210 A.3d 688
Del.2019Background
- Invenergy developed wind assets and in 2008 issued Series B convertible notes; Leaf (via Leaf Invenergy Co.) invested $30 million.
- The Series B Note Agreement and incorporated LLC agreement (later the Third Amended LLC Agreement) barred a "Material Partial Sale" without the noteholder/member consent unless the company paid a defined "Target Multiple" at closing.
- Invenergy negotiated and closed a $1.8 billion sale of wind assets to TerraForm in December 2015 (a conceded Material Partial Sale) without obtaining Leaf’s consent and without paying the Target Multiple; Leaf converted to equity shortly before closing and sued.
- The Court of Chancery held Invenergy breached Section 8.04 (consent/payment clause) but awarded only $1 in nominal damages, reasoning Invenergy effectively performed an "efficient breach" and Leaf failed to prove actual damages from the TerraForm deal.
- On appeal, the Delaware Supreme Court reversed: it read Section 8.04 to unambiguously require payment of the Target Multiple when a Material Partial Sale occurs without consent and held efficient-breach theory does not excuse contractual damages.
- Remedy: Leaf is entitled to the Target Multiple as contractual damages conditioned on surrendering its membership interest; the case is remanded for implementation.
Issues
| Issue | Plaintiff's Argument (Leaf) | Defendant's Argument (Invenergy) | Held |
|---|---|---|---|
| Interpretation of Section 8.04 — Does a nonconsensual Material Partial Sale obligate payment of the Target Multiple? | Section 8.04 unambiguously requires Invenergy to redeem Leaf for the Target Multiple if Invenergy proceeds without consent. | The payment provision is merely an exception enabling a sale without consent if Invenergy elects to pay; Invenergy can instead bypass and not pay. | Court holds Section 8.04 unambiguously requires payment of the Target Multiple upon a Material Partial Sale without consent. |
| Measure of damages — Are expectation damages equal to the Target Multiple? | Expectation damages should put Leaf in the bargained-for position: payment of the Target Multiple. | Leaf must show actual economic harm beyond the breach; speculate that Leaf wasn’t worse off, so nominal damages are proper. | Court holds damages equal the contractual Target Multiple; nominal damages and hypothetical negotiation approach were improper. |
| Role of "efficient breach" — Can efficient-breach theory excuse payment or alter damages? | Efficient-breach theory does not negate contractual obligations or reduce expectation damages. | Efficient-breach concept supports limiting recovery to actual harm because breach can be efficient. | Court rejects using efficient-breach doctrine to avoid contractual damages; it does not alter expectation-damage rules. |
| Applicability of prior Chancery decisions (Ford Holdings/GoodCents/Fletcher) | Prior cases do not support denying a contractually specified payment after breach. | Court of Chancery relied on those cases to justify alternative damages analysis. | Court distinguishes those decisions and declines to apply them to excuse Invenergy’s contractual payment obligation. |
Key Cases Cited
- Paul v. Deloitte & Touche, 974 A.2d 140 (Del. 2009) (standard of review for contract interpretation questions)
- Genecor Int’l, Inc. v. Novo Nordisk A/S, 766 A.2d 8 (Del. 2000) (expectation damages measure contract remedies)
- Ford Holdings, Inc. v. [named party], 698 A.2d 973 (Del. Ch. 1997) (interpreting consent/payment clause in preferred-stock context; court distinguishes facts)
- E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436 (Del. 1996) (discusses efficient-breach theory and remedies)
- Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444 (Del. 2013) (recognizes the concept of efficient breach but not as limiting expectation damages)