In MetCap Securities LLC v. Pearl Senior Care, Inc., NASC struck a deal to acquire Beverly Enterprises. The merger agreement contained a parenthetical requiring NASC to pay a finder’s fee to MetCap, an investment banker. NASC could not raise sufficient funds to complete the all-cash deal so it entered into an agreement with Pearl Senior Care to assume all of NASC’s obligations to purchase Beverly, including the obligation to pay MetCap’s finder’s fee.
Beverly, NASC, and Pearl negotiated a revised merger agreement and, as is typical, the final negotiating and drafting went late into the night. Around 10 p.m. on a Sunday, the two main lawyers for NASC went home, leaving one of their partners, Dickerson, to finish the work and leaving signature pages with him. Three hours later, Pearl’s counsel deleted the parenthetical and Dickerson apparently acquiesced or didn’t notice. Thus Pearl neither assumed nor was assigned NASC’s obligation to MetCap. The final version of the amended merger agreement was finalized at 4 a.m. and Dickerson attached the signature pages. Four months later the acquisition closed and MetCap discovered that NASC, not Pearl, was the only entity obligated to pay its finder’s fee. NASC was formed for the express purpose of acquiring Beverly and did not have any assets, which MetCap knew when it agreed to perform investment advisory services. MetCap and NASC sued Beverly and Pearl for reformation and damages.
Vice Chancellor Noble dismissed a fraud claim and a third party beneficiary claim. He also dismissed an unjust enrichment claim against NASC but declined to dismiss an unjust enrichment claim against Pearl. Finally, he denied MetCap’s claim for reformation but not NASC’s claim for reformation.
This case is particularly intriguing in its consideration of Dickerson’s power to bind NASC. NASC argued that Dickerson’s power to bind it was circumscribed because he was “deal counsel”, apparently suggesting a status with less power to bind the principal than a transaction lawyer would ordinarily have. The Vice Chancellor held that the scope of a deal counsel’s actual authority would, of course, be fact-specific. He rightly focused, however, on Pearl’s lawyer’s reasonable perception of Dickerson’s powers and found no evidence that suggested knowledge of any limits on Dickerson’s authority. Nonetheless, evidence suggested that Dickerson did not tell NASC that he had acquiesced to the omission of the parenthetical. Ordinarily, an agent’s knowledge binds the principal but here, said Vice Chancellor Noble, the complaint sufficiently (though weakly) alleged that Dickerson might have been conflicted in his role so that ascription of his knowledge to his principal was not appropriate.
In a footnote in a later opinion denying reargument, Vice Chancellor Noble wrote,
MetCap’s insistence that the Court look to the “circumstances” surrounding the Third Amendment and focus on MetCap’s perceived lack of any means to obtain payment of its fee, requires the Court to address an issue that it had sought to avoid. The Court, thus, turns to the allegations regarding the conduct of the attorney representing … NASC (but not MetCap) when he made the final revisions to the Third Amendment that eliminated the provision that arguably would have transferred NASC’s liability for MetCap’s fee to Pearl …. If that attorney, negligently or without authorization (and the Amended Complaint at ¶ 23 alleges that he was without authority), revised the Third Amendment to deprive NASC of its entitlement to have its $20 million obligation to MetCap paid at closing, then NASC would seem to have a claim against that attorney and his firm through which it would be able to meet its obligations (perhaps reduced by the cost of collection) to MetCap. This observation is not essential to resolution of the motion for reargument, but the Amended Complaint’s description of the obvious source of funding induces a skeptical view toward the allegation that NASC is unable to pay, an allegation that is accepted for present purposes under Court of Chancery Rule 12(b)(6). In short, NASC may not now have the funds to meet its obligation to MetCap, but the Amended Complaint, if its allegations are correct, suggests a way for NASC to recover the needed funds.