Delaware Court of Chancery Applies Step Transaction Doctrine to Contract Interpretation

The Delaware Court of Chancery issued its memorandum opinion in Coughlan v. NXP B.V. on November 4, 2011, confirming that the step transaction doctrine—an interpretive regime originally developed in the tax context—has a place in the Court’s toolbox as means of evaluating whether related but superficially separate transactions should be regarded as one united transaction for purposes of contract interpretation. The case called on the Court to interpret two provisions of a merger agreement in an action brought by the appointed representative of an acquired corporation’s former stockholders, who alleged that certain obligations to former stockholders had been accelerated by transfer of the acquired business into a joint venture. The Court concluded, by application of the step transaction doctrine, that a triggering event occurred, thereby potentially requiring acceleration. The Court also concluded, however, that acceleration was precluded because separate provisions of the merger agreement were satisfied by transfer of certain duties to the joint venture. The Court therefore granted defendant’s motion for summary judgment.

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