The Legal Validity of Oral Agreements with Activist Investors

This one reads like a law school case study. In the 21st century, it is highly unusual that parties, especially adverse parties, would enter into an agreement without putting it into writing. It is even more unlikely that a dispute over an oral agreement would go all the way to trial. And yet that is what happened when activist investors agreed to end their proxy solicitation in exchange for board seats at Innoviva, Inc. When management backed out of the deal, the activists sued and the court ordered specific performance (not money damages).

Recently in Sarissa Capital Domestic Fund LP v. Innoviva, Inc., the Delaware Court of Chancery specifically enforced a disputed oral settlement agreement in a proxy contest between Innoviva, Inc. and Sarissa Capital Management resulting in two dissident directors being seated on the Innoviva board. The court held that the principals of Innoviva and Sarissa had entered into a valid, binding (albeit oral) agreement that required, among other things, Sarissa to cease its proxy solicitation in exchange for two seats on the Innoviva board. Due in part to what the court referred to as Innoviva’s “opportunistic maneuvers” of reneging on the agreement only after it became clear that it would win the proxy contest despite early predictions of a loss, the court used its equitable powers to award Sarissa specific performance of the settlement agreement.

Source: The Legal Validity of Oral Agreements with Activist Investors

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