On August 31, 2020, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery ruled that neither Cigna Corporation (“Cigna”) nor Anthem, Inc. (“Anthem”) were entitled to the billions of dollars in damages and fees the parties sought in connection with a failed merger between the two companies (the “Merger”). In Re Anthem-Cigna Merger Litigation, C.A. No. 2017-0114-JTL (Del. Ch. Aug. 31, 2020). After the Department of Justice (“DOJ”) successfully sued to block the Merger, Cigna and Anthem sued each other for expectation damages, and Cigna claimed that it was entitled to a Reverse Termination Fee (“RTF”). In a landmark 306-page opinion, the Court rejected both parties’ claims and denied all recovery, finding that “[e]ach party must bear the losses it suffered as a result of their star-crossed venture.”

In July 2015, Anthem and Cigna—the second and third largest health insurers in the U.S., respectively—entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby Anthem agreed to purchase Cigna for over $54 billion. The Merger Agreement contained various covenants, including that the parties use “reasonable efforts” to close the Merger (the “Efforts Covenants”) and take “all necessary actions” to avoid any legal impediment to the Merger (the “Regulatory Efforts Covenant”). Before closing, however, the DOJ sued to block the Merger as anticompetitive. In February 2017, the United States District Court for the District of Columbia (the “District Court”) ruled in favor of the DOJ and permanently enjoined the closing, which ruling was affirmed in April 2017. Thereafter, Cigna and Anthem filed various termination notices and injunction orders and ultimately sued each other for expectation damages; the lawsuits were ultimately consolidated before Vice Chancellor Laster.

The ruling first addressed Anthem’s $21.1 billion claim against Cigna for its alleged breach of the Efforts Covenants. Anthem claimed that Cigna breached the Efforts Covenants by engaging in actions intended to “derail” the Merger. The Court observed that while Cigna’s executive leadership team (“Cigna ELT”) initially favored the Merger, when Anthem began reducing Cigna’s planned post-merger role, the Cigna ELT acted “definitively against the Merger,” obstructing Anthem’s efforts to line up divestitures to address the DOJ’s concerns, opposing mediation, and undermining Anthem’s defenses in the DOJ suit in a manner “so obvious that the District Court described it as the ‘elephant in the courtroom.’” The Court found that these actions amounted to a breach of the Efforts Covenants merger.

The Court nevertheless ruled that Anthem could not recover expectation damages against Cigna because Anthem failed to establish that Cigna’s anti-Merger actions actually affected the DOJ or the outcome in the DOJ suit. In other words, the Court found that Cigna proved, by a preponderance of the evidence, that even if it had fulfilled its obligations under the Efforts Covenants, the DOJ would have still successfully pursued an injunction to block the Merger.

Next, the Court turned to Cigna’s $14.7 billion claim that Anthem breached its obligations under the Regulatory Efforts Covenant. Cigna argued that Anthem’s plans and efforts to obtain antitrust clearance were inadequate to satisfy this covenant. The Court disagreed, ruling that Anthem chose a sound strategy to obtain regulatory approval and met its obligations under the Regulatory Efforts Covenant in pursuing that plan. The Court further ruled that even if Anthem had not, Cigna could not recover damages because the Merger Agreement “extinguished any liability on the part of any party” upon termination, except for damages for “Willful Breach,” which Cigna had not proven.

Finally, the Court rejected Cigna’s claim that Anthem was required to pay a $1.8 billion RTF. The Merger Agreement obligated Anthem to pay the RTF if Cigna exercised its right to terminate the Merger Agreement following expiration of the termination date (April 30, 2017) (the “Temporal Termination Right”). Cigna argued that it exercised the Temporal Termination Right by providing notices of termination on February 14, 2017 and May 12, 2017. The Court deemed the February notice ineffective because it occurred before the Termination Date expired and was issued at a time when Anthem had a temporary restraining order preventing Cigna’s termination, which was not lifted until May 12, 2017. The Court also found Cigna’s May 12 notice was ineffective because Anthem had properly terminated the Merger due to Cigna’s breach of the Efforts Covenants just before Cigna’s termination notice was received. Accordingly, “there was no longer a Merger Agreement in place to provide for the payment of the Reverse Termination Fee,” and the Court ruled that Anthem need not pay the RTF.