Explore a recent M&A legal development where a federal district court dismissed a breach of contract claim over an alleged oral modification to a stock purchase agreement. Gain insights into the importance of documenting changes in major agreements and the challenges of proving oral modifications without written evidence.
M&A Stories
September 19, 2018
In a recent M&A legal development, a federal district court in San Diego dismissed a breach of contract claim over an alleged oral modification to a stock purchase agreement. The case involved a company in San Diego specializing in laboratory equipment and cell therapies, and an investor in Singapore engaged in regenerative medicine distribution across Asia.
Background:
The investor and the company initially collaborated in 2013 to commercialize stem-cell harvesting machines and consumables in various medical markets. Two written agreements were signed on October 23, 2013: a license agreement granting a $500 million exclusive license, and a stock purchase agreement involving two $12 million installments for 8 million shares of the company’s common stock. Both agreements had integration clauses and explicitly prohibited oral modifications.
Disputed Oral Modification:
The investor claimed that, due to issues with the license agreement, discussions arose about modifying the stock purchase agreement in late November 2013. Allegedly, the company orally agreed to purchase 5% of the investor’s common stock for $5 million, a deal never reduced to writing. The company informed the investor in December 2017 that it had no obligation to proceed with the $5 million investment, leading to the investor’s lawsuit.
Legal Outcome:
The company sought dismissal, arguing the oral contract did not exist due to the prohibition on non-written modifications. The court, applying Delaware law, emphasized the need for clear and convincing evidence to establish a waiver of the no oral modification provision. The court ruled in favor of the company, citing insufficient evidence and conflicting statements between the investor and the company.
Key Takeaway:
This case highlights the importance of documenting all changes in writing, especially in major agreements where oral modifications are typically prohibited. Without written evidence, proving a breach of an oral modification becomes challenging, as illustrated by the conflicting statements in this case.
Case Reference:
Lorem Vascular, Pty. LTD. v. Cytori Therapeutics, Inc., Case No. 18cv815 MMA (MDD), United States District Court, S.D. California (July 11, 2018). https://scholar.google.com/scholar_case?case=11037919755200196293&q=%22stock+purchase+agreement%22&hl=en&scisbd=2&as_sdt=2006&as_ylo=2017
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