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What is a Merger? Commercial Contract Construction Question Favors a Client Who Fought Making a $4M Payment

Poole Huffman, LLC

Amidst complicated questions of corporate mergers, intellectual property, and more, commercial contracts often come down to fundamental issues of document drafting and contract construction. Whether yours is a (seemingly) straightforward contract for services or a complex deal, success often comes down to what’s on the paper you sign and your understanding of what rights and responsibilities are contained in that language. When it comes to getting a contract that does what you intended, and then enforcing the rights you obtained through that agreement, make sure you have an effective and experienced Atlanta commercial contracts lawyer advocating for you.

A recent 11th Circuit Court of Appeals breach of contract case is a strong example of what we mean. The client was a corporation headquartered in Florida “that specializes in defense and information technology.” The consultant was a corporation that “offers research and consulting services related to infrastructure and energy.”

The parties inked a consulting agreement in 2010 to use radio frequency heating technology to obtain heavy oil from oil sands. The “Miscellaneous” section of the deal called for the consultant to receive a payment (capped at $4 million) if “IP is sold, merged or transferred and the primary basis of the sale is not the IP.”

In 2016, the client transferred all of its IP to one of its subsidiaries and the subsidiary subsequently transferred the IP to one of its own subsidiaries. Two years later, the client decided to merge with a New York-based defense company and the two went through a reverse triangular merger. Reverse triangular mergers typically involve the following steps: “an acquiring company creates a transitory subsidiary, that subsidiary merges into a target company, and then that target company survives as the new subsidiary of the acquiring company.”

The parties’ merger plan included, among other things, the IP that was the subject of the consulting agreement. On that basis, the consultant sought payment of the $4 million sum laid out in the contract’s “Miscellaneous” section. The client rejected the invoice, contending that the IP did not merge, and therefore it had no obligation to pay.

The Companies Merged But the IP Didn’t

Both the federal district court and the 11th Circuit (whose rulings cover federal cases in Georgia, Florida, and Alabama,) agreed that the triangular merger did not trigger the contractual obligation and no payment was due. The courts determined that, although the corporations merged, the IP did not. The court read the language from the contract’s “Miscellaneous” section to require that the IP be “combined” with something else in order to trigger the payment obligation.

The client’s reverse triangular merger “did not ‘merge,’ i.e., combine, the relevant intellectual property in any ordinary way,” according to the court. The merger plan didn’t blend the IP with any other IP, did not pool it with other IP, or “otherwise combine” it with anything else. As a result, no merging took place and no payment was due.

When a dispute arises with regard to your commercial contract — whether that dispute is a matter of contract interpretation or something else — there may be a variety of pathways forward to resolve that dispute. Whether your case requires mediation, arbitration, or litigation in court, the skilled Atlanta commercial contract attorneys at Poole Huffman, LLC are equipped and ready. We offer our clients options that are both creative and cost-effective, helping them to achieve the best outcome possible. Contact our team online or by calling 404-373-4008 to schedule your confidential consultation today.

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