EV3, Inc. v. Lesh, M.D.
114 A.3d 527
Del.2014Background
- Ev3, a medical device company, merged with Appriva for $190M with $50M at closing and $175M contingent on milestones.
- The Milestones included FDA approvals, patient enrollment, and a PMA submission with deadlines through 2009.
- The merger agreement contained a broad “sole discretion, in good faith” funding obligation in §9.6, seemingly conflicting with a non-binding Funding Provision in a May 2002 letter of intent (LOI).
- An integration clause stated the merger agreement superseded prior agreements except for the LOI, which contained both binding and non-binding provisions; the LOI’s Funding Provision was non-binding.
- Appriva sought to use the LOI Funding Provision to argue a binding funding promise tempered by §9.6; ev3 urged the LOI could not alter §9.6.
- The Superior Court admitted LOI evidence for fraud-focused purposes and permitted arguments that the LOI Funding Provision bound ev3 or limited §9.6, leading to a $175M jury verdict for Appriva; ev3 appealed claiming error in evidentiary and contractual constructions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the LOI Funding Provision binds ev3 despite §9.6 | Lesh (Appriva) argues LOI funding is binding. | ev3 contends §9.6 controls and LOI is non-binding. | LOI funding is not binding; §9.6 governs. |
| Whether the integration clause converts non-binding LOI terms into binding ones | Appriva relies on integration clause to include LOI as part of contract. | Integration clause preserves LOI non-binding provisions only. | Integration clause does not convert non-binding LOI terms; LOI survives only to binding provisions. |
| Whether the LOI and its negotiations could be admitted to interpret §9.6 | Appriva uses LOI negotiations to temper §9.6. | ev3 argues parol evidence rule bars such use. | The trial court erred by admitting such negotiations to alter §9.6; on remand, focus on bad-faith standard. |
| Whether the jury instruction on good faith was proper given the contract terms | Appriva sought an express bad-faith standard; trial court used mixed definitions. | ev3 urged a bad-faith standard tied to subjective conduct. | Remand for new trial with proper, contract-specific bad-faith instruction. |
Key Cases Cited
- E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436 (Del. 1996) (parol evidence and contract interpretation guideposts; proper good faith instruction)
- DV Realty Advisors LLC v. Policemen’s Annuity and Benefit Fund of Chicago, 75 A.3d 101 (Del. 2013) (define good faith in express contractual duty within bargain context; avoid UCC-based standard)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (limits on implying terms inconsistent with clear contract language)
- Anchor Motor Freight v. Ciabattoni, 716 A.2d 154 (Del. 1998) (enforceability of binding vs. non-binding terms; role of integration clause)
- Pauly Petroleum, Inc. v. Cont’l Oil Co., 231 A.2d 450 (Del. Ch. 1967) (integration and intent governing inclusion of earlier agreement terms)