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Sarissa Capital Domestic Fund LP v. Innoviva, Inc.

Court of Chancery of Delaware

December 8, 2017

SARISSA CAPITAL DOMESTIC FUND LP, SARISSA OFFSHORE MASTER FUND LP, SARISSA CAPITAL FUND GP LLC, SARISSA CAPITAL FUND GP LP, SARISSA CAPITAL OFFSHORE FUND LP LLC, SARISSA CAPITAL MANAGEMENT GP LLC, SARISSA CAPITAL MANAGEMENT LP, Plaintiffs,
v.
INNOVIVA, INC., Defendant.

          Submitted Date: September 8, 2017

          Stephen E. Jenkins, Esquire, Richard D. Heins, Esquire and Peter H. Kyle, Esquire of ASHBY & GEDDES, Wilmington, Delaware, and Martin L. Seidel, Esquire and Sameer Advani, Esquire of WILLKIE FARR & GALLAGHER LLP, New York, New York, Attorneys for Plaintiffs.

          Robert S. Saunders, Esquire, Sarah Runnells Martin, Esquire, Alyssa S. O'Connell, Esquire and Matthew P. Majarian, Esquire of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware, Attorneys for Defendant.

          MEMORANDUM OPINION

          SLIGHTS, VICE CHANCELLOR.

         Dissident shareholders of defendant, Innoviva, Inc. ("Innoviva"), mounted a proxy contest earlier this year to elect their director nominees to Innoviva's board of directors ("Board"). This action, arising amid the aftermath, concerns the de jure composition of Innoviva's Board.

         The dissident shareholders are plaintiffs, Sarissa Capital Domestic Fund LP, Sarissa Offshore Master Fund LP, Sarissa Capital Fund GP LLC, Sarissa Capital Fund GP LP, Sarissa Capital Offshore Fund LP LLC, Sarissa Capital Management GP LLC and Sarissa Capital Management LP (collectively, "Sarissa"). In anticipation of Innoviva's 2017 annual stockholder meeting on April 20, 2017, Sarissa launched a proxy contest to elect three director nominees to Innoviva's seven-member Board: George W. Bickerstaff III ("Bickerstaff"), Jules Haimovitz ("Haimovitz") and Odysseas Kostas ("Kostas").

         Sarissa's proxy contest commenced in February 2017. In its proxy materials, Sarissa charged that Innoviva's incumbent directors were "grossly overpaid . . . in the face of poor stock performance" and were "failing to fulfill [their] duty of oversight."[1] Thus, Sarissa reckoned, Innoviva was "not be[ing] run for the benefit of shareholders[.]"[2] These themes continued with various degrees of intensity throughout Sarissa's proxy campaign.

         In early April 2017, three leading proxy advisory firms recommended that Innoviva stockholders vote for Sarissa's director nominees. Following the issuance of those recommendations, the parties began exploring a potential settlement of the proxy contest. The chief negotiators during these discussions were Sarissa's founder and Chief Investment Officer, Alexander Denner ("Denner"), and the then-Vice Chairman of Innoviva's Board, James Tyree ("Tyree").

         Two days out from the annual meeting, the proxy solicitors in both camps reported that the vote was too close to call. This uncertainty drove the parties to intensify their settlement discussions. Denner and Tyree reconnected and spoke on the phone several times that day. During those calls, Denner offered that Sarissa would end its proxy campaign if Innoviva would (1) expand its Board from seven members to nine members; (2) appoint two of Sarissa's nominees to the Board as directors; and (3) forgo a "standstill."[3] In response, Tyree indicated that Innoviva would be willing to expand its Board from seven to nine members, and to appoint two of Sarissa's nominees to the Board as directors, but insisted that Sarissa agree to a standstill and the issuance of a conciliatory joint press release announcing the settlement.

         Later that day, Tyree provided an update to the Board regarding the settlement discussions. The key area of disagreement at that point was the standstill-from both parties' perspectives, that term was a "deal breaker."

         The Board reconvened the next morning and held a series of telephonic meetings regarding the status of the proxy contest and settlement discussions with Sarissa.[4] With less than twenty-four hours to go before the vote, the outcome of the proxy contest still remained in doubt, as several of Innoviva's largest shareholders- including The Vanguard Group, Inc. ("Vanguard") and BlackRock, Inc. ("BlackRock")-had not yet indicated how they would vote at the annual meeting. At this point, "[t]he two assumptions [Innoviva's Board] had . . . on the big votes [then] outstanding were that [the Board's nominees] had a higher probability of winning the Vanguard vote and . . . a lower probability of winning the BlackRock vote."[5]

         After discussing Innoviva's options, the Board remained adamant that an Innoviva-Sarissa settlement would require a standstill. Innoviva's position changed, however, once it learned-shortly after noon that day-that Vanguard planned to vote for Sarissa's nominees. Having lost Vanguard's vote, Innoviva's Board expected that it would lose BlackRock's vote as well, thereby ensuring that "at least two of Sarissa's three [nominees] would be elected to the Board . . . ."[6] The Board expected that the key shareholder votes, including BlackRock's vote, would be known for sure by the "end of the day" on April 19-between 4:00 PM and 5:00 PM.[7] Thus, following Vanguard's indication that it would be voting for Sarissa's nominees, the "clock was ticking down"[8] for Innoviva to reach a settlement with Sarissa and thereby avert an (expected) electoral defeat.

         The Board reconvened later that afternoon for another telephonic meeting. During that meeting, the Board determined that: (1) Innoviva would settle with Sarissa without a standstill; (2) as part of that settlement, Innoviva would expand its Board from seven to nine members and appoint any two of Sarissa's three nominees to the expanded Innoviva Board; and (3) the settlement would require Sarissa to include a conciliatory quote about Innoviva in a joint press announcing the settlement. At the meeting's close, the Board authorized Tyree to convey to Denner that Innoviva would settle with Sarissa on those terms.

         Tyree phoned Denner shortly thereafter to convey Innoviva's revised settlement proposal. Denner promptly accepted, and so confirmed Sarissa's assent to the essential terms of a Sarissa-Innoviva settlement. At the end of their call, Tyree and Denner confirmed they "had a deal"[9] and that they would leave it to others on their respective teams to prepare the "paperwork . . . to get it done."[10] Neither Tyree nor Denner indicated, however, that the settlement was contingent upon the execution of the "paperwork."

         Following Tyree and Denner's call, the parties' attorneys worked to memorialize the agreed-upon deal in writing and finalize the language of the parties' joint press release. With the confirmatory writing finalized, and the press release nearly finalized, Innoviva learned that BlackRock had voted in favor of the Board's slate of directors, effectively ensuring that the Board's nominees would win election. Having snatched victory from the jaws of defeat, Innoviva's Board changed course. It resolved to cease discussions with Sarissa and proceed with the stockholder vote at Innoviva's annual meeting the following day. Tyree made contact with Denner that evening to advise him, in essence, that the "deal" that had been struck during their phone conversation hours before was now "no deal."

         Sarissa filed this action under 8 Del. C. § 225 on the day of the annual meeting. It seeks a declaration that the parties entered into a binding settlement agreement the afternoon of April 19, 2017-during the Denner/Tyree telephone call. According to Sarissa, during that call, Tyree orally bound Innoviva to a settlement agreement with the following terms:

1. Innoviva would expand its Board from seven members to nine, and two of Sarissa's nominees would be added as directors, without requiring a standstill;
2. Sarissa would terminate its proxy contest, withdraw its nomination notice and dismiss its then-pending books-and-records action against Innoviva;
3. Sarissa and Innoviva would announce the settlement in a mutually conciliatory joint press release; and
4. Innoviva would issue new proxy materials with the two Sarissa nominees included on the Board's slate, and Innoviva's 2017 annual meeting would be adjourned (for no more than thirty days) so that those new materials could be prepared and issued.

Sarissa also asks the Court to "specifically enforce the terms of the parties' agreement and order Innoviva and its directors and management to expand the size of the [Board] to nine and appoint [Kostas and Bickerstaff] to the Board."[11]

         Innoviva, for its part, argues that the parties never entered into a binding settlement agreement. In this regard, Innoviva contends that-

1. The parties never reached a meeting of the minds on all material terms of a settlement;
2. The parties did not intend to enter into a binding oral contract, but instead understood that any contract would have to be memorialized in an executed written agreement; and
3. Tyree lacked authority to bind Innoviva to the alleged oral contract.

         In this post-trial opinion, I conclude that Tyree had actual and apparent authority to bind Innoviva to an oral settlement agreement with Sarissa when he telephoned Denner the afternoon of April 19, 2017. I also find that Sarissa and Innoviva entered a binding oral settlement contract during that call in accordance with the terms agreed to by Denner and Tyree. Finally, I am satisfied that the facts and circumstances of this case warrant specific enforcement of that contract. My reasoning follows.

         I. BACKGROUND

         I recite the facts as I find them based on the evidence presented during a one-day trial on July 27, 2017. That evidence comprises testimony from nine fact witnesses (some presented live and some by deposition) and over 400 exhibits. I accord the evidence the weight and credibility I find it deserves.

         A. Parties and Relevant Non-Parties

         Sarissa is a stockholder of record of 1, 000 shares of Innoviva common stock.[12] Sarissa also beneficially owns 3.4 million shares of Innoviva common stock in the aggregate-or approximately 3.14% of Innoviva's outstanding common stock (as of February 24, 2017).[13]

         Innoviva is a Delaware corporation headquartered in Brisbane, California.[14]Its primary business is collecting royalties on certain drugs it has licensed to GlaxoSmithKline ("GSK").[15] During the Sarissa proxy contest, Innoviva's Board comprised seven members: (1) Michael Aguiar ("Aguiar"), Innoviva's CEO; (2) William Waltrip ("Waltrip"), who was then Chairman of the Board; (3) Tyree, who was then Vice Chairman of the Board;[16] (4) Barbara Duncan ("Duncan"); (5) Cathy Friedman ("Friedman"); (6) Patrick LePore ("LePore"); and (7) Paul Pepe ("Pepe").[17]

         Non-party Denner, Sarissa's founder and CIO, was Sarissa's lead negotiator during its proxy contest.[18] Non-party Mark DiPaolo ("DiPaolo") is Sarissa's general counsel and was the lead attorney representing Sarissa during the negotiations of the alleged settlement agreement.[19] Non-party Richard Grossman is a partner at Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") and was the lead attorney representing Innoviva in connection with the Sarissa proxy contest and during the settlement negotiations.[20]

         B. Sarissa Launches a Proxy Contest

         Innoviva's 2017 annual stockholder meeting (the "Annual Meeting") was scheduled for April 20, 2017.[21] In February 2017, Sarissa launched a proxy contest in connection with the Annual Meeting, with the goal of electing three Sarissa nominees to Innoviva's seven-member Board.[22] Sarissa's three nominees were Bickerstaff, Haimovitz and Kostas.[23] Sarissa also commenced a concomitant action under 8 Del. C. § 220 seeking certain corporate books and records to assist in its prosecution of the proxy contest.[24]

         Throughout its proxy campaign, Sarissa was sharply critical of Innoviva's incumbent directors. In its proxy materials, Sarissa inveighed that Innoviva's incumbent directorship was "grossly overpaid . . . in the face of poor stock performance" and was "failing to fulfill its duty of oversight."[25] According to Sarissa, Innoviva was "handicapped by poor governance" and was "not be[ing] run for the benefit of shareholders."[26] These charges fed into Sarissa's campaign slogan: "stockholder representation for the benefit of all stockholders."[27]

         C. Sarissa and Innoviva Explore a Possible Settlement of the Proxy Contest

         In the first week of April 2017, two leading proxy advisory firms, Glass, Lewis & Co. ("Glass Lewis") and Institutional Shareholder Services Inc. ("ISS"), issued reports recommending that Innoviva stockholders vote for Sarissa's nominees.[28] Glass Lewis's report, issued on April 6, recommended that Innoviva stockholders vote for Bickerstaff and Kostas.[29] ISS's report, issued on April 7, recommended that Innoviva stockholders vote for all three of Sarissa's nominees.[30]

         The publication of these two reports changed the tenor of Innoviva's internal Board discussions, since it now appeared that Sarissa's nominees realistically could win election.[31] Indeed, the prospect of a Sarissa victory in the proxy contest "motivate[d] the Board to more actively consider what a settlement [with Sarissa] could look like."[32] As Tyree testified, "a possible settlement [with Sarissa now] became much more of an open topic" for Board consideration. [33]

         It was under these circumstances that Denner and Tyree first began discussing what it would take to resolve Sarissa's proxy contest.[34] Tyree and Denner had initially connected in late March 2017, when Denner placed "an unannounced telephone call . . . directly to [Tyree]"[35] at his office-the two never having met before.[36] Tyree "did not accept [Denner's] telephone call initially but [after] discuss[ing] it with other [Innoviva] Board members and counsel . . . decided [to] return the . . . call."[37] Thereafter, the Board appointed Tyree to serve as Innoviva's "primary point person in discussi[ons] with [Denner]."[38]

         Following the publication of the Glass Lewis and ISS reports, Tyree emailed Denner on April 9 that it was "probably time to talk" about a potential Sarissa-Innoviva settlement-and the terms upon which a settlement might be reached.[39]Innoviva's Board felt even more pressure to explore settlement on April 11, when Egan-Jones Proxy Services joined ISS in recommending that Innoviva stockholders vote for all of Sarissa's nominees.[40] Two days later, however, Innoviva received a boost when its largest shareholder, GSK, announced that it intended to vote for the Board's slate.[41]

         D. Sarissa-Innoviva Settlement Discussions Commence in Earnest

         On April 18, 2017, two days out from the Annual Meeting, the outcome of Sarissa's proxy contest remained an open question.[42] While both parties' voting tabulations had the Board's slate leading, that lead was attributable solely to GSK's vote.[43] Both parties appreciated that their tabulations were missing key data points.[44] Specifically, as of April 18, several of Innoviva's largest shareholders-including Vanguard, BlackRock and The Baupost Group, LLC ("Baupost")-had not yet voted or announced how they would be voting.[45] The Board had reason to believe, however, that Baupost would vote for Sarissa's nominees.[46] And then there were the Glass Lewis, ISS and Egan-Jones recommendations to consider, as well.[47] At this juncture, Sarissa and Innoviva began to discuss a potential settlement in earnest.

         Denner and Tyree spoke on the phone "several times" on April 18 regarding a potential Sarissa-Innoviva settlement.[48] During those calls, Sarissa's settlement "bid" (conveyed by Denner) was "two directors, no standstill;"[49] Innoviva's settlement "ask" (conveyed by Tyree) was "two directors, a standstill, and [a press release in which Sarissa would] say something nice about [Innoviva]."[50] Eventually, Tyree asked Denner to put Sarissa's position into writing so that Tyree could show it to Innoviva's Board.[51]

         At 6:31 PM that evening, Denner forwarded the following email (drafted by Sarissa's general counsel, DiPaolo) to Tyree:

The [B]oard would today resolve to increase its size by two and immediately add George Bickerstaff and Jules Haimovitz to the [B]oard and would also resolve today to add these two directors to the slate for the 2017 [Annual] [M]eeting. The [B]oard would then send out new proxy materials with the reconstituted slate. Sarissa would agree to withdraw its nomination notice and not nominate anyone at the meeting. Sarissa would also agree to drop its 220 request. All of this would be announced by the company in a press release today and an 8-K filing tomorrow. Sarissa would also announce this in a press release today and an SEC filing tomorrow. This may require a short adjournment. [Grossman] and I should exchange emails confirming both sides have agreed to do this.[52]

         Innoviva's Board convened later that evening, at 7:30 PM, for a telephonic meeting.[53] During that meeting, Tyree updated the Board on his conversations with Denner regarding a possible settlement of the proxy contest.[54] After discussion, the Board directed Grossman (of Skadden) "to prepare and deliver a draft settlement agreement to Sarissa's general counsel [DiPaolo] for discussion purposes[.]"[55] That draft agreement was to provide, among other things:

• "for [Innoviva] to increase the size of the Board by two seats to nine";[56]
• "[for Innoviva] to appoint [Bickerstaff] and [Haimovitz] to the Board";[57]
• "[for] Sarissa to dismiss its [Section] 220 action";[58] and
• "[for] Sarissa to agree to customary standstill and non-disparagement provisions through the advance notice deadline for the 2018 annual meeting of stockholders, with such . . . provisions to be extended for an additional year if Messrs. Bickerstaff and Haimovitz were re-nominated for election as directors at the 2018 annual meeting."[59]

         The Board then determined to reconvene the following morning "to review the status of the [settlement] discussions, " and the meeting was adjourned.[60]

         Grossman and DiPaolo spoke on the phone later that evening.[61] Grossman explained that "while he had no authority to make a settlement and the [B]oard hadn't even decided whether it wanted to make a settlement with [Sarissa], th[e] [Board had] instructed him to send over a draft settlement agreement that provided for [the appointment of] two [Sarissa nominees] and a standstill."[62] DiPaolo told Grossman that he could send the draft "if he wanted to, " although DiPaolo personally "didn't think it was worthwhile because [Sarissa] wouldn't agree to that type of standstill."[63]

         Grossman and DiPaolo also discussed the timing of a potential settlement.[64]Grossman advised DiPaolo that it would be "beneficial" if Sarissa and Innoviva could reach a settlement "before th[e] final . . . vote [tally]" came in "at the end of the day" on April 19-between 4:00 and 5:00 PM-at which time the proxy contest's result would be a virtual fait accompli[65] DiPaolo agreed.[66] Both understood the practical significance of the timing issue: If there were to be a Sarissa-Innoviva settlement, it would have to be concluded before "the end of the day" on April 19.[67]

         At 11:28 PM on April 18, Grossman emailed a draft settlement agreement to DiPaolo.[68] The draft settlement agreement provided, among other things:

• that Innoviva would increase the size of the Board to nine members;
• that Innoviva would appoint two Sarissa designees to the Board (Bickerstaff and Haimovitz being the tentative appointees);
• that Sarissa would discontinue the proxy contest and dismiss its pending Section 220 action against Innoviva; and
• that Sarissa would agree to a one-year standstill.[69]

         The draft agreement also specifically stated that the agreement would "become effective" only when "signed by each of the Parties and delivered to the other Party . . . ."[70]

         Appreciating that time was running out, DiPaolo sent a reply email to Grossman at 3:32 AM on April 19, 2017, in which he rejected the draft settlement agreement.[71] DiPaolo's email stated, "We are not philosophically opposed to having a very simple agreement without a standstill. Unfortunately, I don't think there is time to get this done via agreement. Our deal is very simple and shouldn't require any agreement. If the [B]oard adds two of our nominees to the [B]oard, then this will all be over tomorrow morning."[72]

         E. The Day Before the Annual Meeting

         Innoviva's Board reconvened at 9:30 AM on April 19 and held a series of telephonic meetings lasting through the morning.[73] In its morning meetings, the Board discussed the status of settlement negotiations with Sarissa and the voting results to date.[74] Tyree reported that he had spoken with Denner the night before.[75]During this conversation, Tyree had reiterated to Denner the essential terms of Innoviva's settlement proposal: Innoviva would appoint two Sarissa nominees to the expanded (nine-member) Innoviva Board, subject to a standstill; and the parties would announce the settlement in a conciliatory joint press release.[76] Denner, in turn, provided Sarissa's stock response: "two directors, no standstill, and [Sarissa would] work on the press announcement to make it so that [Sarissa's principals and Innoviva's Board] look like we're shaking hands and getting this [i.e., the proxy contest] behind us."[77]

         Following Tyree's report, the Board discussed how Innoviva might respond to Sarissa's counterproposal.[78] At the time, the stockholder vote appeared very close.[79] And Vanguard and BlackRock still had not reported how they would be voting.[80] "The two assumptions [Innoviva's Board] had . . . on the big votes [then] outstanding were that [the Board's slate] had a higher probability of winning the Vanguard vote and . . . a lower probability of winning the BlackRock vote."[81]

         Working from these assumptions, the Board discussed several options available to Innoviva in connection with Sarissa's proxy contest, including (1) accepting Sarissa's counteroffer and appointing Bickerstaff and Haimovitz to the expanded (nine-member) Innoviva Board without a standstill; or (2) refusing to settle with Sarissa, and instead proceeding with the vote at Innoviva's 2017 Annual Meeting the next day.[82] After discussion, the Board remained adamant that an Innoviva-Sarissa settlement would require a standstill.[83] Thus, the Board directed that Tyree contact Denner to see if Sarissa would back off its resistance to that key deal term.[84]

         Tyree reached Denner by phone as directed.[85] And, as directed, he advised Denner that Innoviva remained willing to enter into a settlement with Sarissa in which (1) Innoviva's Board would be expanded from seven to nine members; (2)two of Sarissa's nominees would be appointed to the expanded Innoviva Board; (3)the parties would announce the settlement in a conciliatory joint press release; and (4) Sarissa would be subject to a standstill.[86] Denner, in turn, reiterated that Sarissa was not willing to agree to a standstill.[87] No progress. Clock ticking.

         1. Vanguard Advises Innoviva That It Will Be Voting for Two of Sarissa's Nominees

         Shortly after noon on April 19, 2017, Aguiar spoke on the phone with Vanguard representatives, who informed him that Vanguard would be voting for two of Sarissa's director nominees.[88] Immediately following that call, Aguiar sought to reconvene the Board for an emergency meeting.[89] As of that morning, the Board had assumed it would win the Vanguard vote but perhaps lose the BlackRock vote.[90]With Vanguard announcing that it would be voting for two of Sarissa's nominees, however, one those assumptions went out the window. Accordingly, Aguiar sought "to get the [B]oard together" as soon as possible to discuss the import of Vanguard's vote with respect to the proxy contest and Innoviva's settlement discussions with Sarissa.[91]

         The Board reconvened at 12:30 PM for another telephonic meeting.[92] Present for this meeting were all of Innoviva's directors except LePore, who was unavailable.[93] Also present were representatives of Innoviva's proxy solicitor (Innisfree) and financial advisor (Evercore).[94] The sole topics for discussion were how Vanguard's anticipated vote affected the proxy contest and whether, given this new information, Innoviva should approach Sarissa with a revised settlement proposal.[95] In connection with that discussion, representatives of Innisfree and Evercore advised the Board that "of the index funds, [Vanguard] tends to be the most management-friendly and, having lost [Vanguard's] vote it was highly likely that the [Board] would also lose [BlackRock's] vote for at least two directors."[96] Tyree concurred, "not[ing] that his call with representatives of [BlackRock] had been lukewarm and [that] he agreed . . . it was unlikely that [BlackRock] would vote for the Board's nominees."[97] Tyree also informed the Board that he had spoken with Denner, who had reiterated that Sarissa would not agree to a standstill.[98] And so the Board now had to determine whether Innoviva would continue to insist on the standstill as a condition of the settlement.[99] "Following a discussion, the Board determined to recess again until 1:30 PM Eastern time when all the directors were expected to be available."[100]

         After the brief recess, the Board reconvened as planned for another telephonic meeting. Aguiar opened this meeting with a bleak assessment: "Given the way that [Vanguard had] voted, and that [Innoviva] was unlikely to receive [BlackRock's] vote, there was a high probability that at least two of Sarissa's three candidates would be elected to the [seven-member] Board."[101] The Board then discussed Innoviva's options going forward, and Grossman answered the Board's questions about the terms of the draft settlement agreement and the press release.[102]

         The Board next discussed Kostas' suitability (or not) as a Board appointee and reached "the consensus . . . that, based on circumstances then existing, Dr. Kostas would be acceptable as a replacement for either Mr. Haimovitz or Mr. Bickerstaff."[103] Tyree testified that this "was just a clarification around the fact that any subset of [Sarissa's three nominees] would be acceptable, "[104] given that the Board had already "vetted" each of the three.[105]

         After further discussion, the Board determined that Innoviva would agree to a settlement with Sarissa-"without 'standstill' or non-disparagement provisions and with a press release favorable to [Innoviva]"[106]-whereby Innoviva's Board would be expanded from seven to nine members and two of Sarissa's three nominees would be appointed as directors to fill the resulting Board vacancies.[107] In anticipation of Innoviva's entry into a settlement with Sarissa on those terms, Innoviva's Board conditionally resolved to expand the Board from seven to nine members and to fill the resultant Board vacancies with two Sarissa nominees (tentatively, Haimovitz and Bickerstaff).[108]

         As the final step before the meeting broke, the Board authorized Tyree to convey Innoviva's revised proposal to Denner and "to attempt to settle with Sarissa."[109] In that regard, Tyree was authorized to convey to Denner the following: (1) that Innoviva would settle with Sarissa without a standstill; (2) that, as part of that settlement, Innoviva would expand its Board from seven to nine members and appoint two of Sarissa's nominees to Innoviva's expanded Board as directors; and (3) that the settlement would require Sarissa to include a conciliatory quote about Innoviva in the joint press release announcing the settlement.[110] The meeting adjourned at 1:47 PM.[111]

         At 2:02 PM, Grossman emailed DiPaolo a short draft settlement agreement and press release.[112] The draft agreement added some detail but reflected the material settlement terms the Board had just authorized:

1. "upon the issuance of the attached press release, " Sarissa agreed to withdraw its nomination notice, discontinue its proxy contest and drop its pending Section 220 action;[113] and
2. Innoviva agreed to (i) immediately increase the size of its Board to nine members, (ii) appoint Haimovitz and Bickerstaff as Innoviva directors, (iii) include Haimovitz and Bickerstaff "as nominees of the Board to stand for election as directors at [Innoviva's] 2017 Annual Meeting, " (iv) adjourn its 2017 Annual Meeting to "not later than May 19, 2017" so that the Board could revise its slate of director nominees accordingly and (v) file revised proxy materials, which would be subject to Sarissa's review and comment.[114]

         The "attached press release" stated that Sarissa and Innoviva had reached a settlement (on the above terms) and contained proposed quotes from Waltrip (the Chairman of Innoviva's Board) and Denner, respectively, that Innoviva believed were conciliatory.[115]

         2. Tyree and Denner Speak on the Phone and Reach a Deal

         At approximately 2:30 PM, Tyree connected with Denner over the phone to convey the settlement proposal he had been authorized by the Board to make.[116]Since Innoviva had abandoned its demand for a standstill, Denner was quick to accept Innoviva's proposal.[117] And with that, Tyree and Denner reached agreement on the essential terms of an Innoviva-Sarissa settlement.[118]

         At the end of their call, Tyree and Denner confirmed that they "had a deal"[119]and that they would leave it to others on their respective teams to prepare the "paperwork . . . to get it done."[120] Neither Tyree nor Denner indicated, however, that the agreed-upon deal was contingent upon the execution of a written agreement.[121] Nor did Tyree indicate that the agreed-upon deal was subject to further Board approval.[122]

         Shortly thereafter, Tyree spoke on the phone with Aguiar, and told Aguiar "[what] was communicated [to Denner] and what [Tyree and Denner had] agreed on the big ticket items . . . ."[123] This call served as "[Tyree's] hand-off to the remainder of the Innoviva expanded team."[124] Denner, for his part, instructed Sarissa's team (and its proxy solicitor) to stop soliciting proxies "[b]ecause we have a deal"[125] and told DiPaolo to work with Innoviva's counsel to finalize the relevant documents.[126]

         3. The Parties' Counsel Work to Memorialize the Agreed-Upon Settlement

         At 2:55 PM, DiPaolo emailed Grossman, noting that Denner and Tyree had spoken and attaching a revised draft settlement agreement.[127] The revised draft contained three notable changes:

1. the opening sentence was revised to state, "This letter agreement is to confirm our agreement";[128]
2. Kostas was substituted for Haimovitz as a Sarissa appointee;[129] and
3. per the revised draft, Innoviva "confirms, represents and warrants to Sarissa that, concurrently with the execution of this agreement"[130]-
a. Innoviva "has" increased the size of its Board to nine members and appointed Kostas and Bickerstaff as Innoviva directors;[131]and
b. Innoviva "agrees to" include Kostas and Bickerstaff as nominees of the Board to stand for election as directors at Innoviva's 2017
Annual Meeting, and to use "reasonable best efforts to cause the election of" both Kostas and Bickerstaff at that meeting.[132]

         Thereafter, at approximately 3:30 PM, DiPaolo and Grossman spoke on the phone.[133] On that call, the two reviewed the latest revisions to the draft settlement agreement.[134] Grossman indicated that all of DiPaolo's comments were acceptable, and that he (Grossman) just needed to run certain language by his co-counsel.[135]Grossman and DiPaolo also discussed the issuance of a joint press release.[136] During the course of that discussion, the two agreed "to move the concept of issuing the agreed-upon press release from a condition precedent to a covenant . . . ."[137] Finally, Grossman asked DiPaolo for Sarissa's comments on Innoviva's draft press release.[138] DiPaolo advised Grossman that Sarissa's comments would be coming shortly and would consist of reordering certain text, adding Kostas as one of the two nominees and including a (revised) quote from Denner.[139]

         At 4:14 PM, Grossman's associate emailed clean and marked-up versions of the draft settlement agreement to DiPaolo.[140] The Skadden versions of the agreement contained the agreed-upon language, "This letter agreement is to confirm our agreement."[141] The marked-up version also identified Kostas and Bickerstaff as Sarissa's nominees, consistent with Denner and Tyree's agreement and Sarissa's prior draft.[142] The clean version inadvertently omitted Kostas's name because of a typographical error.[143] In addition, both versions provided that the agreed-upon joint press release was to be issued "[a]s soon as practicable following the execution of this letter agreement . . . ."[144]

         At 4:21 PM, Skadden forwarded its cover email and revised version of the settlement agreement to Innoviva's officers and advisors.[145] Aguiar then sent a one-word reply email: "OK."[146] Following a brief exchange between DiPaolo and Grossman's associate regarding the timing of the press release, the parties' counsel agreed to replace the phrase "as soon as practicable" in the 4:14 PM version of the agreement with "immediately."[147]

         Thereafter, at 4:41 PM, DiPaolo emailed Innoviva's legal team with Sarissa's comments on Innoviva's draft press release.[148] Sarissa's comments included revisions to Denner's quote to include a reference to "GSK's reluctance to support necessary change" (presumably in reaction to GSK's support of the incumbent slate).[149] DiPaolo's email also stated, "Note that we don't like tinkering with other people's quotes but we advise that Waltrip's quote should at least acknowledge that shareholders had issues and that the [B]oard listened . . . Just our advice. . ."[150]

         4. Innoviva's Board Learns That BlackRock Would Vote in Favor of the Board's Slate of Nominees and Abruptly Disengages With Sarissa

         At 4:43 PM, Innisfree sent an email to Innoviva's officers and advisors (including Aguiar and Grossman) with the message, "WE GOT BLACKROCK!!!"[151] For Innoviva and its Board, this was a critical albeit unanticipated development. After Vanguard's announcement that it would be voting for Sarissa's nominees, the Board had been operating on the understanding that its nominees "w[ere] unlikely to receive [BlackRock's] vote."[152] As it turned out, however, BlackRock voted in favor of all seven of the Board's director nominees.[153]For his part, at least, Grossman "decided to kind of stop communicating with Sarissa after th[e] BlackRock vote came in."[154]

         Innoviva's Board reconvened for a telephonic meeting at approximately 5:20 PM.[155] Aguiar informed the Board that BlackRock had voted "in favor of all seven of the Board's [director] nominees . . . . "[156] Innisfree reported that "all of the Board's [director] nominees . . . were likely to be elected to the Board at [Innoviva's 2017 Annual Meeting] and that none of the nominees put forth by Sarissa . . . were likely to be elected . . . ."[157] Aguiar then advised the Board that "he had not executed a signature page for the draft settlement agreement that was being circulated earlier that afternoon."[158] After discussion, the Board determined that Innoviva would "not continue with discussions with Sarissa" and would "instead proceed with the vote at the 2017 Annual Meeting . . . ."[159]

         At approximately 7:00 PM, Grossman called DiPaolo and informed him of the Board's decision: Innoviva would not be proceeding with a settlement and instead would "be going forward with" its 2017 Annual Meeting.[160] Understandably agitated, DiPaolo responded, "this is not going to go down this way."[161]

         Tyree then emailed Denner at 7:35 PM, advising Denner that he "no longer [had] the backing of the [B]oard."[162] Denner replied: "You cannot back out of an accepted deal. Innoviva agreed to the deal and your lawyers confirmed it. Please call me [ASAP] . . . ."[163] Tyree and Denner spoke later that night.[164]

         F. Innoviva's 2017 Annual Meeting Is Held As Scheduled; Tyree Resigns From Innoviva's Board

         Innoviva's 2017 Annual Meeting was held as scheduled on April 20, 2017, and Innoviva's stockholders voted to elect all of the Board's nominees.[165] At a Board meeting later that morning, convened at Tyree's request, Tyree told the other directors that he disagreed with their decision to abandon the settlement with Sarissa, that the decision was "impractical" and that he did not "do business th[at] way . . . ."[166] Tyree also commented that he "did not believe [Innoviva was] anywhere close to being done with Sarissa moving forward"[167] and recommended that Innoviva immediately "open a channel of communication with Sarissa and that the point person in those communications not be [Tyree]."[168]

         Ultimately, Tyree resigned from Innoviva's Board on June 2, 2017, notwithstanding that he was then being positioned to succeed Waltrip as the Chairman of the Board.[169] Tyree testified that Innoviva's decision to abandon the settlement with Sarissa was a factor in his decision to resign.[170]

         G. Procedural Posture

         Sarissa filed a "Verified Complaint Pursuant to 8 Del. C. § 225 and for Specific Performance" ("Complaint") with the Court on April 20, 2017-the day of Innoviva's 2017 Annual Meeting.[171] In its Complaint, Sarissa claims that Denner and Tyree's phone call the afternoon of April 19, 2017 (the "2:30 PM Call") gave rise to a binding oral settlement agreement between Sarissa and Innoviva, and that Innoviva has breached that agreement.[172]

         Under the parties' settlement agreement, according to Sarissa, "two of Sarissa's nominees were to be added to the present seven directors of Innoviva, " Sarissa would terminate its proxy contest and "withdraw its [then-pending] § 220 action" and "both sides would vote their proxies in favor of those nominees" at Innoviva's 2017 Annual Meeting, "which was to be adjourned until no later than May 19, 2017."[173] Thus, Sarissa's Complaint asks the Court to "specifically enforce the terms of the parties' agreement and order Innoviva . . . to expand the size of the Board of Directors to nine and appoint Dr. Kostas and Mr. Bickerstaff to the [B]oard."[174]

         Innoviva moved to dismiss the Complaint pursuant to Court of Chancery Rule 12(b)(6).[175] Sarissa then filed an amended complaint (the "Amended Complaint") on May 12, 2017. Most notably, the Amended Complaint expressly alleges that "[t]he parties also agreed to issue a joint press release, but [that] the content of that press release was neither a material term of nor a condition to the[ir] agreement."[176] The legal gravamen of the Amended Complaint, however, remains the same.[177] Thus, Sarissa's Amended Complaint contains the same breach-of-contract claim and the same request for specific performance set forth in its original Complaint.[178]

         Innoviva moved for summary judgment on the Amended Complaint.[179]The Court denied that motion after determining the following genuine disputes of material fact remained: (1) whether Tyree (or Grossman) had actual or apparent authority to bind Innoviva to a settlement agreement with Sarissa without further Board approval; (2) whether Tyree agreed on behalf of Innoviva that Kostas would replace Haimovitz as Sarissa's second designee to the Board; and (3) whether the parties' joint issuance of a mutually conciliatory press release was a material term and/or condition precedent of the purported Sarissa-Innoviva settlement agreement.[180]

         A one-day trial was held on July 27, 2017, following which the Court heard post-trial oral argument on September 8, 2017.[181] This is the Court's post-trial decision.

         II. ANALYSIS

         Sarissa and Innoviva dispute whether they entered into a valid, enforceable settlement agreement. By my lights, the parties' dispute reduces to three issues:

1. Whether Tyree had authority to bind Innoviva to an oral settlement agreement with Sarissa;
2. If Tyree had such authority, whether the 2:30 PM Call created a binding Sarissa-Innoviva contract, viz.-whether Denner and Tyree then manifested mutual assent to bind their respective principals (Sarissa and Innoviva) to an oral settlement agreement with "sufficiently definite" terms; and
3. If there is a binding oral settlement agreement between the parties, whether specific enforcement of that agreement is warranted.
I address each issue in turn.

         A. Tyree Had Authority to Enter Into an Oral Settlement Agreement With Sarissa on Behalf on Innoviva

         An individual corporate director may negotiate a settlement on behalf of the corporation-and bind the corporation to an agreed-upon settlement-provided the director has actual or apparent authority to do so.[182] For the reasons set forth below, I conclude that Tyree had both actual and apparent authority to bind Innoviva to an oral settlement agreement with Sarissa.

         1. Tyree Had Actual Authority

         Actual authority requires an extant agency relationship.[183] An agency relationship "arises when one person [or entity] (a 'principal') manifests assent to another person [or entity] (an 'agent') that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act."[184] Actual authority, then, "is created by a principal's manifestation to an agent that, as reasonably understood by the agent, expresses the principal's assent that the agent take action on the principal's behalf."[185]

         Where the principal is a corporation, such assent may be manifested in provisions of the corporation's certificate of incorporation or bylaws, or otherwise through board action.[186] Thus, a corporation's governance documents may grant actual authority to certain of its directors and officers to bind the corporation in contract-whether to a particular contract or type of contract, or more generally.[187]Alternatively, a corporation's board of directors, as such, may cause the corporation to manifest assent that a particular director or officer shall have the power to bind the corporation in contract, provided the corporation's certificate and bylaws do not prohibit such action by the board.[188]

         The scope of an agent's actual authority is determined by the agent's reasonable understanding of the principal's manifestations and objectives.[189]Accordingly, "[a]n agent has actual authority to take action designated or implied in the principal's manifestations to the agent and [to take] acts necessary or incidental to achieving the principal's objectives, as the agent reasonably understands the principal's manifestations and objectives when the agent determines how to act."[190]

         In this case, Tyree had actual authority to bind Innoviva to an oral settlement agreement with Sarissa within certain parameters.[191] This authority can be traced to the express manifestations of Innoviva's Board (and thus, Innoviva) prior to and during the Board's April 19 afternoon meeting (from 1:30 to 1:47 PM), and Tyree's reasonable understanding of those manifestations. Before that meeting, Innoviva's Board had appointed Tyree to act as Innoviva's "lead negotiator" in settlement discussions with Sarissa, and Tyree had accepted that appointment, thus creating a specific agency relationship between Tyree and Innoviva.[192] And during that meeting, Innoviva's Board manifested assent that Tyree contact Denner "to negotiate to see if a settlement agreement including a press release between Sarissa and [Innoviva] could be reached."[193] In that regard, the Board also manifested assent that Tyree convey to Denner the following:

• that Innoviva was willing to settle with Sarissa without a standstill;[194]
• that, as part of that settlement, Innoviva would expand its Board from seven to nine members and appoint any two of Sarissa's nominees to the Board to fill the resulting vacancies;[195] and
• that Sarissa would be required to include a conciliatory quote about Innoviva in the joint press release announcing the settlement.[196]

         The Board's authorization of Tyree to offer these terms on the afternoon of April 19, came in the midst of the Board's expectation that BlackRock would vote for "at least two" of Sarissa's director nominees, meaning (1) that "at least two" of Sarissa's three nominees would be elected to the seven-member Board; and (2) that "at least two" of Innoviva's existing directors would be replaced.[197] The Board also expected that the final vote tally-including BlackRock's vote-would be published between 4:00 PM and 5:00 PM that day.[198] And with the revelation of BlackRock's (expected) vote for Sarissa's nominees, Sarissa would no longer have an incentive to settle its proxy contest. Thus, for Innoviva's Board, the "clock was ticking down" for Innoviva to reach a binding settlement with Sarissa-and thereby avert an (expected) electoral rout.[199]

         Under these circumstances, Tyree reasonably understood the Board's (and thus Innoviva's) manifestations to him during the Board's April 19 afternoon meeting to express Innoviva's assent that (1) within the Settlement Agreement Parameters, Tyree was authorized to make an oral settlement offer on Innoviva's behalf; and (2) Denner's oral acceptance of that offer (on Sarissa's behalf) would bind Innoviva to the settlement.[200] And the record reflects that this was, in fact, Tyree's understanding.[201] Accordingly, Tyree had actual authority to convey to Denner an oral settlement offer on behalf of Innoviva (on the terms approved by the Board) and to bind Innoviva to a settlement with Sarissa on those terms.[202]

         2. Tyree Had Apparent Authority

         Unlike actual authority, apparent authority does not depend on the existence of an underlying agency relationship, and may arise even where no such relationship exists.[203] Apparent authority "is the power held by an agent or other actor to affect a principal's legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations."[204] Thus, even if a person lacks actual authority to bind an entity to a contract with a third party, the person still may have apparent authority to do so.[205] For instance, a non-agent director has apparent authority to bind the corporation to a contract with a third party if (1) the third party reasonably believes that the director has such authority; and (2) that belief is traceable to the corporation's manifestations.[206]

         A corporate principal may make a manifestation to a third party concerning an agent's authority "by placing [the] agent in charge of a transaction or situation."[207]In particular, where a corporate principal has designated an agent as its "exclusive channel of communication" with a third party, that designation can "constitute a manifestation of [the corporation's] assent to be bound in accordance with . . . communication[s]" made through that channel.[208]

         Here, the evidence clearly reveals that Tyree had apparent authority to bind Innoviva to a settlement agreement with Sarissa. First, Denner, Sarissa's principal, believed that Tyree spoke on behalf of Innoviva's Board (and so Innoviva), and thus was authorized to enter into a settlement agreement on Innoviva's behalf.[209] Second, it was reasonable for Denner to believe this. Tyree was Innoviva's "lead negotiator" in settlement discussions with Sarissa and the only Innoviva Board member with whom Denner negotiated during the critical April 18-19 time period.[210] In addition, there is no evidence that Innoviva then communicated (or otherwise indicated) to Denner that Tyree was not authorized to enter into a settlement agreement on Innoviva's behalf.[211] Finally, Denner's reasonable belief that Tyree was authorized to take such action on Innoviva's behalf is traceable to Innoviva's manifestations, namely, (1) Innoviva's having appointed Tyree as Innoviva's "lead negotiator" in settlement discussions with Sarissa; and (2) Innoviva's having permitted Tyree to serve as Innoviva's exclusive channel of settlement-related communications with Denner during the critical April 18-19 time period.[212] For these reasons, I find that Tyree had apparent authority to bind Innoviva to a settlement agreement with Sarissa.

         3. There Was No Improper Delegation of the Board's Duties

         Innoviva contends that Tyree "did not have authority . . . to enter into the alleged oral agreement because this would involve an improper delegation of the Board's fiduciary and statutory duties."[213] Specifically, Innoviva argues that, under 8 Del. C. §§ 141(b), 223(a)(1) and Section 3.9 of Innoviva's Bylaws, "decisions regarding who should fill Board vacancies cannot be delegated to an individual director or a third person, but must be decided by the entire Board acting by majority vote."[214] Innoviva's argument, however, misapprehends the facts proven at trial and the statutory and bylaw provisions upon which it relies.

         Section 3.9 of Innoviva's Bylaws is complementary to Section 3.2 of Innoviva's Bylaws, which provides that Board approval (by majority resolution) is required to expand the size of the Board, consistent with 8 Del. C. § 141(b).[215]Section 3.9, in turn, provides that newly created Innoviva directorships may only be filled by a "majority vote of directors then in office, " consistent with 8 Del. C. § 223(a)(1).[216] Nothing in this section prohibits a majority of Innoviva's Board from deciding (without a formal vote) who should fill "to-be-created" directorships and, upon reaching a decision in that regard, authorizing an individual director to bind the Board to that decision via contract. In other words, Section 3.9 does not prohibit what happened here.

         During the Board's April 19 afternoon meeting, the Board conditionally resolved to expand the size of the Board from seven to nine members, consistent with Section 3.2 of Innoviva's Bylaws[217] This was done in anticipation of Innoviva's entry into a settlement with Sarissa.[218] The Board also authorized Tyree to represent (or offer) to Denner that the Board would appoint (presumably by later vote) any two of Sarissa's three nominees to the Board if the proxy contest was settled.[219] That is to say, if Sarissa accepted Innoviva's settlement proposal, then Innoviva's Board would be expanded from seven to nine members, and "a majority . . . of [the seven] directors then in office" would vote to appoint any two of Sarissa's three nominees to fill the resulting Board vacancies-consistent with Section 3.9 of Innoviva's Bylaws.[220]

         Here, it was Innoviva's Board that made the foregoing determinations, not Tyree. Indeed, the settlement terms that Tyree was authorized to convey to Denner were Innoviva's settlement terms, i.e., the settlement terms approved by Innoviva's Board. Under these circumstances, as proven by Sarissa at trial, I am satisfied that Tyree's authority to bind Innoviva to an oral settlement agreement with Sarissa on terms approved by Innoviva's Board was entirely consistent with Section 141(b)'s and 223(a)(1)'s requirements that the creation and filling of new directorships be properly authorized by the board of directors in accordance with the corporation's governing documents.[221]

         B. Denner and Tyree Formed a Valid, Binding Contract Between Sarissa and Innoviva

         Sarissa claims that Denner and Tyree created a valid, binding contract between Sarissa and Innoviva during the 2:30 PM Call. Innoviva disagrees and argues (1) that "the parties never reached a meeting of the minds on all material terms of a settlement";[222] and (2) that "the parties did not intend to enter into a binding oral contract, but instead understood that any contract would be in an executed written agreement."[223]

         Under Delaware law, "the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration."[224]A valid contract exists when (1) the parties have made a bargain with "sufficiently definite" terms; and (2) the parties have manifested mutual assent to be bound by that bargain.[225] The presence or absence of such mutual assent "is to be determined objectively based upon the[] [parties'] expressed words and deeds as manifested at the time rather than by their after-the-fact professed subjective intent[.]"[226] In this regard, the relevant inquiry is:

[W]hether a reasonable negotiator in the position of one asserting the existence of a contract would have concluded, in that setting, that the agreement reached constituted agreement on all of the terms that the parties themselves regarded as essential and thus that that agreement concluded the negotiations . . . .[227]

         A contract need not be in writing to be valid: "Where the objective, contemporaneous evidence indicates that the parties have reached an agreement, they are bound by it, regardless of its form or the manner in which it was manifested."[228] Thus, if an oral settlement agreement meets the requisites of a valid contract, it will bind the parties the same as a written settlement agreement.[229]

         Moreover, "'the fact that the parties [to an oral agreement] manifest an intention to prepare and adopt a written memorial' will not prevent contract formation if the evidence reveals '[m]anifestations of assent that are in themselves sufficient to conclude a contract.'"[230] Indeed, "[w]here a settlement agreement has been reached, 'the fact, alone, that it was the [parties'] understanding that the contract should be formally drawn up and [executed], [does] not leave the transaction incomplete and without binding force, ...


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