The Delaware Court of Chancery’s decision in Searchlight CST, L.P. v. MediaMath Holdings, Inc., C.A. No. 2020-0652-SG (Del. Ch. Sept. 28, 2020), involved a contract dispute between MediaMath Holdings, Inc. (“MediaMath”) and its investor, Searchlight CST, L.P. (“Searchlight”), over the interpretation of a provision in an investor rights agreement that limited the amount of debt MediaMath could incur. Under the agreement, Searchlight invested in MediaMath in exchange for shares of preferred stock, and contracted for a maximum debt limitation provision. MediaMath thereafter began negotiating a term sheet with a prospective lender for a new loan agreement, and when Searchlight found out, Searchlight contended MediaMath could not enter into the loan transaction without its consent. Searchlight filed a complaint seeking a declaratory judgment that MediaMath was obligated to seek Searchlight’s consent regarding the transaction and moved for a temporary restraining order (TRO) and expedited proceedings to enjoin MediaMath from completing the transaction. MediaMath then moved for summary judgment.
Both parties argued that the terms of the contract were unambiguous, yet they disagreed over the meaning of the contract language at issue. In particular, the parties disputed whether the investor rights agreement only limited MediaMath’s maximum indebtedness that could be incurred or whether it limited the source of indebtedness, and the parties disputed how the maximum indebtedness was calculated. The court noted, however, that “[a] contract is not rendered ambiguous simply because the parties do not agree upon its proper construction. Rather, an ambiguity exists [w]hen the provisions in controversy are fairly susceptible of different interpretations or may have two or more different meanings.” Id. at 18-19. Searchlight’s downfall was that it claimed the provision at issue was unambiguous, but it asked the court to dismiss existing language and to interpret additional language into the provision that was not there in order to fit the limited construction it was trying to achieve. For example, the agreement at issue set “the maximum amount of indebtedness permitted under the terms of the Credit Facility,” but Searchlight asked the court to read in a limitation on the source of the credit facility and a limitation that the “maximum amount” was limited to the balance or amount MediaMath could borrow at any given time. Neither limitation existed under the plain terms of the agreement. The court found that the terms of the investor rights agreement unambiguously referred to the loan commitment of $175 million, and MediaMath did not need Searchlight’s consent to enter into the proposed loan transaction of up to $100 million.
The court’s decision in favor of MediaMath was grounded in the fundamental principles of contract interpretation, with the court determining that MediaMath’s construction gave full effect to each word, while Searchlight’s construction rendered words in the provision “meaningless” or “surplusage.” Accordingly, the court granted MediaMath’s motion for summary judgment and denied Searchlight’s motion for a TRO as moot. The takeaway from this case, whether in the investor context or not, is to choose the words in a contract wisely. When the language in a contract is unambiguous, the court will give full meaning and effect to all words that are present and will not imply language that is not present in the text.