Learn about a recent Delaware court ruling that sheds light on the scope of jury trial waivers in acquisition agreements and how it may impact related transactional documents like Transition Services Agreements (TSA)
M&A Stories
May 11, 2021
Introduction:
In the realm of business acquisitions, it’s a common practice for both buyers and sellers to waive their right to a jury trial in case of disputes related to the acquisition. However, a recent case in Delaware highlights that such jury trial waivers may not always extend to disagreements over additional transactional documents.
The Deal:
In this particular case, a strategic acquisition occurred in the packaging industry, where the buyer acquired a subsidiary of the seller. The buyer and seller explicitly waived their right to a jury trial for any litigation arising from the main acquisition agreement.
The Lawsuit:
About two years after the closing of the deal, the buyer and the acquired company filed a lawsuit against the seller in a Delaware Superior Court. The lawsuit claimed that the seller breached a Transition Services Agreement (TSA) by not paying for certain goods manufactured for them. The buyer requested a jury trial, but the seller contested this, arguing that the jury waiver in the purchase agreement covered the TSA dispute as well.
The Court’s Ruling:
The Delaware trial court ruled in favor of the buyer, stating that jury trial waivers are interpreted narrowly in Delaware, with a presumption against the waiver. The court examined the jury waiver clause in the purchase agreement and observed that it only applied to disputes related to “this Agreement” (the main acquisition agreement) and not to the TSA. Therefore, the buyer was entitled to a jury trial for the TSA dispute.
This case is referred to as Tekni-Plex, Inc. v. LLFlex, LLC, No. C.A. No. N20C-09-062 AML CCLD, Superior Court of Delaware, (Submitted: March 18, 2021. Decided: April 22, 2021).
Takeaway:
When dealing with Delaware law in acquisition deals, it’s essential to remember that Delaware courts do not favor jury waiver provisions. To ensure that the jury waiver extends to related transactional documents like TSAs, the clause should explicitly include such documents in its scope, for instance, by referencing “Contemplated Transactions,” as defined in the purchase agreement, which would encompass the TSA.
By John McCauley: I help people manage M&A legal risks.
Email: jmccauley@mk-law.com
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