LaPoint v. AmerisourceBergen—An Interesting Instance of Mistake

At a CLE session at the ABA annual meeting I learned of LaPoint v. AmeriSourceBergen Corp., No. 327-CC (Del. Ch. May 1, 2007), a Delaware Court of Chancery case that offers an interesting instance of mistake.

The case involved a dispute over an acquisition earnout. AmerisourceBergen had agreed to acquire Bridge Medical Inc. for $27 million plus additional payments to be made to former Bridge shareholders contingent on certain targets being met over a two-year period. The bit that interested me was the confusion caused by the fact that a provision in the contract used the word less when it evidently should have used the word more. Here’s the relevant passage of the opinion (footnotes omitted):

Defendant’s challenge to the timeliness of plaintiffs’ challenge to the 2003 EBITA payments may be easily rejected. The merger agreement provides:

[ABC’]s Earnout Calculations will be deemed to be accepted by [Plaintiffs] and shall be conclusive for purposes of determining the final amount of the related Earnout Payment, if any, except to the extent, if any, that [Plaintiffs] shall have delivered to [ABC] no less than twenty (20) Business Days immediately following the applicable Earnout Payment Date a statement describing the objections of [Plaintiffs] thereto . . . .

Both parties agree that ABC sent notice of the earnout calculation on February 12, 2004, and plaintiffs raised their objection on March 18, 2004. By the terms of the agreement, plaintiffs were obligated to raise an objection no less than twenty business days after, February 12, 2004. They did so twenty-six days later; twenty-six being no less than twenty, which would seem to be the end of the matter.

Defendant asserts that it is “absurd” to conclude that the term “no less than” means “more than or equal to” a given number. Instead, ABC insists that “no less than” constitutes an ambiguous term, and then demands that this Court take up the judicial blue pencil to somehow make “more than” mean “less than.” To defendant, the absurdity arises because, as written, § 2.6(g)(ii) would never give conclusive effect to the earnout calculations.

I am unconvinced. First, “no less than” is a term of mathematical precision, and it is difficult to imagine how “more” somehow means “less.” Second, it is untrue as a matter of law that the clause provides no legally enforceable time limit. Where a contract is silent on the time given to a party to perform a condition, then this Court will assume that the parties contemplated a reasonable time. Although determining reasonableness might pose a challenge in some hypothetical case, it is inconceivable that a twenty-six business day delay is unreasonable or imposed any hardship upon defendant. Finally, although the Court of Chancery possesses the equitable jurisdiction to reform a contract in a case of mutual mistake, there is no reason to exercise that power in this case.

To see that granting defendant the relief it seeks would be the height of inequity, one has only to imagine the decision facing plaintiffs after the earnout payment date, when they presumably looked back at the merger agreement to determine how to respond. Assuming arguendo that defendant is right and that words “less than” are the result of mistake, plaintiffs were pierced on the horns of a dilemma: should they provide notice after twenty days, complying literally with the terms of the agreement, or should they provide notice on day nineteen, thus complying with what defendant now says “common sense” clearly dictates but risking later accusations of breach of the clear language of the contract?

Defendant is a major international corporation and was assisted by qualified and professional counsel at the time it entered into the merger agreement. In many areas, it now appears that the merger agreement was unhappily drafted. Nevertheless, defendant faces no significant prejudice as a result of plaintiffs’ actions, and there is no call for this Court to negate the clear language of the agreement. Plaintiffs are entitled to summary judgment on this issue.

My only observation is that this case is yet another example of how an ostensibly minor drafting glitch can end up causing considerable embarrassment and financial pain. You can’t count on a court to fix a mistake.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.