Yatra Online, Inc. v. Ebix, Inc., et al., C.A. No. 2020-0444-JRS (Del. Ch. Aug. 30, 2021) (Slights, V.C.)

In this memorandum opinion, the Delaware Court of Chancery granted motions to dismiss brought by the defendant company and its lenders related to claims of breach of a merger agreement, finding, among other things, that the plaintiff extinguished its breach of contract claims when it elected to terminate the merger agreement.

Plaintiff Yatra Online, Inc. (“Yatra”) is an online travel company that entered into a merger agreement with defendant Ebix, Inc. (“Ebix”) on July 16, 2019.  Under the terms of the merger agreement, each share of Yatra stock would be converted into the right to receive shares of Ebix’s convertible preferred stock at a fixed exchange ratio.  The convertible preferred stock included a put right that could force Ebix, twenty-five months after closing, to redeem any unconverted shares for $5.31 per share.  The convertible preferred stock was to be issued for the first time in connection with the merger and had not been registered with the Securities Exchange Commission (“SEC”) as of the signing date.  Despite Ebix’s contractual promise to move forward with the SEC filing as promptly as practicable, the registration was delayed for months.  In the same period, the COVID-19 pandemic caused Ebix’s stock price to sharply decline, inflating the value of the put right as compared to Ebix’s market capitalization.  Yatra alleged that Ebix wanted to get out of the merger and repeatedly extended the closing date while pretextually renegotiating the deal.  During these renegotiations, Ebix worked with its lenders to effectuate an amendment to its credit agreement that effectively eliminated Ebix’s ability to issue the put right without putting it into default under the credit agreement.

Yatra subsequently waited until the new closing date lapsed before terminating the merger agreement and filing suit.  Ebix and its lenders moved to dismiss under Rule 12(b)(6).  The Court of Chancery granted the motions to dismiss in full.

First, the Court found that Yatra did not adequately allege that Ebix retained liability for any breach of the merger agreement following its termination by Yatra.  Ebix argued that the “Effect of Termination” provision in the merger agreement ended the obligations of both parties and provided that there would be “no liability on the part of any party” with respect to those obligations.  Despite an alternative reading offered by Yatra, the Court agreed with Ebix that the language in the merger agreement was unambiguous.  The Court also observed that the language in the provision was “pretty standard” and had been analyzed in prior Court of Chancery decisions.  If Yatra had wanted to pursue legal action against Ebix, it should have done so before terminating the merger agreement.

Second, the Court determined that plaintiff did not adequately allege that Ebix breached an extension agreement signed as part of the post-signing renegotiations.  Yatra argued that the extension agreement was a standalone agreement unaffected by any limitations in any other contract.  The Court disagreed, stating that the plain text of both the merger agreement and the extension agreement made it clear that the extension agreement was only a modification to the merger agreement.  The extension agreement created no independent liabilities for either party, and was subject to the “Effect of Termination” provision in the merger agreement.

Third, the Court found that the complaint did not adequately allege that Ebix violated the implied covenant of good faith and fair dealing.  Yatra claimed Ebix breached the implied covenant by pretextually renegotiating the merger agreement so that Yatra would not exercise its remedies before Ebix had the chance to amend its credit agreement with its lenders.  Yatra claimed an additional breach of the implied covenant occurred when Ebix entered into the amended credit agreement.  However, the implied covenant is only given force when a contract between the parties is silent concerning the matter at hand.  The merger agreement contained a provision that required both parties to use “reasonable best efforts” to promptly take all actions necessary to “consummate the Merger.”  These provisions would have provided the contractual hook for Yatra to hold Ebix accountable if Yatra had not terminated the merger agreement.  The contract squarely addressed the conduct at issue and so there was no room for the Court to read in the implied covenant of good faith and fair dealing.

Fourth, the Court found that Yatra did not adequately allege that Ebix committed promissory fraud.  Yatra alleged that Ebix made extra-contractual promises that it was willing to renegotiate the merger agreement when it had no intent of doing so and merely wanted to string Yatra along to induce it to forbear from exercising remedies.  This claim suffered from a lack of loss causation.  Yatra argued that but for the false promises it would have sued for specific performance under the merger agreement.  But specific performance would not have been possible because the SEC had never declared the convertible preferred stock registration to be effective.

Finally, the Court found that the complaint did not adequately allege that Ebix’s lenders tortiously interfered with the merger agreement by entering into the amended credit agreement.  Again, the lack of loss causation causes this claim to fail.  The lenders were not alleged to have any role in the failed SEC registration.  Any attempt to sue Ebix for specific performance would have failed with or without the involvement of the lenders.

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