IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
STEPHEN F. SEIDENSTICKER,
Plaintiff,
v.
THE GASPARILLA INN, INC., a
Delaware corporation, WILLIAM S.
FARISH, SARAH S. FARISH, LAURA F.
CHADWICK, and WILLIAM R.
GOTWALS,
Defendants.
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Civil Action No. 2555-CC
MEMORANDUM OPINION
Date Submitted: November 8, 2007
Date Decided: November 8, 2007
Andre G. Bouchard, Joel Friedlander, and Dominick T. Gattuso, of BOUCHARD,
MARGULES & FRIEDLANDER, P.A., Wilmington, Delaware, Attorneys for
Plaintiff.
Lewis H. Lazarus, of MORRIS JAMES LLP, Wilmington, Delaware, Attorney for
Defendants.
CHANDLER, Chancellor
Under Delaware law, courts interpret contracts to mean what they
objectively say. This approach is longstanding and is motivated by grave concerns
of fairness and efficiency. 1 Before me is plaintiff’s motion for partial summary
judgment seeking an order declaring the meaning of several disputed provisions of
a Stock Purchase Agreement. Because there is only one reasonable interpretation
of these unambiguous provisions, plaintiff’s motion is granted.
FACTS AND BACKGROUND
Before the Court is Seidensticker’s second motion for partial summary
judgment. In June, the Court granted his earlier motion for partial summary
judgment. 2 After that decision, the parties endeavored to settle their remaining
issues, and stipulated that they would submit by letter to the Court any irresolvable
differences. They have now done so.
Seidensticker was a longtime employee of The Gasparilla Inn who rose
through the ranks to become its CEO in 1995. 3 The next year, Bayard Sharp, the
sole shareholder of the Inn, transferred to Seidensticker 132 shares as a
performance incentive.
Because the Inn was a closely held corporation, the
marketability and transferability of these shares were sharply restricted by the
1
See Joseph M. Perillo, The Origins of the Objective Theory of Contract Formation and
Interpretation, 69 FORDHAM L. REV. 427, 477 (2000) (concluding that a judicial attempt to
uncover the subjective meaning of contracts would incentivize perjury and needlessly complicate
litigation).
2
Seidensticker v. The Gasparilla Inn, C.A. No. 2555-CC, 2007 WL 1930428 (Del. Ch. June 19,
2007).
3
These facts are undisputed and are taken from the parties’ submissions.
1
Stock Purchase Agreement (“SPA”). Specifically, the SPA limited the scope and
means of both voluntary and involuntary transfers. An involuntary transfer was
triggered under the SPA when (a few days after Sharp’s death), Seidensticker’s
employment was terminated.
Under section VI of the SPA, Seidensticker’s
termination triggered an involuntary transfer event that constituted a “deemed
offer” by Seidensticker to sell his shares first to the Inn and then to Sharp. In its
June 19, 2007 opinion, the Court held that the Inn and Sharp’s estate failed to
exercise their options to purchase the shares within the time period set out in the
SPA.
The parties are now attempting to negotiate the terms of a final order and
judgment. The Inn insists that a legend be placed on the stock certificate noting
that the restrictions contained in section V continue to apply. Although both
parties agree that these restrictions still have some effect, the Inn contends that the
triggering events defined by solely Seidensticker’s name and actions are also
applicable to any of his transferees.
Section V of the SPA reads, “Upon the occurrence of any of the following
events, Seidensticker, or his or her [sic] personal representative or successor (the
‘Deemed Offeror’) shall be deemed to have made an offer to sell [the shares].” It
then goes on to list a series of seven events (the disputed provisions are
underlined):
2
1. Commencement of federal or state bankruptcy,
liquidation, or insolvency proceedings by or against
the Deemed Offeror;
2. Attachment or garnishment of, or levy or seizure
upon, or execution of a judgment against the Common
Stock of the Deemed Offeror;
3. Any court order transferring an interest in the
Common Stock of the Deemed Offeror to a third
party, including a former spouse
4. Any attempt to Transfer any Common Stock of the
Deemed Offeror in violation of any term of this
Agreement;
5. Termination of employment with Sharp for any
reason;
6. Disability for a continuous period of three (3) years;
or
7. Seidensticker’s death.
Subsection B of section V defines the date the offer is deemed to be made,
and says that with respect to Seidensticker’s death or disability, Common Stock is
limited to the shares owned by Seidensticker. At issue now is whether paragraphs
6 and 7 of section V.A apply to Seidensticker’s successors or transferees. 4
ARGUMENTS
Seidensticker contends that paragraphs 6 and 7 need not be noted on the
stock certificate legend going forward because they would have no applicability to
transferred shares. Defendants, however, say that the purpose of the SPA was to
allow the Sharp family to keep the Inn a closely held, family business.
4
If
Both sides agree that because Seidensticker has already been terminated, paragraph 5 is
irrelevant.
3
Seidensticker’s interpretation is correct, defendants contend, that purpose would be
thwarted.
In support of his argument, Seidensticker relies heavily on section V.B,
which he says limits the scope of the shares “deemed to be offered” under
triggering events 6 and 7.
The relevant text reads, “In connection with
Seidensticker’s death or disability, the phrase ‘all of those shares of Common
Stock of the Deemed Offeror subject to the event’ shall mean all shares of
Common Stock owned by Seidensticker.” This provision, Seidensticker argues,
renders events 6 and 7 inapplicable to any shares he transfers and, therefore, it is
unnecessary to include these events in the legend on any transferred shares.
Defendants offer two chief reasons supporting their interpretation. First,
they cite section III of the SPA, which states that “[a]ll shares of the Common
Stock which may now or hereafter be owned by Seidensticker shall be subject to
the restriction on Transfer imposed by this Agreement.” Defendants contend that
this language is universal and applies to any mention of common stock throughout
the contract, regardless of whether or not Seidensticker still owns the stock.
Second, defendants argue that the purpose of this agreement was to ensure the
Inn’s ownership did not become diverse. They suggest that the “plain intent” of
the drafters militates against Seidensticker’s interpretation.
4
ANALYSIS
Summary judgment is appropriate only when the record shows no genuine
issue of any material fact and the court can rule as a matter of law. 5 While
considering a motion for summary judgment, the court views the evidence in the
light most favorable to the nonmoving party. 6 Where the dispute centers on the
proper interpretation of an unambiguous contract, summary judgment is
appropriate because such interpretation is a question of law. 7
Delaware law adheres to an objective theory of contracts, under which a
court does not resort to extrinsic evidence “to interpret the intent of the parties, to
vary the terms of the contract or to create an ambiguity” when the contract terms
are unambiguous. 8 Contract terms are not ambiguous merely because the parties to
the contract disagree; 9 rather, the court “stand[s] in the shoes of an objectively
reasonable third-party observer,” and ascertains whether the contract language is
unmistakably clear. 10
5
Ct. Ch. R. 56(c); Twin Bridges Ltd. P’ship v. Draper, C.A. No. 2351-VCP, 2007 WL 2744609,
at *8 (Del. Ch. Sept. 14, 2007).
6
HIFN, Inc. v. Intel Corp., C.A. No. 1835-VCS, 2007 WL 1309376, at *9 (Del. Ch. May 2,
2007).
7
Id.
8
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232–33 (Del. 1997).
9
Id.
10
Dittrick v. Chalfant, C.A. No. 2156-VCL, 2007 WL 1039548, at *4 (Del. Ch. Apr. 4, 2007).
5
The Supreme Court’s recent decision in Appriva Shareholder Litigation Co.
v. EV3, Inc. 11 does not set forth a new or different standard. There, the Supreme
Court held that a trial court may not, on a Rule 12(b)(6) motion to dismiss, “choose
between two differing reasonable interpretations of ambiguous provisions.” 12
Where a contract term is objectively clear and there is only one “reasonable
interpretation,” it is well within the province of this Court to rule as a matter of
law. The Supreme Court may have quoted language suggesting a subjective theory
of contracts from Klair v. Reese, 13 but Appriva does not rely on a subjective theory
to reach its holding. Because of this, and because the Supreme Court has—in an
earlier
opinion
neither
distinguished
nor
cited
in
Appriva—expressly
“disapproved” of the “overbroad” language of Klair, I cannot determine that
Appriva alters Delaware’s stalwart and longstanding adherence to an objective
theory of contracts. 14
Here, section V unambiguously defines certain “triggering events,” upon the
occurrence of which Seidensticker, or his personal representative, or his successor
11
Nos. 470, 2006, 623, 2006, 2007 WL 3208783 (Del. Nov. 1, 2007).
Appriva, slip op. at 30, 2007 WL 3208783, at *10 (quoting VLIW Tech., LLC v. HewlettPackard Co., 840 A.2d 606, 615 (Del. 2003)).
13
531 A.2d 219, 223 (Del. 1987) (“The primary search is for the common meaning of the
parties, not a meaning imposed on them by law.”).
14
See Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 n.7. (Del. 1997)
(“Unfortunately, certain language in the Court’s opinion [in Klair v. Reese] is overbroad on the
issue of when extrinsic evidence should be considered. To the extent that such language may be
read to be broader than, or at variance with, the principles set forth in this opinion, it is
disapproved. The Klair opinion should be construed narrowly to conform with this opinion.”
(citations omitted)).
12
6
shall be deemed to have made an offer to sell the shares back to the Inn. The
contact language anticipates three different individuals who might be deemed to
have made an offer (Seidensticker, his personal representative, or his successor).
The contract provision then collectively defines the class of all three as the
“Deemed Offeror.” That definitional term would be entirely superfluous if any one
of the three individuals could, on its own, stand for all three. When interpreting
contracts, this Court gives meaning to every word in the agreement and avoids
interpretations that would result in “superfluous verbiage.” 15
The “Deemed
Offeror” term would be rendered superfluous verbiage if this Court followed
defendants’ interpretation. Section V.B explicitly states that triggering events 6
and 7 implicate only those shares owned by Seidensticker. Seidensticker is only
one of three individuals contemplated by section V; if “Common stock owned by
Seidensticker” were to mean “Common Stock owned by Seidensticker, his
personal representative, or his successor,” the drafters would have used “Deemed
Offeror.” By saying only Seidensticker, the drafters excluded the other individuals
contemplated by section V, because expressio unius est exclusio alterius. 16
Defendants’ interpretation makes rational sense (in that it is rational to think
that the drafters may not have wanted to allow these shares to get away from the
15
NAMA Holdings, LLC v. World Market Center Venture, LLC, C.A. No. 2756-VCL, 2007 WL
2088851, at *6 (Del. Ch. July 20, 2007).
16
Priest v. State, 879 A.2d 575, 584 (Del. 2005).
7
Sharp family), but its interpretation is not reasonable in light of the indisputably
clear language of the contract. Defendants’ attempt to cabin the last sentence of
section V.B by suggesting that it means all shares “ever” owned by Seidensticker
necessarily fails:
the contract does not use the word “ever.”
Moreover,
defendants’ contention that the language in section III applies throughout the entire
agreement is refuted by the familiar interpretive rule that specific provisions
prevail over general provisions. 17 Defendants offer no persuasive reason that the
contract means anything other than what it says, and “Common Stock” in
connection with Seidensticker’s death or disability means only common stock held
by Seidensticker.
CONCLUSION
Under the plain language of the SPA, no deemed offering of shares occurs
upon Seidensticker’s death or disability with respect to shares held by
Seidensticker’s transferees. Because this is the only reasonable interpretation of
the SPA’s language, I grant plaintiff’s motion for partial summary judgment.
Counsel shall confer on the terms of a final order and judgment
implementing this decision and the earlier ruling. In the event counsel are unable
to resolve all disagreements as to the form of final order, each side shall submit a
proposed form of order for the Court’s consideration.
17
Cf. Shellburne Civic Ass'n, Inc. v. Brandywine School Dist., C.A. No. 2273-N, 2006 WL
2588959, at *4 (Del. Ch. Sept. 1, 2006).
8
