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Dolan v. Altice USA, Inc.

Court of Chancery of Delaware

June 27, 2019

CHARLES F. DOLAN, HELEN A. DOLAN, JAMES L. DOLAN, PATRICK F. DOLAN, COLLEEN McVEY, and DANIELLE CAMPBELL, Plaintiffs,
v.
ALTICE USA, INC., and ALTICE EUROPE N.V., Defendants, and CABLEVISION SYSTEMS CORPORATION and NEWS 12 NETWORKS, LLC, Nominal Defendants.

          Date Submitted: April 22, 2019

          John L. Reed, Esquire, Matthew Denn, Esquire, and Peter H. Kyle, Esquire of DLA Piper LLP (US), Wilmington, Delaware and Robert M. Hoffman, Esquire and James C. Bookhout, Esquire of DLA Piper LLP (US), Dallas, Texas, Attorneys for Plaintiffs.

          Daniel A. Mason, Esquire and Brenda W. Sullivan, Esquire of Paul, Weiss, Rifkind, Wharton & Garrison LLP, Wilmington, Delaware; Kevin G. Abrams, Esquire and J. Peter Shindel, Jr., Esquire of Abrams & Bayliss LLP, Wilmington, Delaware; and Jay Cohen, Esquire and Daniel H. Levi, Esquire of Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, Attorneys for Defendants.

          MEMORANDUM OPINION

          SLIGHTS, VICE CHANCELLOR.

         Plaintiffs, Charles F. Dolan, Helen A. Dolan, James L. Dolan and Patrick F. Dolan (together, the "Dolan family"), are the founders of Cablevision Systems Corp., a publically traded Delaware corporation and one of the largest cable operators in the United States. On September 16, 2015, Cablevision, Altice N.V. and Neptune Merger Sub Corp. entered into an Agreement and Plan of Merger (the "Merger Agreement") whereby Altice agreed to pay $34.90 per share of Cablevision stock, resulting in total merger consideration of $17.7 billion (the "Merger").

         Among the assets within the Cablevision family acquired in the Merger were a cohesive group of regional cable news television channels, known collectively as News12 Networks LLC ("News12"), which serve approximately three million households in New Jersey, Connecticut and New York, including two boroughs of New York City and most of Long Island. News12 provides hyper-local, 24-hour news coverage in a manner that is unique in the United States. The Dolan family were particularly fond of News12 and protective of its legacy. They initially sought to carve out News12 from the Merger but eventually relented to pressure from Altice to include the stations in the transaction. In exchange for doing so, the Dolan family bargained for a commitment from Altice, memorialized in the Merger Agreement at Section 6.4, that Altice would operate News12 "substantially in accordance with the existing News12 business plan . . . through at least the end of plan year 2020[.]"

         Shortly after the Merger closed, the Dolan family discovered that Altice had laid off several News12 employees and planned to lay off more, allegedly in violation of the News12 business plan as incorporated in the Merger Agreement. When Altice declined to rescind the layoffs or commit to honor the News12 business plan, the Dolan family, along with two News12 employees, initiated this action to obtain specific performance of the Merger Agreement.

         Altice has moved to dismiss. Pointing to the survival clause in the Merger Agreement, Altice contends that the commitment to honor the News12 business plan was expressly not among the covenants that survived the closing of the Merger. It also argues the Dolan family are not parties to, or third-party beneficiaries of, the Merger Agreement and, thus, lack standing to seek specific performance of that contract. The Dolan family counter that, notwithstanding the Merger Agreement's survival clause, the covenant at issue, by its terms, extends beyond closing to "at least the end of plan year 2020[.]" They also maintain they are either parties to the Merger Agreement, even though not identified as such, or third-party beneficiaries, even though the Merger Agreement expressly disclaims the existence of third-party beneficiaries. According to the Dolan family, if they are not deemed parties to or third-party beneficiaries of the Merger Agreement, then there will be no one to enforce Section 6.4, a provision included in the Merger Agreement expressly for their benefit. In reply, Altice acknowledges that its construction of the Merger Agreement would reduce Section 6.4 to an aspirational, albeit unenforceable, expression of then-present intent. To the extent the Dolan family thought they had obtained more, they negotiated a "bad deal."

         In this Memorandum Opinion, I find that the contested clauses of the Merger Agreement, when read together, are ambiguous. On the one hand, there are provisions within the Merger Agreement that, by operation, would render Section 6.4 unenforceable. The survival clause does not reference Section 6.4, which suggests the clause did not survive the closing of the Merger. The Merger Agreement also states that there are no third-party beneficiaries. On the other hand, Section 6.4 expressly contemplates that Altice will have performance obligations that extend well beyond closing. And, by its terms, Section 6.4 is clear that the beneficiaries of Altice's commitment to operate News12 according to the News12 business plan are not parties to the Merger Agreement and, therefore, could only enforce that commitment as third-party beneficiaries. Before determining that Section 6.4 is, as Altice maintains, nothing more than nugatory placation, it is, in my view, appropriate to receive parol evidence to discern if that was the parties' intent.[1]

         For the reasons explained below, the motion to dismiss the Dolan family's breach of contract and related declaratory relief claims is denied.[2] The motion to dismiss several of the claims pled as alternatives to breach of contract--breach of the implied covenant of good faith, fraudulent inducement and equitable fraud--is granted. All of these claims are supplanted by the breach of contract claim. In other words, if there is an enforceable contract upon which Plaintiffs may rest their claims, then there is no gap to fill with the implied covenant, there is no need to bootstrap fraud and contract claims, and there is no special relationship to support equitable fraud. The claim for promissory estoppel survives, however, on the theory that if there is no contract between the Dolan family and Altice, as Defendants argue, then the Dolan family has adequately pled there was an extra-contractual promise made by Altice with the reasonable expectation that it would induce action, reasonable and detrimental reliance upon the promise by the Dolan family, and a risk of injustice if the promise is avoided.

         I. FACTUAL BACKGROUND

         I draw the facts from the allegations in the Complaint, documents incorporated by reference or integral to the Complaint and judicially noticeable facts available in public Securities and Exchange Commission filings.[3] For purposes of this motion to dismiss, I accept as true the Complaint's well-pled factual allegations and draw all reasonable inferences in Plaintiffs' favor.[4]

         A. The Parties

         Plaintiff, Charles F. Dolan, is the founder and former CEO of Cablevision Systems Corp.[5] Prior to the Merger, he held a 14.1% interest in Cablevision.[6]His wife, Helen A. Dolan, also held a 14.1% interest.[7] One of their sons, James L. Dolan, held a 3.3% interest and is a former CEO of Cablevision.[8] Another son, Patrick F. Dolan, held a 1.8% interest and was President of News12 at the time of and after the Merger.[9]

         Plaintiffs, Colleen McVey and Danielle Campbell, are current employees of News12, but both are slated to be terminated.[10] McVey, an Emmy award-winning news anchor, has worked at News12 for over 30 years.[11] She regularly appears on air at News12's leading network, News12 Long Island.[12] Campbell, also an Emmy and Edward R. Murrow award-winning news anchor, has worked at News12 for almost 30 years.[13] Viewers rate Campbell above average as compared to other Long Island reporters and she earns a high awareness score among the viewing public.[14]

         Defendants, Altice USA and Altice Europe, are cable, fiber, telecommunications, content and media companies. Altice USA, a Delaware corporation, operates in the United States.[15] Altice Europe, a Dutch naamloze vennootschap (i.e., a Netherlands public limited liability company), is the parent of communications companies that operate in Europe, Israel and the Dominican Republic.[16] Both Altice USA and Altice Europe are successors in interest to Altice N.V.[17]

         Nominal Defendant, Cablevision, a Delaware corporation, is wholly-owned and operated by Altice.[18] The Dolan family founded and led Cablevision until Altice acquired Cablevision in 2015.[19]

         Nominal Defendant, News12, a Delaware limited liability company, is a local television network that provides 24-hour "hyper-local" news coverage concentrating on distinct geographic areas including New Jersey, Connecticut and New York City.[20] Altice acquired News12 as part of the Merger.[21]

         B. The Merger

         In 2015, Altice and the Dolan family began discussing Altice's possible acquisition of Cablevision.[22] Initially, the Dolan family declined to include News12 in the transaction, proposing instead to spin off the asset to an entity they controlled.[23] After intense negotiations with Altice, the Dolan family relented and agreed to include News12 in the Merger in exchange for assurances in the Merger Agreement that Altice would operate News12 in a manner that preserved its employee base, quality reporting and programming.[24]

         The Dolan family, all of whom were members of Cablevision's "controlling stockholder group," were not named as parties to the Merger Agreement, but were represented by Debevoise & Plimpton LLP in the transaction negotiations.[25]As negotiations continued, Altice determined that it would be useful to lock up the Dolan family's shares in favor of the Merger. Here again, comforted that Altice had committed to preserve the News12 asset, the Dolan family relented and committed by Written Consent to vote their substantial Class B shares "in favor of adoption of the Merger Agreement."[26]

         Cablevision, Altice N.V. and Neptune Merger Sub Corp. entered into the Merger Agreement on September 16, 2015.[27] The Merger consideration totaled $17.7 billion.[28] Of that amount, the Dolan family received over $2.2 billion, or approximately 20% of the cash component of the Merger consideration.[29]The transaction closed on June 21, 2016.[30]

         C. The Merger Agreement

         As noted, in exchange for the Dolan family's agreement to include News12 in the Merger, Altice agreed to include a covenant in the Merger Agreement (Section 6.4(f)) that it would operate News12 in accordance with the station's then-existing business plan:[31]

(i) Parent will operate News12 Networks LLC ("News12") from and after [June 21, 2016] [("]the Closing[")] substantially in accordance with the existing News12 business plan (the "News12 Business Plan"), a true and complete copy of which is included in Schedule 6.4(f) of the Company Disclosure Letter, as the same may be adjusted as provided in Scheduled 6.4(f), through at least the end of plan year 2020 within the current News12 footprint as of the date of this Agreement.
(ii) The Company will operate News12 in accordance with the existing News12 Business Plan through the Closing.
(iii) Either party may make reference to Section 6.4(f) and to Schedule 6.4(f) of the Company Disclosure Letter in connection with securing franchise and other regulatory approvals.[32]

         As referenced in Section 6.4(f), the Merger Agreement incorporated the News12 Business Plan in Schedule 6.4(f).[33] Among other things, that plan provides for News12 to employ a full-time equivalent headcount of 462 employees for a five-year period--plan years 2016 through 2020.[34] The Business Plan also confirms that Altice will not materially modify News12's content or decrease any of the budgeted expenses, unless News12 should sustain a loss of $60 million or more, in which case Altice would be free to modify the plan as needed.[35]

         Although, as a practical matter, the Dolan family and News12 employees are the beneficiaries of Section 6.4(f), the Merger Agreement, at Section 9.8, disclaims the existence of third-party beneficiaries:

Except (i) as provided in Section 6.10 (Director and Officer Liability) or Section 9.15 (Financing Sources) and (ii) for the right of holders of Shares as of the Effective Time, after the Effective Time, to receive the aggregate consideration payable pursuant to Article IV of this Agreement, which rights set forth in clauses (i) and (ii) of this Section 9.8 are hereby expressly acknowledged and agreed by Parent and Merger Sub, Parent and the Company hereby agree that their respective representations, warranties and covenants set forth in this Agreement are solely for the benefit of the other party hereto, in accordance with and subject to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any Person other than the parties hereto any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein . . . . The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties hereto.[36]

         The Merger Agreement also contains a survival provision at Section 9.1:

This Article IX and the agreements of the Company, Parent and Merger Sub contained in Article IV and Sections 6.8 (Employee Benefits), 6.9 (Expenses) and 6.10 (Director and Officer Liability) shall survive the consummation of the Merger and the Transactions. This Article IX and the agreements of the Company, Parent and Merger Sub contained in Section 6.9 (Expenses), Section 6.11 (Financing), Section 6.12 (Indemnification Relating to Financing) and Section 8.5 (Effect of Termination and Abandonment) and the Confidentiality Agreement shall survive the termination of this Agreement. All other representations, warranties, covenants and agreements in this Agreement shall not survive the consummation of the Merger and the Transactions or the termination of this Agreement.[37]

         As the provision clearly reflects, the Parties agreed that only certain covenants, representations, warranties and agreements would survive the consummation or termination of the Merger. Section 6.4(f) was not among them.

         Finally, the parties agreed in Section 6.8(e), entitled "Employee Benefits," that:

Nothing contained in this Agreement is intended to (1) be treated as an amendment of any particular Company Plan, (2) prevent Parent, the Surviving Corporation or any of their Affiliates from amending or terminating any of their benefit plans or, after the Effective Time, any Company Plan in accordance with their terms, (3) prevent Parent, the Surviving Corporation or any of their Affiliates, after the Effective Time, from terminating the employment of any Continuing Employee, or (4) create any third-party beneficiary rights in any employee of the Company or any of its Subsidiaries, any beneficiary or dependent thereof, or any collective bargaining representative thereof.[38]

         D. News12 after the Merger

         In the spring of 2017, after the Merger closed, Altice terminated approximately 70 employees, allegedly "in direct violation of Section 6.4(f)."[39]At the time, Patrick Dolan was President of News12 and opposed the layoffs to no avail.[40] The layoffs decreased News12's salary spend by about $7 million-- dropping Operating Expenses to levels under the allocations in Section 6.4(f).[41]

         After the 2017 layoffs, Altice developed a plan to lay off 10% of News12 employees each year.[42] On August 21, 2018, Altice's controlling stockholder, Patrick Drahi, wrote to Patrick Dolan to confirm the planned layoffs.[43]The downsizing plan contemplates that McVey and Campbell will be among the first of the News12 employees to lose their jobs.[44] Michael Schreibner, President of Altice USA News, explained that the layoffs were necessary to give News12 a "fresh look."[45] According to Plaintiffs, the termination of long-time, beloved news anchors, coupled with the planned structural changes, will negatively affect News12's ability to maintain its historic level of quality and hyperlocal news content.[46]

         E. Procedural Posture

         On September 4, 2018, Plaintiffs initiated this action specifically to enforce Section 6.4(f) and to enjoin Altice from terminating any News12 employee other than "for obvious cause" or otherwise operating News12 in deviation of the News12 Business Plan as incorporated in the Merger Agreement.[47] Plaintiffs amended their Complaint to add Danielle Campbell as a plaintiff on October 1, 2018.[48] Defendants then moved to dismiss. By stipulation of the parties, Plaintiffs filed the now-operative Verified Second Amended Complaint (the "Complaint") on March 12, 2019, to include a request that the Court appoint a monitor to enforce Altice's specific performance of Section 6.4(f) and to enhance the allegations in support of their breach of the implied covenant of good faith and fair dealing claim.[49]

         In the Complaint, Plaintiffs assert six causes of action: breach of contract, [50]breach of the implied covenant of good faith and fair dealing, [51] equitable fraud, [52]promissory estoppel, [53] negligent misrepresentation, [54] and declaratory relief.[55]Plaintiffs seek specific performance, injunctive relief, monetary damages, recoverable costs, attorneys' fees and pre-judgment and post-judgment interest.[56]

         Plaintiffs filed a Motion for a Temporary Restraining Order on October 9, 2018, along with their initial complaint. After several hearings to consider that motion were adjourned, the parties submitted a proposed status quo order.[57] The Court entered that order on February 13, 2019, prohibiting Altice from terminating any News12 employee during the pendency of this litigation, except for actual, bona fide cause or upon approval of the Court.[58]

         II. ANALYSIS

         In considering a motion to dismiss, "(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are 'well-pleaded' if they give the opposing party notice of the claim; [and] (iii) the Court must draw all reasonable inferences in favor of the non-moving party[.]"[59] This is to say, "Delaware follows a simple notice pleading standard."[60] "To meet this standard and survive a Rule 12(b)(6) motion to dismiss, a plaintiff must make allegations in its complaint which provide the defendant with sufficient notice of the basis for the plaintiff's claim."[61] The court may grant a motion to dismiss only if the "plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof."[62]

         Questions of contractual interpretation generally are questions of law well suited for a motion to dismiss.[63] With that said, the Court cannot select one reasonable interpretation of a contract provision over another as a basis for dismissal.[64] Rather, "[d]ismissal, pursuant to Rule 12(b)(6), is proper only if the defendants' interpretation is the only reasonable construction as a matter of law."[65]

         A. Have Plaintiffs Adequately Pled A Breach of Section 6.4(f)?

         Not surprisingly, as with most contracts, the Merger Agreement features some boilerplate, some bespoke provisions and some bespoke boilerplate. The question presented here is whether the boilerplate and bespoke boilerplate should be construed, as a matter of law, to render a bespoke provision superfluous. I consider that question, in parts, below.

         1. The Dolan Family Have Adequately Pled They Are Third-Party Beneficiaries; McVey and Campbell Have Not

         As a threshold matter, the parties dispute Plaintiffs' standing to bring contractual claims as third-party beneficiaries to the Merger Agreement. Since Plaintiffs were not parties to the Merger Agreement, [66] they must demonstrate they have standing to enforce the contract as third-party beneficiaries.[67] To do so at this stage, Plaintiffs must plead facts that allow a reasonable inference that:

(i) the contracting parties [] intended that the third party beneficiary benefit from the contract, (ii) the benefit [was] intended as a gift or in satisfaction of a pre-existing obligation to that person, and (iii) the intent to benefit the third party [was] a material part of the parties' purpose in entering into the contract.[68]

         For the first element, Plaintiffs have adequately pled the parties intended that Plaintiffs benefit from Section 6.4(f) of the Merger Agreement. As for the Dolan family, they allege they would not have agreed to include News12 in the transaction if Altice had not agreed to operate the stations in accordance with the News12 business plan, as promised in Section 6.4(f).[69] As for McVey and Campbell, they allege the News12 business plan contains expenditures for newsgathering and production-the bulk of which goes to employee salaries.[70] The News12 business plan protects these salaries with particular line items by department and an incorporated estimate of $60 million in losses over five years.[71]

         The Dolan family also adequately allege that Section 6.4(f) was intended to meet a preexisting commitment made to them and that Altice intended "to give the[m] (as beneficiar[ies]) the benefit of the promised performance."[72] Here again, the Dolan family alleges they agreed to sell News12 only because Altice made the commitment that it would operate News12 within clearly expressed parameters. They then agreed by Written Consent to vote their Class B shares "in favor of adoption of the Merger Agreement" in reliance upon that commitment.[73]

         McVey and Campbell part ways with the Dolan family in the third-party beneficiary analysis on this second element. The Complaint contains no well-pled facts that Altice made any commitment or owed any "pre-existing obligation" to either McVey or Campbell prior to the Merger Agreement from which they could claim third-party beneficiary status with respect to Section 6.4(f). This would explain why Section 6.8(e) of the Merger Agreement makes clear that Altice is not "prevent[ed] . . . from terminating the employment of any Continuing Employee (by definition including McVey and Campbell)."[74] While the Dolan family may be able to advance an argument that the termination of McVey and Campbell's employment with News12 would constitute a breach of Section 6.4(f) as to them, McVey and Campbell have no standing to assert that claim of breach either as parties to, or third-party beneficiaries of, the Merger Agreement.

         Lastly, it is alleged that Section 6.4(f) was included in the Merger Agreement to induce the Dolan family to sell their Cablevision stock, merge Cablevision and News12 into Altice and sign the Written Consent in favor of the Merger Agreement.[75] Under the circumstances, it is reasonably conceivable that "the intent to benefit the third ...


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