Martin Marietta and Vulcan: DE Supreme Court Issues Opinion July 10, 2012 Backing Up Earlier Order

As we reported weeks ago, the Delaware Supreme Court at the end of May issued its order in the Martin Marietta Materials - Vulcan Materials litigation arising because of Martin's breach of the confidentiality/nondisclosure agreement between it and Vulcan.

The Supreme Court issued a brief order confirming the Chancery Court's lengthy decision that Martin had breached the confidentiality agreement and imposing as a penalty that Martin's hostile takeover bid for Vulcan be enjoined for four months, which particularly hurt Martin's efforts because it stopped Martin cold literally on the eve of Vulcan's AMS.

Yesterday, July 10, 2012, the Supreme Court issued the opinion it had promised, in its order, that it would issue.

While we have only done an initial read of the opinion so far, it appears to us that the opinion broke no new ground; however, it does now furnish guidance from the highest court in Delaware — guidance sure to be followed by other states and by federal courts — about interpretation and enforcement of this very, very widely used (but very rarely litigated) are of business law.  For that reason alone, it becomes very significant: although it says what we expected it to say, there will not be any longer merely assumptions about what the Court would say if presented with a breach of contract case like that, but we now know exactly what the Court will say.

We will post a further breakdown and analysis of the Supreme Court's opinion soon.

But three items stand out from a casual reading:

  1. The Supreme Court practically laughed Martin's attorneys out of the courtroom, rejecting their arguments swiftly and unhesitatingly.  This is consistent with our view that Martin's breaches were clear and unfixable and that the violations did not arise from any good faith misinterpretation of the NDA but instead from arrogant disregard by Martin's management of their own contractual obligations.  One consequence which could arise from this opinion, is a revolt at the Martin board level or stockholder level against the management that allowed this disaster not only to occur in the first place but which applied so much of the company's resources toward trying to wriggle out of its own mistake.
  2. The Court upfront made quick work of disposing of Martin's contention that the trial court had erred in its remedy for breach on the ground that, by enjoining Martin's takeover efforts, the lower court had in effect rewritten the NDA to add a standstill provision.  The Court frankly considered this argument a bogus distraction, a false issue, and fallacious, and in a few paragraphs explained the contractual difference between an agreement prohibiting nondisclosure and nonuse of confidential information and an agreement to standstill having no necessary connection to whether or not confidential information is exchanged.
  3. The Court with similar speed rejected Martin's objection to the lower court's remedy, very pointedly noting that the NDA itself states that equitable relief is necessary to protect a non breaching party and that the trial court's choice of remedy was  reviewable only on an abuse of discretion standard, unlike the rest of the trial court's opinion, which was reviewed by the Court on a de novo standard (which makes the Court's decision here bulletproof, in my opinion).  The Court concluded that the trial court did not abuse its discretion and upheld the remedy imposed.  It seems the Court almost considered an affront Martin's implicit argument that because the NDA did not contain a standstill covenant, the trial court should be barred from exercising that remedy; clearly the Court was not going to allow Martin's attorneys to contend that the trial court should not have been allowed to assess a specific equitable remedy because the parties did not expressly and specifically grant that remedy in the language of the contract.
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