ITG Brands, Inc. v. Reynolds American, Inc., CA 2017-0129-AGB

Background

In 1997–98 Reynolds Tobacco and other manufacturers entered separate settlement agreements with four states (Florida, Minnesota, Mississippi, Texas — the Previously Settled States or PSS) and a Master Settlement Agreement covering the other 46 states; PSS agreements lacked transfer-assumption provisions that the MSA contains.
On July 15, 2014 Reynolds American agreed to sell four cigarette brands (Winston, Salem, Kool, Maverick) to ITG Brands; the Asset Purchase Agreement closed June 12, 2015 for ~$7.1 billion.
The Asset Purchase Agreement (via Agreed Assumption Terms §2.2) required ITG Brands to “use its reasonable best efforts to reach agreements with each of the Previously Settled States” so ITG would “assume, as of the Closing, the obligations … on the same basis as the Settling Defendants prior to the Closing.”
ITG Brands joined Mississippi pre-Closing and later Texas and Minnesota; it did not join Florida pre-Closing and has made no payments to Florida for post-Closing sales; Florida sued in state court seeking to recover post-Closing payments and moved to join ITG.
ITG Brands sued Reynolds in Delaware Chancery invoking the APA’s exclusive Delaware forum and moved for partial judgment on the pleadings seeking a declaration that its “reasonable best efforts” duty to reach agreement with Florida expired at Closing; Reynolds cross-moved asserting the duty survived until ITG actually expended reasonable best efforts.

Issues

Issue	Plaintiff's Argument (ITG)	Defendant's Argument (Reynolds)	Held
Does the phrase “prior to the Closing” make ITG’s duty to use reasonable best efforts terminate at Closing?	“Prior to the Closing” limits temporal scope — duty ended at Closing, so ITG owes no post-Closing obligation to secure Florida joinder or payments.	Phrase describes the obligations to be assumed (i.e., the obligations that Settling Defendants had prior to Closing); duty to use reasonable best efforts continues until actually performed.	Court: Reynolds — phrase modifies the nature of obligations to be assumed, not the deadline; duty did not terminate at Closing.
Is Section 2.2 ambiguous such that extrinsic evidence or course of conduct controls?	Section is ambiguous; customary placement of modifiers could support ITG’s reading.	Section is unambiguous; plain language and grammatical structure support Reynolds’ reading.	Court: Unambiguous in favor of Reynolds; no extrinsic evidence considered.
Do other APA provisions (e.g., §§6.19–6.20) affect whether the reasonable-best-efforts duty continues post-Closing?	Specific language of §2.2 controls and should trump general "both before and after the Closing" language in §§6.19–6.20.	§§6.19–6.20 show parties intended obligations in Agreed Assumption Terms to apply both before and after Closing, consistent with Reynolds’ reading.	Court: §§6.19–6.20 are consistent with §2.2 and support post-Closing operation of the duty.
Would Reynolds’ reading produce unreasonable or indefinite obligations?	Reynolds’ reading could bind ITG to obligations forever or force joinder on amended post-Closing terms; incentivizes indefinite exposure.	A reasonable-best-efforts duty is time- and fact-limited (requires actual efforts; not infinite); ordinary contract interpretation avoids absurd results for ITG.	Court: ITG’s claimed absurdity unpersuasive; reasonable-best-efforts has factual limits; no absurdity.

Key Cases Cited

Norton v. K-Sea Transp. Partners, L.P., 67 A.3d 354 (Del. 2013) (courts give unambiguous contract terms their plain meaning)
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010) (contract construed by objective third‑party standard; read as whole)
Salamone v. Gorman, 106 A.3d 354 (Del. 2014) (Delaware contract interpretation principles and priority to the four corners of the agreement)
DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954 (Del. 2005) (specific provisions ordinarily qualify general ones)