In a recent opinion by the Delaware Court of Chancery, the court found after a trial on the merits that the plaintiff’s breach of contract claims failed because a joinder agreement adding the plaintiff as a party to a purchase agreement was not executed by all parties necessary to amend that purchase agreement. Therefore, the joinder agreement was facially invalid and unenforceable. Braga Inv. & Advisory, LLC v. Yenni Income Opportunities Fund I, L.P., C.A. No. 2017-0393-AGB, 2020 WL 3042236 (Del. Ch. June 8, 2020). The bottom line takeaway from the court’s decision in Braga Inv. is that parties, and their counsel, need to take care to ensure that where there is a separate agreement amending a purchase agreement or other contract, all necessary parties required to amend the original contract are signatories to the other contract. This may seem elementary, but parties have to pay close attention to details or proceed at their own peril.
The action arose out of an investment that the plaintiff, Braga Investment & Advisory, LLC (“Braga”), made to acquire 23.3% of the membership interests of Steven Feller, P.E., LLC (“New Feller”) as part of an underlying transaction where New Feller acquired the business of Steven Feller P.E., PL (“Old Feller”). Yenni Income Opportunities Fund I, L.P. (“the Fund”), was the private equity investment firm that put the transaction together and became the managing investor of New Feller. As in many deals, there were several contracts at play in this matter, and Braga’s failure to properly navigate all the moving parts led to its downfall here.
First, the Fund (as the buyer) executed a purchase agreement with Old Feller and Old Feller’s principals (the “Sellers”) to facilitate New Feller’s acquisition of Old Feller. Plaintiff Braga was not a party to and never signed the purchase agreement. Second, Braga and the Fund entered into a separate, later, co-investment agreement related to the acquisition that brought Braga into the deal to acquire membership interests in New Feller and gave Braga a position as a board observer. This co-investment agreement also referenced athirdjoinder agreement under which Braga would be deemed a “Buyer” under the purchase agreement between Old Feller and the Sellers. Also pursuant to this joinder agreement, Braga would be entitled to the rights and obligations of the purchase agreement. Braga signed the joinder agreement, which was then countersigned on behalf of New Feller around the time of closing. However, shortly before closing, the Fund, Old Feller, and the Sellers entered into a fourthside-letter agreement amending the purchase agreement to exclude the transfer of certain Old Feller assets to New Feller.
Braga brought suit for breach of contract in the Court of Chancery, alleging that the Fund breached the purchase agreement by agreeing to amend its terms shortly before the closing to exclude certain assets from being transferred to New Feller without Braga’s consent. Braga argued, inter alia, that an amendment to the purchase agreement required “an agreement in writing signed by the Buyer [the Fund], the Company [Old Feller], and the Sellers,” and that it was a Buyer as a result of the joinder agreement. Braga also claimed the Fund breached the co-investment agreement by depriving Braga of its right as a board observer to receive “board packages.” After trial, the court found in favor of the Fund on all claims. The court held that the Fund was not required to obtain Braga’s signature when it entered into the side-letter agreement, which amended the purchase agreement, because the joinder agreement that supposedly added Braga as a Buyer was not executed by any of the parties necessary to amend the purchase agreement (i.e., it was not executed by or ratified by the Fund, Old Feller, or the Sellers). Thus, Braga was not a Buyer under the purchase agreement, and its signature was not necessary to amend it. The court also found that Braga failed to show it suffered any damages. In addition, the court held the Fund did not breach the co-investment agreement by denying Braga access to certain materials in connection with its position as a board observer because the term board packages as used in the co-investment agreement entitled Braga to less information than Braga claimed, and Braga did receive the information it was entitled to, including materials distributed to New Feller’s board members that enabled the board members to perform their duties in an informed manner.