

Plaintiff had failed to state a claim for breach of fiduciary duty against Musk because

5 Twitter Dkt. 698.

6 Twitter Dkt. 715 at 1–2.

7 Twitter Dkt. 729 at 1–2.

8 Compl. ¶ 1.

9 Id. ¶¶ 72–87.

10 Id. ¶¶ 82–87.

11 Id. ¶¶ 72–81.

12 Crispo Dkt. 15.

13 Crispo Dkt. 25.

14 See Crispo v. Musk, 2022 WL 6693660, at *16 (Del. Ch. Oct. 11, 2022) (Dismissal

Decision).

2
the complaint did not adequately allege that Musk controlled Twitter before the

transaction closed.15

The Dismissal Decision further held that Plaintiff lacked standing to seek

specific performance of the Merger Agreement.16 The Dismissal Decision left open

the possibility, however, that the damages provision in the Merger Agreement

conveyed third-party beneficiary status to stockholders claiming damages for breach

of the Merger Agreement.17 The court permitted supplemental briefing on this point

and held in abeyance consideration of Defendants’ argument concerning Plaintiff’s

damages claim.18 Supplemental briefing never occurred.

This action, presumed dead by many when Defendants closed the deal, sprung

back to life zombie-like months later, when Plaintiff claimed partial credit for the

deal’s consummation and petitioned the court for mootness fees in the amount of $3

million.19 Defendants opposed Plaintiff’s petition.20

II. LEGAL ANALYSIS

The Delaware Supreme Court has held that, to be entitled to mootness fees, a

plaintiff must demonstrate that: (i) “the suit was meritorious when filed;” (ii) the

action that produced the benefit to the corporation “was taken by the defendants

15 Id. at *15–16.

16 Id. at *11.

17 Id.

18 Id. at *16.

19 Dkt. 43; Dkt. 47 (“Pl.’s Opening Br.”) at 1.

20 Dkt. 57 (“Defs.’ Answering Br.”); see also Dkt. 59 (Pl.’s Reply Br.).

3
before a judicial resolution was achieved;” and (iii) “the resulting corporate benefit

was causally related to the lawsuit.”21

Defendants dispute the first and third elements, arguing that Plaintiff’s suit

was not meritorious when filed and played no part in causing the deal to close. This

decision holds that Plaintiff failed to demonstrate that his claim was meritorious

when filed, thus he is not entitled to mootness fees. Because the first issue is

dispositive, the court does not reach the issue of causation.

“In order for a suit to be considered meritorious when filed, the complaint must

have been able to have survived a motion to dismiss, whether or not such a motion

was filed.”22 Here, the Dismissal Decision narrowed the analysis by dismissing all

but one of Plaintiff’s claims pursuant to Court of Chancery Rule 12(b)(6).23 For

Plaintiff to prevail on his mootness fee petition, therefore, he must demonstrate that

his sole remaining claim seeking lost-premium damages was meritorious when filed.

21 United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997)

(citing Allied Artists Pictures Corp. v. Baron, 413 A.2d 876, 878 (Del. 1980)).
22 BTZ, Inc. v. Nat’l Intergroup, Inc., 1993 WL 133211, at *2 (Del. Ch. Apr. 7, 1993)

(citing Chrysler Corp. v. Dann, 223 A.2d 384, 387 (Del. 1966)).
23 Plaintiff collaterally attacks the Dismissal Decision. He argues that his suit was
moot as of the date that the court stayed the Twitter lawsuit to permit Musk to close,
October 6, 2022, and thus the October 11 Dismissal Decision was advisory and
without any effect on his current arguments. Pl.’s Opening Br. at 8–9. Of course, the
mooting action was the closing, not the stay. The closing did not occur until 16 days
after the court issued the decision, and it was far from clear when the court entered
the stay that Musk would in fact close. But even if the court were to let Plaintiff
reargue the issues resolved by the Dismissal Decision, it would not matter. This same
jurist would reach the same conclusions reflected in the Dismissal Decision.

4
Plaintiff was not a party to the Merger Agreement, and so the merits of his

claim hinge on the argument that he had standing to sue for breach of the agreement

as a third-party beneficiary.24 Although one provision of the Merger Agreement

(Section 9.7) expressly disclaims third-party beneficiaries, a separate provision of the

Merger Agreement (Section 8.2) states that, in the event of breach, the buyers will be

liable for “the benefits of the transactions contemplated by this Agreement lost by the

Company’s stockholders . . . taking into consideration all relevant matters, including

lost stockholder premium[.]”25 This decision refers to the quoted language of Section

8.2 as the “Lost-Premium Provision.”

The parties urge the court to draw diametrically different conclusions from the

Lost-Premium Provision. Plaintiff invokes the general/specific canon of contractual

interpretation to argue that the Lost-Premium Provision reflects the parties’ intent

to make stockholders third-party beneficiaries for the purpose of recovering lost-

24 NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 434 (Del. Ch.

2007) (“As a general rule, only parties to a contract and intended third-party
beneficiaries may enforce an agreement’s provisions.” (citing Comrie v. Enterasys
Networks, Inc., 2004 WL 293337, at *2 (Del. Ch. Feb. 17, 2004))); see also Amirsaleh
v. Bd. of Trade of City of New York, Inc., 2008 WL 4182998, at *4 (Del. Ch. Sept. 11,
2008) (same); E.I. du Pont de Nemours & Co. v. MacDermid Printing Sols. L.L.C., 248
F.Supp.3d 570, 575 (D. Del. 2017) (same); Madison Realty P’rs 7, LLC v. Ag ISA, LLC,
2001 WL 406268, at *5 (Del. Ch. Apr. 17, 2001) (same); Triple C Railcar Serv., Inc. v.
City of Wilm., 630 A.2d 629, 633 (Del. 1993) (“[A] third person, who is, in effect, a
stranger to the contract, may enforce a contractual promise in his own right and name
if the contract has been made for his benefit.” (citing Wilm. Housing Auth. v. Fidelity
& Deposit Co. of Md., 47 A.2d 524 (Del. 1946))).
25 Dkt. 15, Ex. A (Merger Agreement, cited as “Merger Agr.”) § 8.2 (parentheses
omitted).

5
premium damages.26 Defendants dispute this, citing the Merger Agreement’s no-

third-party-beneficiaries provision and the general reticence of Delaware law to

extend third-party beneficiary status to stockholders under corporate contracts.27

They also point to secondary authorities reflecting transactional attorneys’ belief that

provisions like the Lost-Premium Provision were intended to rebalance the

negotiation leverage threatened by Consolidated Edison, Inc. v. Northeast Utilities

(“Con Ed”)28 while simultaneously avoiding the inefficiencies associated with

granting stockholders third-party beneficiary status.29

The court’s analysis of the parties’ competing contractual interpretations

proceeds in four parts. First, the court summarizes black-letter law governing third-

party beneficiary status. Second, the court discusses considerations under Delaware

law unique to stockholders claiming third-party beneficiary status. Third, the court

discusses the Lost-Premium Provision and situates it in the context of Con Ed

provisions. Last, the court addresses whether the Lost-Premium Provision grants

stockholders third-party beneficiary status to seek lost-premium damages.

A. The Law Of Third-Party Beneficiaries

To allege standing as a third-party beneficiary, a plaintiff must plead that:

“(i) the contracting parties . . . intended that the third party beneficiary benefit from

26 See Pl.’s Opening Br. at 32–40.

27 Defs.’ Answering Br. at 9–10, 16.

28 426 F.3d 524 (2d Cir. 2005).

29 Defs.’ Answering Br. at 19–23.

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the contract, (ii) the benefit [was] intended as a gift or in satisfaction of a pre-existing

obligation to that person, and (iii) the intent to benefit the third party [was] a

material part of the parties’ purpose in entering into the contract.”30

“A third-party beneficiary’s rights are measured by the terms of the contract.”31

The benefits conveyed to third parties need not be coterminous with the rights of the

promisee; rather, parties to an agreement may expressly or impliedly limit the rights

30 Madison Realty, 2001 WL 406268, at *5 (citing Guardian Constr. Co. v. Tetra Tech

Richardson, Inc., 583 A.2d 1378, 1386–87 (Del. 1990)).
31 Bako Pathology LP v. Bakotic, 288 A.3d 252, 271–72 (Del. 2022) (citation omitted);

Rumsey Elec. Co. v. Univ. of Del., 358 A.2d 712, 714 (Del. 1976) (holding that
“[p]laintiff’s rights, springing from its status as a third party beneficiary of the
performance bond, are ‘measured by the terms of the agreement between the
principals’” (quoting trial court)); see also Restatement (Second) of Contracts § 309
(Am. L. Inst. 1981) [hereinafter “Restatement”] (“Where there is a contract, the right
of a beneficiary is subject to any limitations imposed by the terms of the contract.”);
13 Williston on Contracts § 37:25 (4th ed.), Westlaw (database updated May 2023)
[hereinafter “Williston”] (stating the third-party beneficiary’s rights are “absolutely
defined by the terms of the contract” (citing Restatement § 309)).

7
of a third-party beneficiary.32 The parties can modify—expressly or impliedly—when

those rights vest.33

The parties to the agreement may not modify or deprive the beneficiary of a

vested right without the beneficiary’s consent.34 Once a right vests, a third-party

beneficiary may enforce that right concurrently and without joining the promisee,35

32 See, e.g., NAMA Hldgs., LLC, 922 A.2d at 433 (finding third-party beneficiary had

standing to bring a claim under one section of the contract only); Restatement § 309
(“Where there is a contract, the right of a beneficiary is subject to any limitations
imposed by the terms of the contract.”); 9 Corbin on Contracts § 46.5 at 115–16 (2007)
[hereinafter “Corbin”] (“There can be no right in a third party beneficiary unless a
contract was formed by the promisor and promisee and the beneficiary’s rights are
defined and limited by the contract that created those rights.”); 3 E. Allan Farnsworth
& Zachary Wolfe, Farnsworth on Contracts § 10.2 n.19 at 11 (4th ed. 2019)
[hereinafter “Farnsworth”] (“A person may, of course, have a right to enforce some,
but not all, of a promisor’s duties under a contract.” (citing Nw. Airlines v. Crosetti
Bros., 483 P.2d 70 (Or. 1971)).
33 3 Farnsworth § 10.10 at 74 (“[T]he contract may provide that the beneficiary’s right

is vested when it would not otherwise be, or that it is not vested when it would
otherwise be.”).
34 MetCap Sec. LLC v. Pearl Senior Care, Inc., 2007 WL 1498989, at *8 (Del. Ch. May

16, 2007) (“a contract benefiting a third party who has acted in reliance upon it cannot
be amended to the detriment of the third party beneficiary without its consent” (citing
Restatement § 311(3)); see 13 Williston § 37:59 (“Once the third party’s right vested,
the consent of the beneficiary should be a necessary prerequisite to any attempt by
the contracting parties to alter or terminate the contract giving rise to the
beneficiary’s rights.”).
35 9 Corbin § 46.1 at 99 (observing that, once a third-party beneficiary’s rights vest

then “[a] third party beneficiary has the same rights and remedies it would have
enjoyed as a promisee of the contract”); 3 Farnsworth § 10.09 at 65 (“Once it is decided
that a third party is an intended beneficiary, it follows that the party has a right
against the promisor. The beneficiary can enforce that right without joining the
promisee in an action against the promisor for damages or specific performance.”);
Delmar News, Inc. v. Jacobs Oil Co., 584 A.2d 531, 534 (Del. Super. 1990) (“Where it
is the intention of the promisee to secure a performance for the benefit of another . . .
and the promisee makes a contract to do so, then such a third person has the right to
enforce the contract against the promisor.” (citing Restatement § 302 (1979)).

8
subject to the enforcement provisions of the contractual scheme.36 “[T]hird party

beneficiaries,” however, “cannot object to the alteration or termination of the contract

before their rights against the promisor have vested.”37

Contracting parties will often specify their intent as to third-party

beneficiaries on the face of the agreement, typically by disclaiming an intent to convey

third-party beneficiary status. As this court has explained, a no-third-party-

beneficiaries provision provides a helpful starting point for a court’s consideration of

the contracting parties’ intent as to third-parties.38 And Delaware courts give no-

third-party-beneficiaries provisions a non-trivial amount of weight.39

36 Cap. Gp. Cos., Inc. v. Armour, 2004 WL 2521295, at *5 (Del. Ch. Oct. 29, 2004)

(observing that third-party beneficiaries who seek to “reap the benefits” of a
contractual scheme are bound by the enforceable provisions found in the agreement);
Javice v. JPMorgan Chase Bank, N.A., 2023 WL 4561017, at *2 n.2 (Del. Ch. July 13,
2023) (“a third-party beneficiary is bound by forum selection and other similar
provisions when the third-party beneficiary seeks to enforce a right under the
contract” (citing NAMA Hldgs., LLC, 922 A.2d at 431 (“[A] court will not allow a third-
party beneficiary to cherry-pick certain provisions of a contract which it finds
advantageous in making its claim, while simultaneously discarding corresponding
contractual obligations which it finds distasteful.”)); John Coyle & Robin Effron,
Forum Selection Clauses, Non-signatories, and Personal Jurisdiction, 97 Notre Dame
L. Rev. 187, 195 (2021) (“If a non-signatory has directly benefitted from one part of
the agreement . . . he is estopped from arguing that he is not bound by a different
provision in that same agreement.”)).
37 13 Williston § 37:59 (“third party beneficiaries cannot object to the alteration or

termination of the contract before their rights against the promisor have vested”).
38 See Fortis Advisors LLC v. Meds. Co., & Melinta Therapeutics, Inc., 2019 WL
7290945, at *3–4 (Del. Ch. Dec. 18, 2019).
39 See id.; see also Capano v. Capano, 2014 WL 2964071, at *13 (Del. Ch. June 30,

2014) (denying third-party beneficiary status where language of trust agreement
“plainly articulates its drafter’s intent to exclude third-party beneficiaries”); United
Rentals, Inc. v. RAM Hldgs., Inc., 2007 WL 4327770, at *1 (Del. Ch. Nov. 29, 2007)
(denying third-party beneficiary status where “[t]he merger agreement explicitly

9
But no-third-party-beneficiaries provisions are not entitled to any special

deference beyond that generally granted to contractual terms, and they do

occasionally yield to contrary language in the contract consistent with standard rules

of contract interpretation.40 For example, Delaware courts will disregard a general

no-third-party-beneficiaries provision where the contract includes more specific

language demonstrating an intent to benefit a third party.41 Under the

general/specific canon, “[s]pecific language in a contract controls over general

language, and where specific and general provisions conflict, the specific provision

ordinarily qualifies the meaning of the general one.”42

By contrast, Delaware courts have construed no-third-party-beneficiaries

provisions that are customized by a carve-out as indicating a strong intent to disclaim

third-party beneficiaries. When a provision is customized, this court has concluded

states that its only intended beneficiaries are the parties to the agreement
themselves” (citation omitted)); Kronenberg v. Katz, 872 A.2d 568, 605–06 & n.74
(Del. Ch. 2004) (denying third-party beneficiary status where the “plain language” of
the agreement disclaimed third-party beneficiary status unless “expressly provide[d]”
for, finding the agreement did not “expressly provide for [the claimant] to benefit from
its terms[,]” and noting that “parties may . . . expressly provide that a nonparty shall
not have any rights as a third-party beneficiary”).
40 See, e.g., Branin v. Stein Roe Inv. Counsel, LLC, 2014 WL 2961084, at *10 n.69

(Del. Ch. June 30, 2014) (applying the canons of construction and rejecting the
enforcement of a “boilerplate” no-third-party-beneficiaries provision).
41 See, e.g., Amirsaleh, 2008 WL 4182998, at *5 (applying the canons of construction

and rejecting a general no third-party-beneficiaries provision where the agreement
specifically granted benefits to third-parties).
42 DCV Hldgs., Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005) (citing Katell v.

Morgan Stanley Gp., Inc., 1993 WL 205033, at *4 (Del. Ch. June 8, 1993)).

10
that the parties knew how to confer third-party beneficiary status and deliberately

chose not to do so with respect to any unlisted groups.43

B. Special Considerations Relating To Stockholders As Third-
Party Beneficiaries

Delaware courts are reticent to confer third-party beneficiary status to

stockholders under corporate contracts for a mix of doctrinal, practical, and policy

reasons.44

One reason for this reticence is that conferring third-party beneficiary status

to stockholders under corporate contracts runs counter to Delaware’s board-centric

model. Under Delaware law, the board of directors manages the business and affairs

43 See, e.g., Fortis Advisors, 2019 WL 7290945, at *4 (“the carve-out reveals that the

parties knew how to expressly confer third-party beneficiary status, and the Court
presumes that excluding the former Rempex equityholders from the carve-out was
intentional”); see also Daniel v. Hawkins, 289 A.3d 631, 653 (Del. 2023) (finding that
because drafters used specific language to restrict a certain transfer, “the parties
knew how to restrict a transfer of the Majority Shares but only elected to apply that
restriction to a narrow set of transfers”); Delmarva Health Plan, Inc. v. Aceto, 750
A.2d 1213, 1216 & n.12 (Del. Ch. 1999) (recognizing that the expressio unius est
exclusio alterius canon applies in the contractual interpretation context).
44 See Orban v. Field, 1993 WL 547187, at *9 (Del. Ch. Dec. 30, 1993) (rejecting

argument that stockholder had third-party beneficiary status to enforce a merger
agreement, stating that “[t]he idea of shareholders having directly enforceable rights
as third[-]party beneficiaries to corporate contracts is . . . one that should be resisted”
as “[o]ne of the consequences of the limited liability that shareholders enjoy is that
the law treats corporations as legal persons not simply agents for shareholders”); see
also Amirsaleh, 2008 WL 4182998, at *4 (observing that this court has “previously
bristled at the notion that a stockholder could have ‘directly enforceable rights as
third-party beneficiaries to corporate contracts’” (quoting Orban, 1993 WL 547187, at
*9)).

11
of the corporation,45 which extends to litigation assets.46 As one manifestation of this

board-centric model, Delaware law imposes the demand requirement on stockholders

who seek to stand in the shoes of a corporation for litigation purposes generally,

including to enforce a corporate contract.47 Deeming stockholders third-party

beneficiaries of corporate contracts, and thus granting them the concurrent right to

enforce that contract alongside the company, risks unsettling the board-centric model

by encroaching on the board’s authority over litigation assets. It also risks creating

a path by which stockholders could readily circumvent the demand requirement,

which has been carefully developed and fine-tuned over decades of jurisprudence.

There are also practical considerations guiding the court’s reticence to extend

third-party beneficiary status to stockholders. Doing so could lead to a proliferation

of stockholder suits in a variety of commonplace scenarios, which would no doubt give

rise to considerable inefficiencies both for specific entities and the system as a whole.

This, in turn, could increase the cost of business for corporations.

Thus, although a stockholders’ equity stake does not “automatically

disqualif[y] a stockholder from demonstrating third-party beneficiary status to a

45 8 Del. C. § 141(a) (“The business and affairs of every corporation organized under

this chapter shall be managed by or under the direction of a board of directors, except
as may be otherwise provided in this chapter or in its certificate of incorporation.”).
46 See generally Aronson v. Lewis, 473 A.2d 805, 811–12 (Del. 1984), overruled in part

by Brehm v. Eisner, 746 A.2d 244, 253–54 (Del. 2000).
47 Ct. Ch. R. 23.1; see also United Food & Com. Workers Union & Participating Food

Indus. Empls. Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034, 1059 (Del. 2021)
(articulating requirements for stockholder to sue on behalf of corporation without
first making demand on board).

12
corporate contract,”48 this court has extended third-party beneficiary status to

stockholders under corporate contracts in limited circumstances.49

Merger agreements might be viewed as unique among corporate contracts

because stockholders are, undeniably, the intended economic beneficiaries of those

agreements. After all, merger agreements involve the payment of consideration

directly to stockholders. In a Delaware corporation, that benefit to stockholders

marks the satisfaction of the board’s fiduciary obligations to them and is a material

part of the parties’ purpose in entering into the contract. Indeed, delivering this

benefit to stockholders is typically the target corporation’s purpose for entering into

a merger agreement. Moreover, stockholder suits challenging merger transactions

do not implicate the demand requirement applicable in derivative suits.

Yet it is these unique aspects of merger agreements that enhances the need to

recognize the contractual primacy of the board of directors in the sale context. In that

context, a board has the obligation to “undertak[e] a logically sound process to get the

48 Arkansas Teacher Ret. Sys. v. Alon USA Energy, Inc., 2019 WL 2714331, at *12

(Del. Ch. June 28, 2019).
49 See Crispo, 2022 WL 6693660, at *3 (discussing Arkansas Teacher Ret. Sys., 2019

WL 2714331, at *12–14 (granting stockholders third-party beneficiary standing to
enforce a corporate contract); Dolan v. Altice USA, Inc., 2019 WL 2711280 (Del. Ch.
June 27, 2019) (declining to dismiss stockholder claim seeking to enforce a corporate
contract and calling for extrinsic evidence to assess stockholder’s third-party
beneficiary status); Amirsaleh, 2008 WL 4182998, at *4–5 (granting former member
of the Board of Trade of the City of New York third-party beneficiary standing under
corporate contract)); see also Orban, 1993 WL 547187, at *9 (cautioning against
granting stockholders third-party beneficiary standing under corporate contracts).

13
best deal that is realistically attainable.”50 When exercising its fiduciary duties to

stockholders in that context, a board should not be constrained by the possibility that

a multitude of individual stockholders might seek to sue a buyer directly under the

merger agreement. Thus, no-third-party-beneficiaries provisions are arguably

entitled to greater weight in the context of merger agreements, where they are

adopted “to prevent collective action and agency problems that would result from

giving shareholder standing to enforce merger agreements[.]”51

50 In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 192 (Del. Ch. 2007); see

also J. Travis Laster, Revlon Is a Standard of Review: Why It’s True and What It
Means, 19 Fordham J. Corp. & Fin. L. 5 (2013) (discussing the nuances of Revlon).
51 Arthur Fleischer et al., Takeover Defense: Mergers and Acquisitions § 19.06[C] at

207 (9th ed. 2022) [hereinafter after “Takeover Defense”]; see also Kevin Miller, The
ConEd Decision – One Year Later: Significant Implications For Public Company
Mergers Appear Largely Ignored, The M&A Lawyer (October 2006), Westlaw (“[B]oth
acquirors and targets abhor granting third-party beneficiary rights to target
shareholders for fear that such rights would deprive the acquiror and the target of
the ability to control the transaction prior to the effective time and, if necessary,
renegotiate the terms of a still desirable transaction following a change in
circumstance[.]”); Ryan D. Thomas & Russell E. Stair, Revisiting Consolidated
Edison--A Second Look At The Case That Has Many Questioning Traditional
Assumptions Regarding The Availability Of Shareholder Damages In Public
Company Mergers, 64 Bus. Law. 329, 331–32 (2009) [hereinafter “Revisiting
Consolidated Edison”] (suggesting that practitioners have assumed the courts would
“recognize that the purpose of the ‘no third-party beneficiaries’ provision is to avoid
the collective action and agency problems that would result from giving shareholders
standing to sue under the merger agreement”); Glenn West, On Naval Ramming
Bows and Contractual Boilerplate—Are Standard “No Third-Party Beneficiary”
Clauses Always a Good Thing?, Weil Insights, Weil’s Global Private Equity Watch,
https://privateequity.weil.com/insights/naval-ramming-bows-contractual-
boilerplate-standard-no-third-party-beneficiary-clauses-always-good-thing/ (June
19, 2017) (suggesting that “to avoid any arguments by putative third-party
beneficiaries regarding their status . . . presumably was the motivation for the
original drafter to create the ‘no third-party beneficiary’ clause that is now so common
in most M&A-related agreements”).

14
C. The Lost-Premium Provision

Section 9.7 of the Merger Agreement is a no-third-party-beneficiaries

provision.52 Section 9.7 comprises a blanket prohibition disclaiming third-party

beneficiaries followed by three carve-outs.53

The blanket prohibition states that the Merger Agreement “shall not confer

upon any Person other than the parties hereto any rights or remedies hereunder[.]”54

The three carve-outs of Section 9.7 of the Merger Agreement render it more

customized than other no-third-party-beneficiaries provisions enforced by this court.

In Fortis Advisors LLC v. Medicines. Co., & Melinta Therapeutics, Inc., for example,

the court enforced a provision that contained a single carve-out.55 There, the court

observed that the “negative implication” of the one carve-out was that “other third

parties are not intended beneficiaries.”56 The presence of three carve-outs in Section

9.7 makes the negative implication stronger.

Moreover, one of the carve-outs of Section 9.7 identifies stockholders as third-

party beneficiaries in a limited scenario not implicated here. Section 9.7(B) identifies

“Company Related Parties (with respect to Section 8.3)” as third-party beneficiaries.57

52 Merger Agr. § 9.7 (emphasis omitted).

53 Id. Those carve-outs provide: “(A) the D&O Indemnified Parties (with respect
to Section 6.6 from and after the Effective Time), (B) the Company Related Parties
(with respect to Section 8.3) are third-party beneficiaries and (C) the Parent Related
Parties (with respect to Section 8.3) are third-party beneficiaries.” Id.
54 Id.

55 Fortis Advisors LLC, 2019 WL 7290945, at *4.

56 Id. (citation omitted).

57 Merger Agr. § 9.7(B).

15
The term “Company Related Parties” is defined in Section 8.3(c)(i) of the Merger

Agreement to expressly include “stockholders.”58 No other definitions in the Merger

Agreement are defined to include “stockholders.” Section 8.3(c)(i) serves to protect

stockholders from liability in the event of a failure to consummate the Merger

Agreement by limiting the buyer’s remedy.59 The inference from Section 9.7’s

inclusion of stockholders as third-party beneficiaries expressly for purposes of

protecting them from liability is that stockholders are not third parties in other

contexts.60

Combined with the title of the section, “No Third-Party Beneficiaries,” these

aspects of Section 9.7 signal an intent to disclaim stockholders as third-party

beneficiaries. For these reasons, the Dismissal Decision held that Section 9.7

operates to foreclose granting third-party beneficiary status to stockholders seeking

to pursue a claim for specific performance under the Merger Agreement.61

In light of the Lost-Premium Provision, however, the Dismissal Decision did

not resolve the question of whether Section 9.7 eliminates stockholder standing to

pursue damages claims.62 The Lost-Premium Provision is found in Section 8.2 of the

58 Id. § 8.3(c)(i).

59 See id.

60 See Fortis Advisors, 2019 WL 7290945, at *4 (“The negative implication created by

[the contract’s] express inclusion of Financing Sources as third-party beneficiaries is
that other third parties are not intended beneficiaries.” (citing Delmarva Health Plan,
Inc., 750 A.2d at 1216 & n.12)).
61 Crispo, 2022 WL 6693660, at *11.

62 Id.

16
Merger Agreement titled “Effect of Termination.”63 Section 8.2 makes the Merger

Agreement void in the event of termination and broadly eliminates liability with two

exceptions: a “Specified-Provision Exception” and, relevant here, a “Bad Conduct

Exception.”64 Generally, a Bad Conduct Exception “preserves the full panoply of

contract damages, including expectation damages, in the event of a willful breach.”65

The Bad Conduct Exception contains the Lost-Premium Provision, providing that

Defendants’ termination shall not relieve Defendants from liability and damages for

any knowing and intentional breach of the Merger Agreement, including liability and

damages for “the benefits of the transactions contemplated by this Agreement lost by

the Company’s stockholders . . . including lost stockholder premium[.]”66

The Lost-Premium Provision language “suggests that the parties to the Merger

Agreement intended that the stockholders be restored to the same position they

would have been in had the Merger Agreement been fully performed.”67 There is an

argument based on the general/specific canon that the more specific language of the

Lost-Premium Provision modifies the more general (albeit customized) language of

Section 9.7 by granting stockholders third-party beneficiary status for the limited

63 Merger Agr. § 8.2.

64 Id.

65 AB Stable VIII LLC v. Maps Hotels and Resorts One LLC, 2020 WL 7024929, at

*104 (Del. Ch. Nov. 30, 2020), aff’d, 268 A.3d 198 (Del. 2021).
66 Merger Agr. § 8.2.

67 Crispo, 2022 WL 6693660, at *9.

17
purpose of pursuing lost-premium damages.68 Consequently, the Dismissal Decision

noted that the Lost-Premium Provision “provides Plaintiff’s strongest argument that

the parties to the Merger Agreement intended to confer some form of third-party

beneficiary status to Twitter stockholders.”69

Plaintiff argues that the Dismissal Decision’s acknowledgment that the Lost-

Premium Provision provided the “strongest argument” for stockholder third-party

beneficiary status constituted a holding that Plaintiff’s claim was meritorious when

filed.70 But Plaintiff reads way too much into the court’s relative assessment.

Describing an argument as the “strongest” does not deem an argument “successful.”

It does not even deem the argument “strong.” The Dismissal Decision did not resolve

Defendants’ Rule 12(b)(6) motion as to the lost-premium damages claim. Rather,

because the theoretical complications posed by the Lost-Premium Provision were not

addressed by the parties in dismissal briefing, the court requested supplemental

briefing on the issue. Supplemental briefing never occurred, forcing further

examination of the Lost-Premium Provision.

The Lost-Premium Provision is a form of provision that transactional attorneys

began to use in response to the Second Circuit’s decision in Con Ed.71 There, the

stockholders of Northeast Utilities sued Consolidated Edison for the $1.2 billion

68 See Pl.’s Opening Br. at 21–23.

69 Crispo, 2022 WL 6693660, at *9.

70 Pl.’s Opening Br. at 22–23.

71 426 F.3d 524.

18
premium that Consolidated Edison would have paid had the deal closed. 72 Applying

New York law, the federal trial court held that the stockholders had standing as

third-party beneficiaries to sue for lost stockholder premium.73

The Second Circuit reversed on appeal, concluding based on a no-third-party-

beneficiaries provision, that Northeast Utilities’ stockholders lacked third-party

beneficiary status to enforce the merger agreement.74 The provision at issue

contained a blanket prohibition subject to two carve-outs.75 One of the carve-outs

dealt with personal liability and was not at issue.76 The other carve-out granted

stockholders standing to enforce the right to receive cash or stock in the post-merger

entity, but that right did not arise until the contractually defined “Effective Time”

(which only occurred at the completion of the merger) and thus never arose.77

Because neither of the carve-outs applied, the court enforced the blanket prohibition,

holding that the stockholders lacked standing to sue Consolidated Edison for breach

of the merger agreement.78

Con Ed came as a surprise to M&A practitioners “who believed that a merger

premium (or some amount of shareholder damages) would be recoverable against a

72 Id. at 527.

73 Con Ed, 249 F.Supp.2d 387, 416–17 (S.D.N.Y. 2003), rev’d in part, 426 F.3d 524.

74 Con Ed, 426 F.3d at 527–31.

75 Id. at 527–28.

76 Id.

77 Id.

78 Id. at 527–31.

19
buyer such as Con Ed who wrongly terminates or breaches a merger agreement[,]”

notwithstanding the fact that most merger agreements contained broad no-third-

party-beneficiaries provisions.79 The ability to hold a buyer liable for lost-premium

damages was viewed as a valuable tool for deterring buyers from backing out of a

deal. By foreclosing the possibility of lost-premium damages under a common form

of merger agreement, Con Ed threatened a significant tool that a target might

leverage to force a buyer to consummate a deal.

One group of practitioners described the concerns raised by Con Ed as follows:

If Con Ed proves to have established a general rule
precluding the recovery of shareholder damages for a
buyer’s breach of a merger agreement, the potential
consequences to targets in merger transactions would be
substantial—shifting the balance of leverage in any MAC,
renegotiation, or settlement into an ‘option’ deal such that
the buyer could walk away with little consequence.80

This “option deal” problem caused by Con Ed led M&A attorneys who represent

targets to go in search of solutions. They crafted Con Ed provisions, which aimed to

make clear that the parties to the contract intended for the buyers to be liable for lost

stockholder premium in the event of a busted deal.81 Con Ed provisions became so

79 Takeover Defense § 19.06[C] at 206–07 (citing Revisiting Consolidated Edison at

329).
80 Revisiting Consolidated Edison at 332.

81 Victor I. Lewkow & Neil Whoriskey, Left at the Altar: Creating Meaningful
Remedies for Target Companies, The M&A Lawyer (October 2007), Westlaw
[hereinafter “Lewkow & Whoriskey”]; see also, generally, Lou R. Kling & Eileen T.
Nugent, Negotiated Acquisitions of Companies, Subsidiaries and Divisions § 15A.03
(2023 ed.) [hereinafter “Kling & Nugent”].

20
common that they were defined in The Book of Jargon: Global Mergers &

Acquisitions, published by one leading M&A firm.82

By 2007, at least three types of Con Ed approaches had emerged. One

approach was to expressly provide shareholders with third-party beneficiary status,83

but practitioners were wary of this approach for the same reasons that Delaware law

is reticent to grant stockholder third-party beneficiary status. Buyers were concerned

by the potential proliferation of lawsuits against them. Sellers were concerned that

those lawsuits would undermine the ability of the target board to control the litigation

asset and secure a favorable outcome.84

82 See Latham & Watkins, The Book of Jargon: Global Mergers & Acquisitions at 51

(1st ed. 2018), https://www.lw.com/admin/Upload/Documents/Global-MnA-Book-of-
Jargon_2018.pdf [hereinafter “The Book of Jargon”].
83 Takeover Defense § 19.06[C] at 210. A recent example of this approach can be found

in the Smucker/Hostess merger agreement. See Agreement and Plan of Merger by and
among The J.M. Smucker Company, Hostess Brands, Inc. and SSF Holdings, Inc.
§ 10.08 (Sept. 10, 2023),
https://www.sec.gov/Archives/edgar/data/91419/000119312523233050/d507779dex21
.htm (“each stockholder of the Company shall be a third-party beneficiary of this
Agreement for the purpose of pursuing claims for damages (including for the lost
stockholder premium) under this Agreement in the event of a failure by Parent or
Merger Sub to irrevocably accept for purchase all shares of Company Common Stock
validly tendered”).
84 See generally Lewkow & Whoriskey (“[N]either buyer nor target has any interest in

permitting target stockholders to pursue claims for breach independently” because
the “[t]arget will want to preserve for itself the right to control this critical litigation-
including the right to settle such litigation . . . and [b]uyer will not want to
negotiate/litigate with potentially unorganized and uncoordinated groups of
shareholders should a breach be alleged.”); Kling & Nugent § 15A.03 at 7–8 (“The
reason for not making target stockholders third-party beneficiaries is clear. It is one
thing to have a single litigation with the target itself in a jurisdiction that has been
negotiated and agreed upon between the parties if the parties have a dispute, for
example, concerning an alleged failure of a closing condition. It is quite another to

21
A second approach was to make the target the agent for recovering damages

on behalf of its stockholders, but this approach rested on shaky ground.85 That is

because there is no legal basis for allowing one contracting party to unilaterally and

irrevocably appoint itself as an agent for a non-party for the purpose of controlling

that party’s rights.86

A third approach was to define damages resulting from breach in terms of lost

premia.87 The Lost-Premium Provision is a version of the damages-definition

have to deal with hundreds of lawsuits all around the country from disgruntled target
shareholders.”).
85 Takeover Defense § 19.06[C] at 209–10 (describing the “agency” approach as
intended “to clarify that the target company’s damages include shareholder damages
while avoiding the agency and collective action risks of naming the shareholder as
express beneficiaries” (citing Revisiting Consolidated Edison at 350)).
86 Id. at 210 (noting that it was unclear “whether a court would allow a target
company to irrevocably appoint itself as an agent of its shareholders for purposes of
controlling the enforcement of the shareholders’ rights” (citing Lewkow &
Whoriskey)). Corporate law has supplied a work around to this issue for some
purposes. See Aveta Inc. v. Cavallieri, 23 A.3d 157, 177 (Del. Ch. 2010) (recognizing
that merger consideration can be made contingent on facts ascertainable outside the
merger agreement, which can be a determination by a party on behalf of all
stockholders). Perhaps corporate law could supply a solution here. Would a charter
provision designating the company as the stockholders’ agent for the purpose of
recovering lost-premium damages after failed sale achieve the result intended by the
second approach? See 8 Del. C. § 102(b)(1) (permitting “any provision creating,
defining, limiting and regulating the powers of the corporation, the directors, and the
stockholders, or any class of the stockholders, or the governing body, members, or any
class or group of members of a nonstock corporation; if such provisions are not
contrary to the laws of this State”).
87 Takeover Defense § 19.06[C] at 211 (describing the “damages” approach, which

“define[s] the target company’s damages by reference to its shareholders’ lost merger
premium or to the ‘benefit of the bargain’ lost by its shareholders” (citing Lewkow &
Whoriskey)).

22
approach.88 It defines liability and damages with reference to “the benefits . . . lost

by the Company’s stockholders [] taking into consideration . . . lost stockholder

premium[.]”89

Commentators describing the damages-definition approach agree that it was

not intended to grant stockholders third-party beneficiary status.90 Indeed, the

damages-definition was viewed as an alternative to the first Con Ed approach that

made stockholders third-party beneficiaries for the limited purpose of recovering lost-

premium damages. Transactional attorneys Victor I. Lewkow and Neil Whoriskey

observed that, although “several major variants of the [Con Ed] remedies language”

emerged, “none that [they had seen] grant target shareholders the right to enforce

88 Compare Merger Agr. § 8.2 with Lewkow & Whoriskey (describing the “damages”

approach).
89 Merger Agr. § 8.2.

90 Plaintiff argues that commentary concerning the meaning of various contractual

terms constitutes “extrinsic evidence” that “cannot be relied upon in determining a
motion to dismiss.” Pl.’s Opening Br. at 25. Yet just as a court may look to
dictionaries for assistance in determining the plain meaning of terms, see Lorillard
Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738–41 (Del. 2006), a court may look
to customary and reliable secondary sources to discern how contractual provisions
are commonly used among negotiating parties. See, e.g., Weinberg v. Waystar, Inc.,
294 A.3d 1039, 1060 (Del. 2023) (citing Practical Law, Rossman & Moskin’s
Commercial Contracts, and Kling & Nugent to inform the meaning of stock option
agreements); Chicago Bridge & Iron Co., N.V. v. Westinghouse Elec. Co. LLC, 166
A.3d 912, 921 (Del. 2017) (citing Freund’s Anatomy of a Merger to inform the meaning
of a purchase agreement); ev3, Inc. v. Lesh, 114 A.3d 527, 530–31 (Del. 2014), as
revised (Apr. 30, 2015) (citing Kling & Nugent, Feldman & Nimmer’s Drafting
Effective Contracts, and Gutterman’s Business Transactions Solutions to inform the
meaning of a merger agreement); Martin Marietta Materials, Inc. v. Vulcan Materials
Co., 68 A.3d 1208, 1219 (Del. 2012) (citing Kling & Nugent, ABA Mergers and
Acquisitions Committee, and academic articles to inform the meaning of
confidentiality agreements).

23
the merger contract directly[.]”91 A leading treatise endorsed this view and similarly

commented that the “damages definition approach” “does not grant the target

shareholders third-party beneficiary status, but rather attempts to define the target

company’s damages by reference to its shareholders’ lost merger premium or to the

‘benefit of the bargain’ lost by its shareholders.”92 Damages-definition approaches

that expressly define damages in terms of the target’s damages are in accord.93

D. Whether The Lost-Premium Provision Grants Plaintiff Third-
Party Beneficiary Status

No court has addressed the effect of Con Ed provisions like the Lost-Premium

Provision that follow the damages-definition approach. Contractual provisions that

define the type of damages for which a party might be liable are enforceable only to

the extent they are consistent with principles of contract law.94 A contracting party

91 Lewkow & Whoriskey (emphasis added).

92 Takeover Defense § 19.06[C] at 211 (citing Lewkow & Whoriskey).

93 See, e.g., Martin D. Ginsburg, et al., 5 Mergers, Acquisitions, and Buyouts ¶ 2501

n.17 (December 2022 ed.) (noting that “[t]he parties [to a merger agreement] could
also add a provision calling for Buyer to pay damages to Target (in case of Buyer’s
breach) equal to Target stockholders’ lost premium, i.e., the stated purchase price less
Target’s post-breach value” (emphasis added)); Paul, Weiss, Rifkind, Wharton &
Garrison LLP, A Study of Selected U.S. Strategic M&A Transactions in the Wake of
the Credit Crisis at 13 (October 2009) (noting that, in 6% of surveyed transactions,
“parties attempted to contract around [Con Ed]” by “provid[ing] that the measure of
the target’s damages should be the amount of its shareholders’ lost consideration”
(emphasis added)); The Book of Jargon (defining “Con Edison Provision” as “a
provision in an Acquisition Agreement specifying that, in the event a Buyer breaches
the agreement, the measure of damages to a Target Company is the loss suffered by
the Target’s shareholders” (emphasis added)).
94 See generally Restatement § 339 cmt. f (“Attempts are sometimes made to conceal

the fact that the amount specified in a contract is a penalty by using words indicating
that the payment is merely one of two promised alternatives or that a large discount

24
cannot receive more than expectation damages.95 “[E]xpectation damages [are]

measured by the amount of money that would put the promisee in the same position

as if the promisor had performed the contract.”96 A party cannot recover damages for

consideration that it would not expect to receive had the contract been performed.97

is being allowed for a prompt payment. There is a borderline along which it is difficult
to determine the question; but payment of the specified amount will not be enforced if
the court is convinced that it is a penalty the purpose of which was to stimulate
performance of a promise to do something else.” (emphasis added)); Dan B. Dobbs,
Handbook on the Remedies: Damages—Equity—Restitution § 12.5, at 821 (1973)
(“Contracting parties often agree in their contract upon a formula for fixing damages
in the event of breach, usually a formula at variance with the normal legal rule for
damages or one that will afford damages to the non-breaching party even where he
is unable to prove exactly what his damages may be. . . . . Such clauses stipulating
damages are often valid and often enforced. . . . There are situations, however, in
which agreed damage clauses are not valid at all. . . . [T]his includes agreements for
damages unreasonably disproportionate to anticipate losses.”); 3 Dobbs Law of
Remedies § 12.9(1) at 245 (2d ed. 1993) [hereinafter “Dobbs”] (“Contract law generally
attempts to respect the parties’ self-determination by permitting the parties to
contract and then by enforcing their promises. . . . However, the parties may not
stipulate for damages that would be a ‘penalty.’”).
95 Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001) (“[T]he standard remedy

for breach of contract is based upon the reasonable expectations of the parties ex
ante.”).
96 Id. (citing Restatement § 347 cmt. a (“Contract damages are ordinarily based on the

injured party’s expectation interest and are intended to give him the benefit of his
bargain by awarding him a sum of money that will . . . put him in as good a position
as he would have been in had the contract been performed.”)); see also Leaf Invenergy
Co. v. Invenergy Renewables, LLC, 210 A.3d 688, 695 (Del. 2019) (“When determining
expectation damages, courts determine an amount that will give the injured party
‘the benefit of its bargain by putting that party in the position it would have been but
for the breach.’” (quoting Genencor Int’l, Inc. v. Novo Nordisk A/S, 766 A.2d 8, 11
(Del. 2000)).
97 3 Farnsworth § 12.8 at 68–69 (4th ed. 2019) (“damages are generally limited to

those required to compensate the injured party for lost expectation, for it is a
fundamental tenant of the law of contract remedies that an injured party should not
be put in a better position than had the contract been performed”); Duncan, 775 A.2d
at 1022 (holding breach of contract damages are limited to the “promisee’s reasonable

25
Such provisions are considered penalties. If a contractual provision defines damages

to include penalties, then it is unenforceable.98

A target company has no right or expectation to receive merger consideration,

including the premium, under agreements that operate like the Merger Agreement.

The Merger Agreement provides that at the “Effective Time” (defined as the time

when the parties file the certificate of merger with the Secretary of State), stock will

be converted into the right to receive merger consideration.99 Under this framework,

no stock or cash passes to or through the target. Rather, merger consideration is paid

directly to the stockholders. Accordingly, only a stockholder expects to receive

payment of a premium under the Merger Agreement.

expectation of the value of the breached contract, and, hence, what the promisee
lost”).
98 See Restatement § 356 cmt. a (stating that “parties to a contract are not free to

provide a penalty for its breach[,]” and if the parties do so then that “penalty is
unenforceable on grounds of public policy”); 11 Corbin § 58.1 at 397–98 (stating
parties cannot contract for damages that function as penalties); 3 Farnsworth § 12.20
at 208–09 (stating where a contractual provision provides for a “stipulated sum [that]
is significantly larger than the amount required to compensate the injured party for
its loss,” that contractual damages provision constitutes an unenforceable penalty);
24 Williston § 65:1 (stating “penal clauses are generally unenforceable”); 3 Dobbs §
12.9(2) at 247 (“If a provision for damages is a penalty, it will not be enforced.”); XRI
Inv. Hldgs, LLC v. Holifield, 283 A.3d 581, 661 (Del. Ch. 2022) (“[A] court generally
will not enforce a contractual provision aimed at punishing or penalizing the
breaching party, rather than compensating the non-breaching party.” (citing
Restatement §§ 355–36; Del. Bay Surgical Servs., P.C. v. Swier, 900 A.2d 646, 650
(Del. 2006); Brazen v. Bell Atl. Corp., 695 A.2d 43, 48 (Del. 1997)), rev’d in part on
other grounds, --- A.3d ---, 2023 WL 5761367 (Del. Sept. 7, 2023).
99 Merger Agr. § 2.3(a); id. § 3.1(c) (“each share of Company Common Stock issued

and outstanding immediately prior to the Effective Time (other than any Canceled
Shares or Dissenting Shares) shall be converted into the right to receive $54.20 per
share of Company Common Stock in cash”).

26
Where a target company has no entitlement to a premium in the event the deal

is consummated, it has no entitlement to lost-premium damages in the event of a

busted deal. Accordingly, a provision purporting to define a target company’s

damages to include lost-premium damages cannot be enforced by the target company.

To the extent that a damages-definition provision purports to define lost-premium

damages as exclusive to the target, therefore, it is unenforceable. Because only the

target stockholders expect to receive a premium in the event a merger closes, a

damages-definition defining a buyer’s damages to include lost-premium is only

enforceable if it grants stockholders third-party beneficiary status.100 It follows that

the Lost-Premium Provision is unenforceable unless the Merger Agreement conveys

third-party beneficiary status to stockholders.

Taking this logic a step further, one reasonable interpretation of the Merger

Agreement is that the Lost-Premium Provision is unenforceable because the Merger

Agreement does not confer third-party beneficiary status on stockholders. After all,

Section 9.7 does not expressly confer third-party beneficiary status on stockholders

and it is customized.101 Delaware law is reticent to confer third-party beneficiary

100 Cf. Kling & Nugent § 15A.03 at 6 (“But what about the target shareholders who

may have lost a great premium if the Buyer walks from the deal and the target’s
trading price falls back down to the target’s pre-deal trading level? Should not they
be entitled to damages in this amount? The answer depends on whether the target
shareholders were third-party beneficiaries of the merger agreement. If not, the above
analysis would seem to lead to the conclusion that the target shareholders are out of
luck, although it is difficult to argue that the parties ever intended that this result
(Buyer being able to breach with virtual impunity) would obtain.” (emphasis added)
(internal citation omitted)).
101 See Fortis Advisors LLC, 2019 WL 7290945, at *4.

27
status on stockholders, and the reasons for this reticence are amplified in the context

of merger agreements. When faced with the choice of how to handle stockholders’ lost

merger consideration in the event of a termination, the parties chose language that

commentators describe as intended to avoid the perils of conveying third-party

beneficiary status to stockholders. Because that language was untested, one

possibility is that the parties took the risk that the provision would be unenforceable.

Although this interpretation of the Merger Agreement is facially reasonable, it

presents a dilemma. It is a “cardinal rule of contract construction that, where

possible, a court should give effect to all contract provisions.”102 Concluding that

stockholders lack third-party beneficiary status under the Lost-Premium Provision

renders that provision unenforceable and thus fails to give it effect. This conclusion,

therefore, fails to satisfy the cardinal rule of contract construction.

There is another possible construction, which involves interpreting the Merger

Agreement as granting stockholders third-party beneficiary status that vest in

exceptionally narrow circumstances and for the limited purpose of seeking lost-

premium damages. As discussed above, third-party beneficiary status is a creature

of contract and can be expressly or impliedly limited by the parties’ contractual

scheme. If stockholders had third-party beneficiary status to bring a claim for lost-

102 E.I. du Pont de Nemours and Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1114 (Del.

1985) (citations omitted); see also Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 360
(Del. 2013) (“When interpreting contracts, we construe them as a whole and give
effect to every provision if it is reasonably possible.”); Kuhn Constr., Inc. v. Diamond
State Port Corp., 990 A.2d 393, 396–97 (Del. 2010) (“We will read a contract as a
whole and we will give each provision and term effect, so as not to render any part of
the contract mere surplusage.”).

28
premium damages, then such standing would be impliedly limited by the parties’

contractual scheme.

The limitation necessarily implied by the Merger Agreement is that the

drafters did not intend to vest stockholders with a right to enforce lost-premium

damages while the company pursues a claim for specific performance. The parties

stipulated to specific performance as to “prevent” breaches of the Merger Agreement,

suggesting that a breach claim seeking lost-premium damages would not accrue

unless specific performance was unavailable.103 Likewise, a right to lost-premium

damages is only referenced in relation to a monetary damages remedy applicable only

if “this Agreement is terminated and the Merger abandoned[.]”104 Further, the

drafters chose a Con Ed approach that commentators identified as intended to

eliminate stockholder interference with the target’s ability to maximize its leverage

under the Merger Agreement. Without this limitation, the stockholders’ right to

enforce the Lost-Premium Provision would undermine the manifest purpose of the

Lost-Premium Provision—to solve the “option problem” by empowering the target to

specifically enforce the deal or secure the best deal possible for stockholders.

In this alternative construction of the Merger Agreement, therefore, any third-

party beneficiary status conferred on stockholders would not vest while the remedy

of specific performance is still available. If, however, the deal is terminated and the

remedy for specific performance is no longer available, because a court has denied the

103 Merger Agr. § 9.9 (titled “Specific Performance”).

104 See id. § 8.2 (emphasis added).

29
relief or for other reasons, then a stockholders’ right to pursue lost-premium damages

would accrue. That right would run concurrent to the target’s right to pursue

damages under the merger agreement.105

This decision has identified two objectively reasonable interpretations of the

Merger Agreement. Under either interpretation, Plaintiff lacked standing to enforce

the Merger Agreement at the time he filed the complaint. Under the first

interpretation, no stockholder had standing to enforce the Merger Agreement. Under

the alternative interpretation, stockholders lacked standing to seek lost-premium

damages while the company was pursuing a claim for specific performance.

The court need not determine which of these interpretations is most faithful to

the parties’ expectations. The purpose of this interpretive exercise is to determine

whether Plaintiff’s claim for lost-premium damages under the Merger Agreement

was meritorious when filed. As discussed above, if stockholders are third-party

beneficiaries to the Lost-Premium Provision, then their rights are necessarily limited

by the parties’ contractual scheme that forecloses stockholders from pursuing a claim

for lost-premium damages while the company is seeking specific performance. Any

contrary interpretation would be wholly unreasonable because it would eliminate the

implied limitation of the Lost-Premium Provision necessary to reconcile that

105 This alternative interpretation gives rise to the possibility that, once a merger is

abandoned, a buyer might face claims for damages under the merger agreement from
both the target and its stockholders. Stockholders, however, would be bound by the
forum-selection provision in the merger agreement. See supra note 36. Accordingly,
a single court would be handling both lawsuits and could deploy consolidation and
scheduling solutions to manage inefficiencies.

30
provision with its purpose. Because Plaintiff’s third-party beneficiary rights had not

vested under the only reasonable interpretation of the Merger Agreement that

conveys them, Plaintiff’s claim was not meritorious when filed.106

III. CONCLUSION

Because Plaintiff’s claim was not meritorious when filed, Plaintiff’s motion for

mootness fees is denied. This is the court’s final judgment under Court of Chancery

Rule 58.

106 The parties focused most of their arguments in briefing over the question of
whether Plaintiff’s claim was ripe and relatedly whether Plaintiff had adequately
alleged anticipatory repudiation. This decision does not address those arguments
directly, but a party cannot claim anticipatory repudiation of a right that has not yet
vested. Even if Plaintiff’s enforcement right had vested, Plaintiff’s claim had not yet
ripened. That is because Twitter did not treat Musk’s termination as repudiation but
instead sought to specifically enforce the Merger Agreement. See West Willow-Bay
Court, LLC v. Robino-Bay Court Plaza, LLC, 2009 WL 458779, at *5 n.37 (Del. Ch.
Feb. 23, 2009) (“repudiation [only] ripens into a breach prior to the time for
performance . . . if the promisee ‘elects to treat it as such’” (alterations added) (quoting
Franconia Assocs. v. United States, 536 U.S. 129, 143 (2002)); Carteret Bancorp, Inc.
v. Home Gp., Inc., 1988 WL 3010, at *6 (Del. Ch. Jan. 13, 1988) (“A suit seeking
specific performance is, . . . in effect, an assertion not that the promisee elects to
finalize the breach claimed and calculate his damages now, but rather that the
promisee treats the mutual obligations as being still in force.”). Plaintiff’s claim of
anticipatory repudiation, therefore, suffered many defects.

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