In this opinion, the Delaware Supreme Court affirmed the Delaware Court of Chancery’s ruling that, during a hostile takeover bid, a party’s disclosure of the opposing party’s confidential information obtained during friendly merger negotiations violated the Non-Disclosure Agreement and the Common Interest, Joint Defense and Confidentiality Agreement between the parties. The Delaware Supreme Court further held that the Court of Chancery did not abuse its discretion in enjoining the pending Exchange Offer and Proxy Contest for four months.
This appeal arose out of an action brought by the plaintiff, Martin Marietta Materials, Inc. (“Martin”) against Vulcan Materials Co. (“Vulcan”) seeking a declaration that the Non-Disclosure Agreement (the “NDA”) between the parties did not bar Martin from conducting an Exchange Offer and Proxy Contest to takeover Vulcan. Vulcan counterclaimed for a determination that Martin breached the NDA and the Common Interest, Joint Defense and Confidentiality Agreement (the “JDA”) (together with the NDA, the “Confidentiality Agreements”). Vulcan also sought an injunction to prohibit Martin from proceeding with the hostile takeover.
In April 2010, Martin and Vulcan entered into discussions to effect a friendly merger between the companies. Pursuant to those discussions, the companies entered into two confidentiality agreements, the JDA and the NDA. The JDA prohibited the use and disclosure of information that the JDA described as “Confidential Materials” unless it was being used “solely for purposes of pursuing and completing the Transaction.” “Transaction” was defined by the JDA as “a potential transaction being discussed by Vulcan and Martin…involving the combination or acquisition of all or certain of their assets or stock…” The NDA, on the other hand, prohibited disclosure of “Evaluation Material” to anyone except the receiving party’s representatives. The NDA also prohibited disclosure of the merger negotiations between Martin and Vulcan except for disclosures that were “legally required.” In circumstances where disclosure was legally required, the NDA established a notice and vetting process that the discloser must follow when disclosure is required by an External Demand.
In March 2011, due to current market conditions and Vulcan’s known plans to obtain cost savings independent from the deal with Martin, Martin began using Vulcan’s confidential, nonpublic information to evaluate alternatives to a friendly deal between the companies. Four months later, Martin initiated an unsolicited Exchange Offer. In the process of the hostile takeover bid and without notice to or consent from Vulcan, Martin disclosed Vulcan’s nonpublic information to third party advisors and, eventually, publicly. Martin commenced litigation in the Court of Chancery for a declaration that it was not barred from proceeding with the hostile takeover by the Confidentiality Agreements. Vulcan counterclaimed, alleging that the takeover violated both Agreements. The Court of Chancery held that Martin’s disclosures did violate both the JDA and NDA and granted an injunction to prevent Martin from proceeding with the takeover for four months.
Martin claimed that the trial court erred in four ways: (1) by going beyond the plain language of the NDA, which permitted use of Evaluation Material to conduct an Exchange Offer and Proxy Contest; (2) by holding that the NDA prohibited Martin from disclosing Evaluation Materials despite the fact that the disclosures it made were “legally required” to conduct its takeover bid; (3) by failing to recognize that the JDA was “subservient” to the NDA such that compliance with the NDA ipso facto constituted compliance with the JDA; and (4) by improperly balancing the equities and granting injunctive relief without proof of actual injury.
The Supreme Court reviewed Martin’s first three claims of error de novo, while reviewing the challenge to the trial court’s remedy for abuse of discretion. The Supreme Court affirmed the Court of Chancery’s rulings. The Supreme Court held that Martin’s disclosures violated the JDA because the only transaction being discussed under the JDA was a negotiated merger, and the “use” restriction did not encompass a hostile merger. The Court found that the JDA was not “subservient” to the NDA, and that the JDA’s existence and content did not affect or limit the NDA in any way. With regard to Martin’s claims involving the NDA, the Court of Chancery’s analysis involved a determination that parts of the NDA were ambiguous, and only resolved them in Vulcan’s favor after examining extrinsic evidence. The Supreme Court rejected this ambiguity-based analysis and instead found that the NDA only authorized disclosure of Evaluation Material in response to an External Demand and after complying with the notice and vetting requirements found therein. Since no External Demand was ever made in this case and Martin did not engage in the Notice and Vetting Process, its disclosures violated the NDA. The Supreme Court affirmed the trial court’s remedy of enjoining Martin from proceeding with a takeover for four months because both Confidentiality Agreements effectively provided a contractual stipulation to irreparable harm, and the evidence on record supported the Court of Chancery’s finding of actual irreparable injury.
The full opinion is available here.