Sarissa Capital Domestic Fund LP v. Innoviva, Inc.
CA 2017-0309-JRS
| Del. Ch. | Dec 8, 2017Background
- Sarissa (a stockholder group) launched a proxy contest to elect three directors to Innoviva’s seven‑member board for the April 20, 2017 annual meeting; negotiations to settle the contest intensified after proxy advisers recommended Sarissa’s nominees.
- Innoviva’s Board appointed director James Tyree as the lead negotiator to engage Sarissa’s principal Alex Denner; negotiations focused on expansion of the board to nine members and appointing two Sarissa nominees.
- On April 19, under extreme time pressure (vote tallies expected that afternoon), the Board authorized Tyree to offer terms removing the standstill requirement, expanding the board to nine, appointing two Sarissa nominees, and securing a conciliatory joint press release.
- At ~2:30 PM Tyree called Denner, who accepted; both said “we had a deal” and directed counsel to prepare confirmatory paperwork. Counsel exchanged draft letters and a press release the same afternoon.
- Minutes and counsel drafts circulated, but at ~4:43 PM Innoviva learned BlackRock voted for management, prompting Innoviva to terminate settlement discussions; Sarissa filed suit under 8 Del. C. § 225 the next day seeking declaration and specific performance.
- The Court found (1) Tyree had actual and apparent authority to bind Innoviva; (2) Denner and Tyree formed a binding oral settlement on April 19; and (3) specific performance ordering Innoviva to expand the board and seat two Sarissa nominees was warranted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Tyree had authority to bind Innoviva to an oral settlement | Tyree was the Board‑appointed lead negotiator and was authorized to convey and bind Innoviva to the Board‑approved settlement terms | Tyree lacked authority; Board approval and execution of a written agreement were required to bind Innoviva | Tyree had both actual and apparent authority to bind Innoviva under the Board’s authorization and the circumstances |
| Whether a binding contract was formed on the 2:30 PM call | Denner accepted Tyree’s offer on essential terms; oral agreement was sufficiently definite and not conditioned on a signed writing | No meeting of minds on all material terms; parties intended a signed written agreement before being bound | A binding oral settlement was formed: board expansion, appointment of two nominees, Sarissa’s withdrawal/dismissals, joint press release, and issuing revised proxy materials/adjournment if needed |
| Whether the press‑release language or signature were conditions precedent to agreement | Even if parties planned a written memorial, they did not agree the deal would be binding only upon execution; the press release became a covenant to be negotiated in good faith | The Board expected execution of a written agreement and an ‘‘acceptable’’ press release before performance; thus no binding deal | The parties’ contemporaneous actions and counsel drafts show the press release was a covenant and not a condition precedent; the oral deal was binding |
| Whether specific performance is appropriate | Monetary damages are inadequate; Sarissa was ready and performed (stopped solicitation); equities favor enforcing the agreed governance outcome | Innoviva argues it should be allowed to proceed with the shareholder vote and that equity should not force board composition changes | Specific performance was ordered: Innoviva must expand the board and seat Bickerstaff and Kostas; declaratory judgment that they are board members was granted |
Key Cases Cited
- Arnold v. Soc’y for Sav. Bancorp, Inc., 678 A.2d 533 (Del. 1996) (directors may bind corporation where actual authority exists)
- Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010) (contract formation requires mutual assent and consideration; objective manifestation governs)
- Int’l Boiler Works Co. v. Gen. Waterworks Corp., 372 A.2d 176 (Del. 1977) (apparent authority can bind a principal where manifestations justify third‑party belief)
- Petition of Mulco Prods., Inc., 123 A.2d 95 (Del. Super. Ct. 1956) (corporate governance documents and board action can create actual authority)
- Loppert v. WindsorTech, Inc., 865 A.2d 1282 (Del. Ch. 2004) (parties’ intent to prepare a written memorial does not prevent formation of a binding oral contract)
- Leeds v. First Allied Connecticut Corp., 521 A.2d 1095 (Del. Ch. 1986) (objective test whether negotiator would conclude all essential terms were agreed)