However, the anti assignment statutes apply to assignments that arise due to the voluntary acts of the parties. I was shocked to listen this approach. Accordingly, the Court dismissed the plaintiff's claim. A reverse triangular merger occurs when an acquiror forms a subsidiary and the newly created subsidiary merges with and into the target company. This section will examine the treatment of contractual rights in connection with four common M&A structures: (i) reverse triangular mergers, (ii) forward-triangular mergers, (iii) stock purchases, and (iv) asset purchases. Terms of Service Age of Majority. University of Pennsylvania The Wharton School Operations, Information and Decisions Department. For example, a right and a corresponding obligation may dis-appear if they vest in the same person, as might happen in a merger or acquisition. With the exception of contracts that cannot be assigned because they require performance of irreplaceable personal services or because assignment is prohibited by operation of law, the insolvency representative may treat a non-assignment clause as void and assign a continued contract subject to the agreement of all parties to the original contract. The court noted that generally, mergers do not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger. The buyer argued that the anti-assignment clause in the original acquisition agreement was violated when the amalgamation occurred without the buyers consent; and that the successor had no standing to claim the Conditional Payment. The cases reach inconsistent results. Your page is very useful for us mortals to understand some technical language. Ken, thanks for the mention of the book. Our partners allow us to transform how teams work with their contracts. If you have a problem with that, omit any mention of consent. The assignment is against the law. After all, Tenant may only be operating under a license or a month-to-month tenancy. View answer Correct answer: (D) by the death of a party to a contract. Mentally competent or other disability limiting comprehension. Transaction parties will typically choose to err on the side of over-inclusiveness in determining which contracts will require consent when dealing with material contracts. Thus, the plaintiff in this second bite lawsuit to collect what was presumably otherwise owed was not the selling party to the original acquisition agreement, but a successor to that selling party. To address unintended consequences that force an unwanted assignment upon a landlord, the assignment language should perhaps include language that prohibits assignments by operation of law . ASSIGNMENT DEFINITION Assignment is the transfer by an obligee (assignor) of some or all of The Venture Alley is edited by Trent Dykes and Andrew Ledbetter, corporate and securities lawyers at DLA Piper. Ch. MGL c.71, 94 Virtual schools. It appears that the requirements for triggering the obligation to make the Conditional Payment were satisfied, but because of some transactions undertaken by the selling party, and the impact of an anti-assignment clause in the acquisition agreement, the buyer claimed that the person actually asserting entitlement to that Conditional Payment was not so entitled (indeed, no one was because the selling party had ceased to exist). The target company may not want their customers, suppliers or others to know that they are going through an M&A event, while the acquiror may want assurances that important contracts will remain in place. The parties apparently conceded that the amalgamation was the equivalent of a merger under Delaware law. Although contracts are generally freely assignable, in the context of any M&A transaction or other proposed contract assignment, careful consideration should be given to: (1) whether the contract in question includes an anti-assignment provision and, if so, whether the provision is "comprehensive" ( i.e., applies to change of . However, contract-by-contract due diligence is required to identify any contracts that contain comprehensive anti-assignment language that would be triggered by the change of control that occurs upon consummation of a stock sale and contracts that may be considered personal under applicable law. There was some confusing language that followed the clear prohibition on assignments by operation of law, but the court was unpersuaded that this created an ambiguity. Get the latest views and developments in the private equity world from the Global Private Equity Watch team at Weil. Importantly,the rule is different if the tenant entity does not survive the transaction. If you would like to learn how Lexology can drive your content marketing strategy forward, please email [emailprotected]. The transfer of real estate, or the way an asset or title is transferred, is a common area for operation of law. 18. Personal contracts are also treated differently from other types of contracts in the context of M&A events (see the discussion below regarding the impact of M&A deal structures on contract assignment for more detail). Transfers by operation of law are generally considered involuntary transfers. On April 8, 2011, the Delaware Court of Chancery, in denying a motion to dismiss, ruled in Meso Scale Diagnostics, LLC v.Roche Diagnostics GmbH, C.A.No. However, under Delaware law, a general prohibition on a party transferring or assigning an agreement does not automatically prohibit a merger involving a contracting party, even one in which the contracting party is not the survivor of such merger. But the meaning of may in the construction remains consistent with MCSD andthe alternative construction each party shall not is a clunky here, so I see why you chose the alternative. Sept. 16, 2020), is a stark reminder of the importance of carefully analyzing change of control/anti-assignment provisions and taking advantage of all available structuring alternatives to avoid untoward results that can occur from completing an acquisition deemed to require a counterpartys consent. Our partners allow us to transform how teams work with their contracts. II. Assignment 1 - Solutions: OIDD 101, Spring 2021. [1] A recent Delaware Superior Court decision, MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V., 2020 WL 5554161 (Del. Whether mergers and consolidations are transfers by operation of law is an open question. Would a conversion constitute an assignment by operation of law under such a provision? Hundreds ofDrafting Clearer Contractspresentations around the world. 2020-1715, -1716 (Fed. Accordingly, the contracts of the target remain with the surviving entity without the need to obtain third party consents or take other action. [1] Of course, the consequences of termination would have to be thought through and suitably addressed. On the other hand, I find Meso's arguments as to why language that prohibits "assignments by operation of law or otherwise" should be construed to encompass reverse triangular mergers unpersuasive and its related construction of Section 5.08 to be unreasonable. For purposes of this paragraph, the term "existing approval" shall include any permit, site assignment, plan approval, condition of operation, or any other applicable order or rule governing the operations of a landfill issued or granted by a municipality, the department, or any other agency of the commonwealth, or for which an application . A typical exclusion is one that allows a target company to assign a contract to an affiliate without needing the consent of the contract counterparty. Mergers and Restrictions on Assignments by Operation of Law. Anti-Assignment Clause Prohibiting Assignment by Operation of Law Applies to Subsequent Merger. Focus on higher-value work and better serve clients with more efficient contract review, Small & Medium Law Firms Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62, 88 (Del. While the amalgamation was a creature of Canadian law, the original acquisition agreement containing the anti-assignment clause was governed by Delaware law. Navigate regulatory and capital uncertainties, January 20, 2022 - company's contracts that restrict an "assignment by operation of law." Importantly, it also reverses an April 2011 ruling, 2011 WL 1348438 (Del. Springfield, MA 01103 (413) 731-5134. Although contracts are generally freely assignable, in the context of any M&A transaction or other proposed contract assignment, careful consideration should be given to: (1) whether the contract in question includes an anti-assignment provision and, if so, whether the provision is comprehensive (i.e., applies to change of control transactions even where, by operation of law, no assignment would be deemed to occur); (2) whether the contract is personal in nature; and (3) how the proposed deal structure impacts the treatment of the targets contractual rights. Contracts involving personal rights or contracts deemed personal by contractual recital or federal law are considered non-assignable or non-transferable unless specific consent is given by the non-assigning party. performance and not the assignment of rights (O.C.G.A. 2. The court pointed out that in Ohio, the surviving corporation in a merger is responsible for all obligations of the constituent corporation. Note . An example might be: In the event of the sale or transfer by [Party B] of all or substantially all of its assets related to this Agreement to an Affiliate or to a third party, whether by sale, merger, or change of control, [Party B] would have the right to assign any or all rights and obligations contained herein and the Agreement to such Affiliate or third party without the consent of [Party A] and the Agreement shall be binding upon such acquirer and would remain in full force and effect, at least until the expiration of the then current Term. I wont get into that here. If you nonetheless want to prohibit the lease vesting int he successor, i think your language will have to use a word other than assign.. [2] [1] The transaction was an amalgamation under Canadian law, which the parties and the Court agreed was the equivalent of a merger under Delaware law. Extract concepts & data points with high efficiency and accuracy our patented technology, Built-In Intelligence Compania Minera Pangea, S.A. de C.V., the Court's conclusion that a Canadian amalgamation had the same legal effect as a Delaware merger resulted in a dismissal of the plaintiff's claim for relief. Obtaining third party consents in connection with M&A transactions may create sticky situations or cause costly delays. Courts have reasoned . DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. 2011) that there may be circumstances where a provision prohibiting assignment of an agreement by operation of law could be triggered by a reverse triangular merger. I think instead, the drafter will have to look towards protections elsewhere, like warranties that the lessee would breach by becoming less creditworthy or a termination right that kicks in on any organic event. Few things are more fundamental to M&A due diligence than determining whether any of the material contracts to which the target is a party require a counterpartys consent as a condition to the proposed acquisition. Many courts have found that an assignment "by opera-tion of law" occurs when the target company's liabilities change hands. Co. v. St. Louis Nat'l Baseball Club, 238 S.W.2d 321, 325 (Mo. MTA Canada Royalty involved a claim by a successor to a selling party under an acquisition agreement for payment by the buyer of a Conditional Payment owing to the selling party if the mining property sold pursuant to that agreement remained in operation after a date certain. An assignment will generally be permitted under the law unless there is an express prohibition against assignment . In either case, this illustrates the importance of clear drafting in contracts, and the need for experienced transaction counsel to be involved early in the deal structuring process so that issues like anti . Instead, lets consider the phrase by operation of law. Thus, the effect of the anti-assignment clause and its applicability to the amalgamation resulted in the buyer having no obligation for the payment of the Conditional Payment to anyone. Along the same lines, the statute makes the successor entity be the primary obligor without calling it a delegation, so the non-delegation language might not be effective. Thus, the court dismissed the former stockholders claim outright. Ch. Because courts construe anti-assignment and anti-delegation clauses narrowly, many courts permit involuntary transfer of contracts by operation of law, even if the contract includes a general transfer restriction (see Nat'l Union, 171 Cal. An official website of the Commonwealth of Massachusetts Here's how you know. No. You must submit your own assignment. They include court-ordered property transfers, bankruptcy-related transfers, and transfers to or from an executor or an administrator. In the latter category, I can cite my former client Royal Free Hospital School of Medicine, which was dissolved and whose assets transferred to University College London under the University College London Act 1996 (see section 5 which deals with automatic transfer of property without any assignment). Digitally transform your audit with a more efficient approach, Alternative Legal Service Providers In addition to more general issues, would this language work in civil-law jurisdictions and other common-law jurisdictions? Extensive writings. This affirms the traditional view often taken by practitioners that was called into question by an April 2011 ruling on a motion to dismiss where the Court implied that in some circumstances a reverse triangular . The next generation search tool for finding the right lawyer for you. We hope this blog post will help you navigate the ambiguities of assignment clauses with greater ease by explaining some of the common variations. the meaning of the contract. MTA Canada Royalty was the second bite at the apple. And, of course, if an assignment had occurred it was prohibited by the anti-assignment provision in the agreement creating the Conditional Payment Obligation. I am a corporate and securities attorney who represents emerging growth companies and the investors who invest in such companies, and am the Chair of the Northwest Emerging Growth and Venture Capital Practice for DLA Piper. For the purposes of this section, the term ''intensive care units'' shall have the same meaning as defined in 105 CMR 130.020 and shall include intensive care units within a hospital operated by the commonwealth. Available Versions of this Section. I welcome comments. The buyer argued that the anti-assignment clause in the original acquisition agreement was violated when the amalgamation occurred without the buyers consent; and that the successor had no standing to claim the Conditional Payment. Applying these principles to deal structures: A general restriction against assignment by a tenant Real estate technology providers can uncover insights to accelerate market capture, Financial Services 2013 For purposes of this paragraph, the term "existing approval'' shall include any permit, site assignment, plan approval, condition of operation, or any other applicable order or rule governing the operations of a landfill issued or granted by a municipality, the department, or any other agency of the commonwealth, or for which an application was . The reference to performance in satisfaction of any conditions acknowledges that if you promise to pay me $50 if I mow your lawn, I might want to delegate the task of mowing your lawn to someone else. These provisions often deem a change of control to be a transfer which triggers the landlord's consent rights in the same way that would apply to an assignment of the lease, for example. Therefore, if a contract purchased as part of an asset sale contains an anti-assignment provision (whether simple or comprehensive) or may be considered personal, then the target company must obtain the consent of the counter party in order to convey the contract to the acquiror. Finally, your construction of neither party may seems to run afoul of the guidance in MSCD 2.150. This seems to be the general view; in one case, for example, the Delaware chancery court ruled, on summary judgment, that "mergers do not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger." Meso Scale Diagnostics, LLC v. The reference to the surviving or disappearing entity covers both direct mergers, triangular mergers, and reverse triangular mergers. Whether mergers and consolidations are transfers by operation of law is an open question. You might want to change court order to government action to handle situations where regulatory bodies take control of a company (e.g. (Plucking a couple of examples at random, go here for Milbanks analysis and go here for Shearman & Sterlings analysis.). ), Im not going to go into any detail regarding the case, as that information is readily available elsewhere. 5589-VCP (Del. Ans: Questions calls for us to shed a brief light on the extraction of thousands-year-old evolving constitutional set-up of Britain and analyze if it has been elicited in accordance with the sacred doctrine . 6305.; Mergers and stock sales have been variously treated by some courts and care should be . Commercial landlords may assume that a change of control transaction violates a basic antiassignment clause. Notably, the anti-assignment provision prevented assignment "by operation of law or otherwise" by any of the parties without prior consent from the others. Accordingly, the contracts of the selling company remain entirely in place without the need to obtain third party consents. Accessibility [2]But alas, it turns out that, following the acquisition of the stock of the selling party by the third party, the third party undertook a number of transactions under Canadian law to amalgamate the selling party into an entirely new entity as the surviving entity of that amalgamation; the selling entity had ceased to exist as a matter of Canadian law. Other Types of Transfers. An example clause prohibiting direct or indirect assignment might be: Except as provided hereunder or under the Merger Agreement, such Shareholder shall not, directly or indirectly, (i) transfer (which term shall include any sale, assignment, gift, pledge, hypothecation or other disposition), or consent to or permit any such transfer of, any or all of its Subject Shares, or any interest therein. Testing Your Fluency in the Secret Language of Choice-of-Law/Forum-Selection Clauses, SEC Proposes New Investment Adviser Safeguarding Rule to Enhance Protections of Advisory Client Assets, SECs Division of Examinations Announces 2023 Examination Priorities for Private Fund Sponsors, Non-Competes and Forfeiture-for-Competition Provisions - The Reasonableness Override Under Delaware Law, SEC Clarifies Position on Presentation of Net Returns Under New Marketing Rule, Checklist: Conducting third party due diligence and managing third party bribery risk (UK), Checklist: Privacy and data security due diligence in M&A (USA), How-to guide: How to comply with due diligence requirements for financial institutions determined to be of primary money laundering concern (USA). Most states allow statutory conversions now (2017). [2] An assignment may not transfer a duty, burden or detriment without the express agreement of the assignee. July 16, 2012. Create your own smart fields to find specific data points using our no-code machine learning tool, Adaptive Workflows Generally, personal contracts are those that contemplate personal services, skills or performance from the non-assigning party, such as employment, consulting, and partnership agreements. This is much like an exclusion with respect to change of control, since in affiliate transfers or assignments, the ultimate actors and responsible parties under the contract remain essentially the same even though the nominal parties may change. What is a contract? All or any portion of the rights and obligations of [Party A] under this Agreement may be transferred by [Party A] to any of its Affiliates without the consent of [Party B]. InMTA Canada Royalty Corp. v.CompaniaMinera Pangea, aDelaware Superior Court held that amerger in which the contracting entity does not survive may be held to be an assignment by operation of law. For example: Either party may assign its rights under this Agreement, including its right to receive payments hereunder, to a subsidiary, affiliate or any financial institution, but in such case the assigning party shall remain liable to the other party for the assigning partys obligations hereunder. Super. assignment by operation of law A transfer of a right or obligation as a necessary consequence of a change in legal status, regardless of the affected party's intent. The term can refer to either the act of transfer or the rights /property/benefits being transferred. As noted by the Delaware Court of Chancery in Star Cellular Telephone Co., Inc. v. Baton Rouge CGSA, Inc., 1993 WL 294847, at *8 (Del. In an asset purchase transaction, the acquiror is only responsible for the assets and liabilities specifically enumerated in the purchase agreement. 5. App. For over two decades now, the law in Connecticut with regards to antiassignment provisions in commercial leases has been that they will be found valid so long as the landlord's discretion to withhold consent was carried out in good faith. However, there is considerable variability in . Yes, I will change court order to something that refers to Government Body or some such. More ambiguity can arise regarding which actions or transactions require a counterpartys consent when assignment clauses prohibit both direct and indirect assignments without the consent of a counterparty. D. by the death of a party to a contract. The Massachusetts Bar Association (MBA) is a non-profit organization that serves the legal profession and the public by promoting the administration of justice, legal education, professional excellence and . Courts have reasoned that a landlord entering into a lease with a corporate tenant should be aware that a corporation, or limited liability company, is an entity which exists separate and apart from its ownership, and that . An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by operation of law requires counterparty approval: [Party A] agrees that it will not assign, sublet or otherwise transfer its rights hereunder, either voluntarily or by operations of law, without the prior written consent of [Party B]. Superior Court Monthly Judicial Assignments; Massachusetts Appeals Court . 2. And, of course, if an assignment had occurred it was prohibited by the anti-assignment provision in the agreement creating the Conditional Payment Obligation. If you have an issue that deals with the assignment of a contract, the Katz Law Group can help you enforce your rights and protect the interests of your business. In Meso Scale Diagnostics, LLC v.Roche Diagnostics GMBH, the Delaware Court of Chancery confirmed that a reverse triangular merger did not result in an assignment by operation of law. An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by . Massachusetts: Commonwealth v. Power, 420 Mass. Based on 28 documents. The Texas statute on the effect of a merger (section 10.008 at http://www.statutes.legis.state.tx.us/Docs/BO/pdf/BO.10.pdf) specifically says that a merger vests rights in property in the successor organization without any assignment or transfer having occurred. In response to the inability of simple anti-assignment clauses to protect contractual rights in certain M&A contexts, many contracts include more robust anti-assignment provisions designed to require third party consent prior to an M&A event, even where the content itself will not be transferred. In the rarer case where transfer is defined, it might look like this: As used in this Agreement, the term transfer includes the Franchisees voluntary, involuntary, direct or indirect assignment, sale, gift or other disposition of any interest in. I did something similar for purposes of Koncisions confidentiality-agreement template. The amalgamation therefore constituted an assignment by operation of law of the acquisition agreement, and was rendered void by the anti-assignment clause. This allows a company to undertake a strategic transaction without worry. So, when the Conditional Payment came due, the selling partys former stockholders, rather than the selling party, sued to collect the Conditional Payment when it was not forthcoming from the buyer. v. Progressive Casualty Insurance Company, 1 the Supreme Court of Colorado outlined the law concerning AOBs: Contract rights generally are assignable, except where assignment is prohibited by contract or by operation of law or where the contract involves a matter of personal trust or confidence. As such, the Court accepted that the amalgamation resulted in the entity that was party to the acquisition agreement ceasing to exist. COVID-19 Resources. The Tenant seeking to enforce its lease has the burden of proving that the new owner was aware of the lease before taking title to the property. Aug. 22, 2019), the court held that the selling partys former stockholders had no standing to claim the Conditional Payment because the only person entitled to that Conditional Payment was the selling party itself, and there really is no such thing as carving out assets of an entity in favor the entitys stockholders selling the stock of that entity, without the entity itself assigning (by way of a dividend) those assets to its stockholders. Copyright 2006 - 2023 Law Business Research. 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