IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MURPHY MARINE SERVICES OF ) DELAWARE, INC., THE THOMAS M. ) BROWN, SR. 2006 TRUST FBO JOHN ) M. BROWN, JR., THE THOMAS M. ) BROWN, SR. 2006 TRUST FBO ) TERRANCE M. BROWN JR., THE ) THOMAS M. BROWN, SR. 2006 ) TRUST FBO TIMOTHY M. BROWN, ) THE THOMAS M. BROWN, SR. 2006 ) TRUST FBO THOMAS M. BROWN, ) JR., ) ) Plaintiffs, ) ) v. ) C.A. No. 2018-0664-SG ) GT USA Wilmington, LLC, ) ) Defendant. )
MEMORANDUM OPINION
Date Submitted: January 19, 2021 Date Decided: May 28, 2021
Michael P. Kelly, Daniel M. Silver, and Travis J. Ferguson of MCCARTER & ENGLISH, LLP, Wilmington, Delaware, Attorneys for Plaintiff Murphy Marine Services of Delaware, Inc.
Geoffrey G. Grivner of BUCHANAN INGERSOLL & ROONEY PC, Wilmington, Delaware, Attorneys for Plaintiffs The Thomas M. Brown, Sr. 2006 Trust FBO John M. Brown, Jr., The Thomas M. Brown, Sr. 2006 Trust FBO Terrance M. Brown, Jr., The Thomas M. Brown, Sr. 2006 Trust FBO Timothy M. Brown, and The Thomas M. Brown, Sr., 2006 Trust FBO Thomas M. Brown, Jr. David A. Dorey and Brandon W. McCune of BLANK ROME LLP, Wilmington, Delaware, Attorneys for Defendant GT USA Wilmington, LLC.
GLASSCOCK, Vice Chancellor This matter involves an agreement for the new long-term private operator of
the Port of Wilmington (the “Port”), Defendant GT USA Wilmington, LLC (“GT”),
to purchase the entirety of a stevedore business operating at the Port, Plaintiff
Murphy Marine Services of Delaware, Inc. (“Murphy Marine”). Prior to the arrival
of GT, the Port was operated by the Diamond State Port Corporation (“DSPC”), a
corporate entity of the State of Delaware. 1 That a deal took place at all was likely
the result of pressure applied by the State of Delaware (via the Secretary of State’s
office), which wished to obtain the advantages of port privatization rather than
maintaining State control; at the same time, it wished to reduce or eliminate damage
that could result to stakeholders and participants at the Port, notably Murphy Marine.
The Secretary of State made this abundantly clear to the parties, both of whom felt
“pressure” to comply. 2
Thus encouraged, the parties negotiated an agreement (the Binding Letter
Agreement, or “BLA”) under which Murphy Marine’s stockholders would sell
100% of Murphy Marine’s stock to GT, in return for payment of the going concern
value of Murphy Marine. The latter was to be determined, per the agreement, from
a fair market valuation analysis to be done by a prominent accounting firm, KPMG
LLP (“KPMG”). KPMG rendered a valuation range; the parties dispute whether that
1 Joint Statement of Stipulated Facts ¶ 8, Dkt. No. 231 [hereinafter “Post-Trial Stip.”]. 2 Post-Trial Stip. ¶¶ 12–13.
1 product was a final valuation in light of the BLA, whether the valuation was tainted
or otherwise improper, and whether the BLA is enforceable under the circumstances.
I bifurcated this matter—Phase I involves certain discrete predicate issues of
contract interpretation only. 3 Trial was held on Phase I: this is my post-trial decision
on certain contractual issues.
I. BACKGROUND 4
A. The Parties
Plaintiff Murphy Marine is a corporation formed under the laws of Delaware
with its principal place of business in Wilmington, Delaware.5 For over 40 years,
Murphy Marine was engaged in the business of stevedoring at the Port of
Wilmington, which was its only stevedoring operation. 6 Murphy Marine no longer
actively operates in the Port.7
Plaintiffs The Thomas M. Brown, Sr. 2006 Trust FBO John M. Brown, Jr.,
The Thomas M. Brown, Sr. 2006 Trust FBO Terrance M. Brown, Jr., The Thomas
3 The other outstanding issues will be addressed in Phase II. 4 I recite the facts as I find them based upon the evidence submitted by the parties. Unless otherwise noted, the facts in this Background were stipulated by the parties or proven by a preponderance of evidence. To the extent there was conflicting evidence, I have weighed the evidence and made findings based on the preponderance of the evidence. In pursuit of brevity, I sometimes omit from this Background discussion testimony in conflict with the preponderance of the evidence. In such cases, I considered the conflicting testimony, and I rejected it. Where the facts of this post-trial opinion are drawn from exhibits jointly submitted at trial, they are referred to according to the numbers provided on the parties’ joint exhibit list (“JX __, at ___”). 5 Post-Trial Stip. ¶ 1. 6 Post-Trial Stip. ¶¶ 2–3. 7 Post-Trial Stip. ¶ 4.
2 M. Brown, Sr. 2006 Trust FBO Timothy M. Brown, and The Thomas M. Brown,
Sr., 2006 Trust FBO Thomas M. Brown, Jr. are shareholders of Murphy Marine.8
Defendant GT is a limited liability company incorporated in the state of
Delaware with its registered agent located in Wilmington, Delaware.9 GT is a
subsidiary of Gulftainer Company Ltd., a global entity headquartered in the United
Arab Emirates and the largest privately-owned port operator in the world.10 GT is
in the business of managing and operating the Wilmington Port Terminal 11 and was
formed in connection with the opportunity to privatize the Port. 12
B. Relevant Facts
In 2017, the DSPC, a corporate entity of the State of Delaware and the then-
current operator of the Port, solicited bids for a public/private partnership to
improve, develop, finance, and/or operate the Port via a long-term concession
agreement with the DSPC.13 GT was ultimately identified as the preferred bidder
and, by the end of 2017, entered into a Non-Disclosure Agreement with Murphy
Marine in connection with a possible purchase of Murphy Marine by GT.14
8 Post-Trial Stip. ¶ 5. 9 Post-Trial Stip. ¶ 6. 10 Post-Trial Stip. ¶ 7. 11 Joint Phase 1 Pre-Trial Stipulation and Order ¶ 5, Dkt. No. 221 [hereinafter “Pretrial Stip.”]. 12 Post-Trial Stip. ¶ 9. 13 Post-Trial Stip. ¶ 8. 14 Post-Trial Stip. ¶¶ 10–11.
3 On April 11, 2018, representatives of Murphy Marine and GT, along with the
Delaware Secretary of State, attended a meeting and discussed GT purchasing
Murphy Marine, subject to reducing any final agreement to writing. 15 Although the
State of Delaware did not require GT to buy Murphy Marine, both Murphy Marine
and GT have expressed that they felt pressure from the state to transact.16
Accordingly, on April 11, 2018, Murphy Marine sent an initial draft of a binding
letter agreement (defined above as the “BLA”) to GT.17
By this time, the privatization of the Port, and GT’s status as the preferred
bidder, were widely known. 18 Also at the April 11, 2018 meeting, GT representative
Peter Richards and Murphy Marine representative John Brown, Jr. agreed to select
a Big Four valuation firm to value Murphy Marine. 19
The parties proceeded to exchange five drafts of the BLA before finalizing it
on April 24, 2018. 20 By June 2018, the parties had identified KPMG as their
preferred valuator. 21 The parties exchanged drafts of an engagement letter for
KPMG (the “Engagement Letter”)22 and both parties concede that KPMG stated that
15 Post-Trial Stip. ¶ 16. 16 See Post-Trial Stip. ¶¶ 12–14. 17 Post-Trial Stip. ¶ 18; Pretrial Stip. ¶¶ 16–17. 18 See Post-Trial Stip. ¶ 15. 19 Post-Trial Stip. ¶ 25. 20 See Post-Trial Stip. ¶¶ 17–23. 21 Post-Trial Stip. ¶ 37. 22 Post-Trial Stip. ¶¶ 38–39.
4 it would not provide a specific price point in its valuations of Murphy Marine, but
rather would provide a valuation range. 23
On the morning of July 6, 2018, GT’s CEO, Peter Richards, sent GT’s final,
agreed-upon BLA for execution to Murphy Marine.24 Both the Engagement Letter
and the BLA were executed at an in-person meeting that same day, although the
Engagement Letter was signed before the BLA. 25 Peter Richards (“Richards”)
executed the BLA and Engagement Letter on GT’s behalf in his capacity as Chief
Executive Officer.26 John Brown, Jr. (“Brown, Jr.”) executed the BLA on behalf of
Murphy Marine’s stockholders; i.e., as Trustee of the Thomas M. Brown, Sr. 2006
Trust FBO John M. Brown, Jr. and The Thomas M. Brown, Sr. 2006 Trust FBO
Terrance M. Brown, Jr., and as the authorized representative of The Thomas M.
Brown, Sr. 2006 Trust FBO Timothy M. Brown and The Thomas M. Brown, Sr.
2006 Trust FBO Thomas M. Brown, Jr. 27 Murphy Marine is not, itself, a party to
the BLA. 28 Brown, Jr. executed the Engagement Letter on behalf of Murphy Marine,
as Chairman of its board of directors.29
23 See Pretrial Br. of Def. 23, Dkt. No. 206 [hereinafter “Def.’s Pretrial Br.]; Pls.’ Phase I Post- Trial Opening Br. 24, Dkt. No. 237 [hereinafter “Post-Trial OB”]. 24 Post-Trial Stip. ¶¶ 48. 25 Post-Trial Stip. ¶¶ 41–42. 26 Post-Trial Stip. ¶ 46. 27 JX 102. 28 See JX 102. 29 JX 100.
5 On August 20, 2018, KPMG provided its draft price range for Murphy
Marine.30 This valuation did not consider the effect of GT’s imminent privatization
of the Port of Wilmington, which would have caused Murphy Marine’s value to
represent liquidation value, rather than its value as a going concern. 31 This draft
estimate valued Murphy Marine’s enterprise value at between $23,801,700 and
28,448,100.32 Murphy Marine’s equity—i.e., its value less debt, was valued at
between $21,486,400 and $26,132,800.33 GT was displeased by KPMG’s
valuation34 and responded by requesting KPMG “fix its analysis” to comply with
the Engagement Letter and declined to sign off on the valuation until its concerns
were addressed. 35 One of GT’s concerns was that the effect of the privatization of
the Port of Wilmington was not included in KPMG’s valuation. 36 KPMG responded
to this concern by noting that it took “a market participant view of the business in
that it will operate as a going concern.” 37 Further, KPMG appears to have been
puzzled by GT’s point about privatization; in its redline draft of responses to GT’s
questions, a comment remarks that “I don’t understand what [GT’s] point is on this.
30 GT USA Wilmington, LLC’s Answer ¶ 4, Dkt. No. 111 [hereinafter “Answer”]. 31 JX 145 ¶ 2. 32 JX 144, at 5. 33 JX 144, at 5. 34 See JX 146. 35 Answer ¶ 5. 36 JX 145 ¶ 2. 37 JX 145 ¶ 2.
6 Do you know? What does the privatization of the Port have to do with what we are
doing?” 38
KPMG later suspended its work.39 Murphy Marine filed its complaint for
specific enforcement of the BLA on September 7, 2018.40
On October 2, 2019, I indicated in a teleconference with the parties that I
believed that bifurcation of the issues raised by the parties would be appropriate.41
The first phase would address the contractual issue—i.e., the meaning of the contract
between the parties.42 The second phase would address the remaining issues,
including, for example, what information was presented by Murphy Marine to
KPMG for use in forming its valuation. 43 I ordered the bifurcation on January 15,
2020. 44
Trial on the Phase I issues was held on September 9 and September 10, 2020.45
Post-trial argument was held on January 19, 2021. 46 This post-trial opinion
addresses the Phase I issues presented at trial—i.e., what agreements constitute the
full contract between the parties and whether the BLA is ambiguous.
38 JX 145. 39 Answer ¶ 6. 40 Verified Compl. For Specific Performance and Declaratory J., Dkt. No. 1. 41 Tr. of 10-2-19 Telephonic Scheduling Conference, at 9, Dkt. No. 108. 42 Tr. of 10-2-19 Telephonic Scheduling Conference, at 9, Dkt. No. 108. 43 Tr. of 10-2-19 Telephonic Scheduling Conference, at 9, Dkt. No. 108. 44 Judicial Action Form dated Jan. 15, 2020, Dkt. No. 130. 45 Judicial Action Form dated Sept. 11, 2020, Dkt. No. 223. 46 See Tr. of Jan. 19, 2021, Post-Trial Oral Argument, Dkt. No. 255.
7 1. The BLA
Much of the BLA is relevant to the analysis here. Paragraphs 1 through 4
provide that:
1. The Shareholders hereby agree to sell, and GT hereby agrees to buy or pay . . . an amount equal to a fair market valuation of purchase, 100% of the shares “Shares” of Murphy Marine . . . at the closing.
2. The price for the Shares shall be their fair market value, which shall be determined by an independent valuation conducted by KPMG who was selected by the mutual agreement of the parties. KPMG has been mutually retained by the parties.
3. KPMG shall be advised to assume the transaction is between a willing buyer and a willing seller, with neither under any compulsion to buy or sell, but shall be otherwise free to determine the free market value of the [Murphy Marine] Shares at its sole discretion and through whatever valuation method or methods it deems most appropriate. KPMG’s decision shall be final and binding upon the parties. 47
4. KPMG shall be instructed to prepare two (2) valuations: one (1) that considers the impact, if any, on the value of [Murphy Marine] by the presence of that certain unfunded pension liability of [Murphy Marine] . . . (the “Pension Liability Price”) and a second valuation that does not consider any such impact (the “Guarantee Price”). The Shareholders shall have the option, in their sole discretion, to receive the Guarantee Price if, and only if, the Shareholders guarantee to indemnify and pay on GT’s behalf any actual pension liability that GT may incur after the execution of this Agreement . . . . 48
The parties agree that, in Paragraph 3, the words “assume the transaction is between
a willing buyer and a willing seller, with neither under any compulsion to buy or
sell” did not change in any draft of the BLA between April 11 and April 24, 2018,
47 JX 102 ¶ 3. 48 JX 102 ¶¶ 1–4.
8 other than eventually changing the word “compunction” in the original draft to
“compulsion,” which was the word used in the executed version.49
2. The Engagement Letter
The Engagement Letter provides that KPMG understood
that you [Murphy Marine and GT] would like us [KPMG] to assist you with a pricing analysis of a 100 percent equity interest . . . in [Murphy Marine] as of April 30, 2018 or other recent pricing date . . . established by the Companies strictly for the Companies internal planning purposes related to a potential sale of [100% interest in Murphy Marine] to GT. . . . The pricing analysis cannot be used to determine the purchase price. Our analysis is intended to provide a range of the prices of the [100% equity interest in Murphy Marine] which is supportable in terms of relevant pricing approaches such as comparisons to sales of other companies, discounted cash flow analyses, or other earnings-based analyses. 50
The Engagement Letter then proceeded to “outline the professional arrangements,
objectives, scope, pricing approach, and deliverables” of KPMG’s valuation.51
II. ANALYSIS
At this post-Phase-I-trial stage, there are three issues before me. The first
concerns two agreements: (a) the binding letter agreement (defined above as the
“BLA”) between the Plaintiff stockholders of Murphy Marine and GT and (b) the
engagement letter between KPMG, a Big Four valuation firm, and Murphy Marine
and GT (defined above as the “Engagement Letter”). The Plaintiffs assert that the
49 Post-Trial Stip. ¶ 24. 50 JX 100, at 1. 51 JX 100, at 1.
9 BLA is the sole agreement between the parties regarding the sale and purchase of
Murphy Marine’s stock. 52 The Defendant argues that both the BLA and the
Engagement Letter govern the purchase of Murphy Marine’s shares. The
composition of the agreement between the parties regarding the sale of Murphy
Marine shares is of particular interest to the parties because the Engagement Letter
provides for a draft valuation and discussion period, while the BLA provides that
“KPMG’s decision shall be final and binding upon the parties.”53 Should the
Engagement Letter be part of the entire agreement between the parties, in the
Defendant’s view, it would not be bound by KPMG’s valuation, as the valuation
would not be a final valuation under the Engagement Letter.
The second issue concerns the meaning of Paragraph 3 of the BLA. The
parties dispute whether that provision allowed KPMG to value Murphy Marine in
consideration of the effect of privatizing the Port of Wilmington on Murphy
Marine’s business. GT’s privatization of the Port of Wilmington, if GT did not
acquire Murphy Marine, would have a drastically detrimental effect on Murphy
Marine’s value; GT, which is the largest privately-owned port operator in the
world, 54 could have started its own stevedoring business and shuttered Murphy
Marine’s business entirely by denying it access to the Port. At the time the BLA
52 Post-Trial OB 1. 53 JX 102 ¶ 3. 54 Post-Trial Stip. ¶ 7.
10 was executed, the privatization of the Port of Wilmington was a done deal already;
the BLA was negotiated in connection with that privatization but postdated the
privatization.55 Thus, the parties knew at that time that if GT did not acquire Murphy
Marine, Murphy Marine’s stockholders would face the very real possibility that GT,
as the new owner of the Port of Wilmington, would deny it future access to the Port,
thus shuttering its business. 56 The parties disagree as to whether Paragraph 3 of the
BLA allows KPMG to import that possibility into its value analysis.
The third and final issue concerns what price Murphy Marine’s stockholders
were entitled to receive based on KPMG’s valuation. KPMG refused to provide a
precise price point and agreed only to provide a range in each of its valuations. The
Plaintiffs argue that such a structure implies a price at the midpoint of each range.
The Defendants argue that such midpoint is not explicitly provided for and not
implied by the language.
For the foregoing reasons, I conclude (1) that the BLA constituted the entire
agreement between the parties with regards to the purchase of Murphy Marine’s
equity, (2) that the BLA unambiguously prohibited KPMG from valuing Murphy
Marine in light of the privatization of the Port of Wilmington, and (3) that the BLA
55 Post-Trial Stip. ¶ 15. 56 In fact, Murphy Marine is no longer active in the Port of Wilmington. Post-Trial Stip. ¶ 4.
11 is ambiguous regarding determining the price point, but that the extrinsic evidence
points to use of the midpoint of the valuation range. My reasoning follows.
A. Relevant Legal Standards
“Under standard rules of contract interpretation, a court must determine the
intent of the parties from the language of the contract.”57 Only when an ambiguity
exists will a court look beyond the language of a contract.58 “[A]n ambiguity exists
‘[w]hen the provisions in controversy are fairly susceptible of different
interpretations’” or may reasonably be read to have two or more meanings. 59
B. The BLA alone represents the agreement regarding the sale of Murphy Marine’s stock.
The Plaintiffs argue that the BLA is the sole document governing the sale of
100% of the equity interest in Murphy Marine; they will assert in Phase II of this
litigation that the valuation provided by KPMG is valid and binding on GT. 60 The
Defendant contends that the BLA and the Engagement Letter together form the
agreement between the parties and, therefore, KPMG’s valuation is not binding as it
is only a draft under the Engagement Letter.61 The Plaintiffs’ position as to the
parties’ contract is, in my view, correct.
57 Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014). 58 GMG Cap. Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 780 (Del. 2012) (quoting Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997)). 59 Id. 60 Post-Trial OB 33–39. 61 See Post-Trial Br. of Def. GT USA Wilmington, LLC 61–64, Dkt. No. 246 [hereinafter “Post- Trial AB”].
12 In making this determination, I bear in mind the well-settled principle that
“the parole evidence rule bars the admission of evidence from outside the contract’s
four corners to vary or contradict . . . unambiguous language.” 62 Thus, unless I find
the BLA’s language to be ambiguous, there is no reason to consider the Engagement
Letter as part of the agreement to sell and purchase Murphy Marine’s shares. Upon
a reading of the BLA, I do not find it to be ambiguous regarding the sale and purchase
of Murphy Marine’s shares.
The agreement between the parties regarding the sale of 100% equity interest
in Murphy Marine is represented by the BLA. That document defines the parties’
duties and rights with regards to “purchase[] [of] 100% of the shares . . . of Murphy
Marine.”63 For example, it provides that “[t]he Shareholders hereby agree to sell,
and GT hereby agrees to buy” Murphy Marine’s shares.64 It defines the price for the
shares to be purchased as “fair market value, which shall be determined by an
independent valuation conducted by KPMG, who was selected by the mutual
agreement of the parties.”65 Although it notes that “KPMG has been mutually
retained by the parties”66 for the valuation process, it does not incorporate by
reference any terms in the Engagement Letter to govern that valuation.67 Rather, it
62 GMG, 36 A.3d at 783. 63 JX 102 ¶ 1. 64 JX 102 ¶ 1. 65 JX 102 ¶ 2. 66 JX 102 ¶ 2. 67 JX 102 ¶ 2.
13 provides that KPMG “shall be free to determine the fair market value of the Shares
at its sole discretion.” 68 And where the BLA provides KPMG further instructions,
it does so explicitly and without reference to the Engagement Letter. For example,
the BLA provides instructions regarding what KPMG must prepare (two valuations,
one considering the impact of a certain liability, and one without), again without
reference to the Engagement Letter.69 Given the BLA’s simple, but fairly
comprehensive, treatment of KPMG and its valuation task—giving it sole discretion
and explaining what valuations it must prepare—there is no need, to my mind, to
look beyond the four corners of the BLA for the agreement between Murphy Marine
stockholders and GT as to the purchase of Murphy Marine’s shares and how it was
to be executed.
The Defendant argues, however, that E.I. du Pont de Nemours and Co., Inc.
v. Shell Oil Co.70 is analogous and controlling here. In that case, a license agreement
between DuPont and Shell “expressly prohibited the licensee [Shell] from
sublicensing,” but allowed Shell to sell the patented product and to have others make
the product for it.71 To get around the license agreement’s prohibition on
sublicensing, Shell and another entity, Carbide, entered into two agreements: a toll
68 JX 102 ¶ 3. This discretion is, in one respect, contractually cabined, as explained infra. 69 JX 102 ¶ 4. 70 498 A.2d 1108 (Del. 1985). 71 E.I. du Pont, 498 A.2d at 1110.
14 conversion agreement and a sale agreement. 72 Those two agreements would allow
Carbide to produce the patented product for Shell’s account, and then buy back from
Shell some or all of the manufactured product.73 Together, the agreements
functioned as a sublicensing agreement. Anticipating that DuPont would take issue
with this structure as violating its prohibition on sublicensing, Shell’s counsel’s
notes indicated that the use of separate agreements was “not merely ‘cosmetic’” and
“[e]ach agreement should be able to stand on its own.” 74 The two agreements were
to be “good faith exercise[s] of [Shell’s] rights to ‘have made’ and ‘sell back’” the
licensed product.75
Shell’s lawyers accomplished their goal; the Supreme Court noted that “were
each contract to be considered in a vacuum, each would constitute a permissible
exercise of Shell’s Rights.” 76 However, the court concluded, “because of the manner
in which the parties entered into the Toll Conversion Agreement and the Purchase
and Sale Agreement, it is obvious that these Agreements cannot be considered apart
from one another and must be read together as two parts of the same business
transaction.”77 The Supreme Court took note of particular facts that indicated that
the two Agreements together formed a single transaction. For example, it noted that
72 Id. at 1111–12. 73 Id. at 1111. 74 Id. at 1112. 75 Id. 76 Id. at 1114. 77 Id.
15 “[b]oth Agreements were entered into on the same date and cover[ed] the same time
period.”78 Further, the minimum quantities of the product “which Carbide [had to]
make for Shell under the Toll Conversion Agreement and which Carbide must then
buy back from Shell under the Purchase and Sale Agreement [were] identical.”79
Finally, the two agreements “work[ed] in tandem with respect to ordering, delivery
and payment.”80 Given the coordination between the two agreements, the Supreme
Court held that the two agreements together “form[ed] one contract and must be
examined as such.”81
That is not analogous to the case here. In E.I. du Pont, the contracts could not
be read separately to effectuate the parties’ intent; in fact, they were structured
separately to avoid the consequences of that intent. Nothing similar is present here.
Although the Engagement Letter and the BLA were entered into on the same day,
the parties to the two documents are not the same—unlike in E.I. du Pont. GT is a
signatory to both the Engagement Letter and the BLA; 82 however, Murphy Marine
is only a party to the Engagement Letter and not the BLA, and the Plaintiff
stockholders of Murphy Marine are only party to the BLA and not the Engagement
78 Id. at 1115. 79 Id. (emphasis added). 80 Id. 81 Id. 82 JX 100; JX 102.
16 Letter.83 KPMG is a party to the Engagement Letter but not the BLA. 84 Although
the same principal signed for both the stockholders and Murphy Marine, the parties
themselves were not the same. Murphy Marine was not selling its shares; its
stockholders were. And Murphy Marine’s stockholders were not retaining KPMG;
Murphy Marine was. 85 This, to my mind, is not fatal to the application of the E.I.
du Pont doctrine, but it is evidence that the parties themselves saw the BLA and the
Engagement Letter as related, but not two parts of a whole.
The Defendant points out that, like the Toll Conversion Agreement and the
Purchase and Sale Agreement in E.I. du Pont, the Engagement Letter and the BLA
were entered into and executed on the same day. 86 True. But the parties also
stipulate that the BLA was signed after the Engagement Letter. 87 If the documents
were intended to constitute the same agreement, in my view, the BLA would likely
have incorporated by reference the entirety or provisions of the Engagement Letter,
rather than merely noting that KPMG would be retained.
Nor are the Engagement Letter and the BLA intertwined as were the two
agreements in E.I. du Pont. In E.I. du Pont, the quantities to be exchanged were
83 JX 100; JX 102. 84 JX 100; JX 102. 85 See Pauley Petroleum, Inc. v. Continental Oil Co., 231 A.2d 450, 454 (Del. Ch. 1967) (noting that “a corporate entity must be regarded as more than a mere formality. It is an entity distinct from its stockholders even if its stock is wholly owned by one corporation.”). 86 Post-Trial Stip. ¶ 41. 87 Post-Trial Stip. ¶ 42.
17 identical and the provisions governing ordering, delivery, and payment worked in
tandem. Here, the only interaction between the Engagement Letter and the BLA is
that the BLA required Murphy Marine and GT to retain KPMG—had the
Engagement Letter only contained a retention provision, the BLA could still have
been fulfilled. The Engagement Letter supported the BLA, but it did not alter its
terms. The BLA, after all, had independently granted KPMG sole discretion as to
the calculation of the valuation and provided some detail as to the two valuations
required of KPMG.88 In short, the parties’ intent in E.I. du Pont was to effectuate a
sublicense; neither contract alone was sufficient to achieve such. Here, the parties’
intent was a sale of Murphy Marine’s shares; the BLA is sufficient to that intent. I
do not find E.I. du Pont to be analogous here and read the BLA and the Engagement
Letter as separate agreements.
Given the lack of explicit intent to incorporate the Engagement Letter, and
absent any obvious indications that the BLA is, itself, insufficient to govern the
purchase and sale of Murphy Marine’s shares, I conclude that the BLA alone
constitutes the entirety of the agreement between Murphy Marine’s stockholders and
GT regarding the purchase of 100% of the equity interest in Murphy Marine.
88 JX 102 ¶¶ 3–4.
18 C. The BLA precludes incorporation of privatization in the value analysis.
The parties have stipulated that they agreed that Murphy Marine “was to be
valued as a going concern.”89 The BLA gives KPMG plenary authority to determine
a value for Murphy Marine, which would constitute the “legally binding price” for
the purchase by GT. 90 KPMG’s discretion in that regard was explicitly cabined,
however. The BLA provides at Paragraph 3 that “KPMG shall be advised to assume
the [hypothetical transaction underlying the valuation] is between a willing buyer
and a willing seller, with neither under any compulsion to buy or sell”—otherwise,
KPMG’s discretion in valuation was unlimited.91 Although the parties agree that
Paragraph 3 is unambiguous, they disagree as to whether it allows KPMG to value
Murphy Marine in light of GT’s control of the Port of Wilmington, which was, by
the time of the BLA’s execution, a fait accompli. 92 If the hypothetical transaction is
between Murphy Marine and a willing buyer in light of the privatization, such a
buyer would be faced with the proposition that it would be directly competing for
stevedoring business at the Port of Wilmington with the controller of the Port itself.
GT would have the ability to exclude Murphy Marine from its sole source of cash
flow. This is the dismal prospect that these parties have stipulated that they were
89 Post-Trial Stip. ¶ 50. 90 JX 102 ¶ 3. 91 JX 102 ¶ 3. 92 See Post-Trial OB 39; Post-Trial AB 21.
19 “pressured” by the State to solve via a sale/purchase of Murphy Marine.93 Logically,
a valuation in these circumstances would approach liquidation value.
It is worth pointing out why this issue is relevant to the Phase I determination
of contractual intent. It is GT, not Murphy Marine, that is arguing that the valuation
provided by KPMG is invalid.94 It also contends that the valuation was tainted
because Murphy Marine withheld from KPMG its business projections in light of
Port privatization. 95 If the Defendant is correct, Phase II of this trial will involve,
inter alia, whether the valuation done by KPMG is invalid because (per GT) Murphy
Marine caused KPMG to disregard privatization, which KPMG might have
considered in its sole discretion. 96
The Plaintiffs argue that the BLA does not allow KPMG to value Murphy
Marine based on the effect of privatization, noting that Paragraph 3 of the BLA
provides that “KPMG shall be advised to assume the transaction is between a willing
buyer and a willing seller . . . with neither under any compulsion to buy or sell.”97
Per the Plaintiffs, the “willing buyer and a willing seller” language “eliminates Port
Privatization from KPMG’s valuation exercise” because privatization, according to
93 Post-Trial Stip. ¶¶ 12–13. 94 GT raises several issues with the valuation, including that it was not final under the parties’ agreement. Answer ¶ 7. 95 See Answer, at Affirmative Defenses ¶ 12. 96 E.g., Post-Trial AB 59 (discussing evidence of Murphy Marine’s “intentional concealment from KPMG” of its beliefs about the effect of privatization on its business). 97 JX 102 ¶ 3.
20 the Plaintiffs, renders a sale of Murphy Marine as a going concern to an uncoerced
and willing buyer an impossibility. For its part, the Defendant posits that the BLA
gives KPMG “sole discretion,” 98 that such phrase is unambiguous and unqualified
by other modifiers, and that the language cited by the Plaintiffs merely (if
redundantly) instructs KPMG to do a market valuation.
I agree with the Plaintiffs’ interpretation. Privatization would allow GT to
replace Murphy Marine with its own stevedoring operation, ending Murphy
Marine’s going-concern value as a stevedore service for the Port of Wilmington;
again, that was the situation the State pressured GT to avoid.99 The parties agreed
that Murphy Marine be valued as a going concern; 100 that is, not simply via a
liquidation value based on its assets. An uncoerced “willing buyer willing seller”
hypothetical is inconsistent with an assumption that GT could thereafter drive
Murphy Marine from any business at the Port and drive its cash flows towards zero.
In the BLA, the parties agreed to give KPMG broad discretion in valuation, but
cabined that discretion to those methodologies intended to produce going concern
value as would be recognized by a willing buyer and seller. I find the plain language
of the BLA incompatible with a valuation based on privatization of the Port.
98 JX 102 ¶ 3. 99 See Post-Trial Stip. ¶¶ 12–13. While the State wished to privatize Port operations, it sought also to protect local interest at the Port from the adverse effects of such privatization. See Trial Tr. 9- 9-20 Phase 1 Trial, at 180:17–180:23, Dkt. No. 226 [hereinafter “Trial Tr. 1”]; 9-10-2020 Phase I Trial Tr. Vol. II, at 509:9–509:13, Dkt. No 227 [hereinafter “Trial Tr. 2”]. 100 Post-Trial Stip. ¶ 50.
21 Because, in my view, Paragraph 3 is unambiguous, I need not reach
consideration of any extrinsic evidence. I note, however, that a cursory review of
extrinsic evidence supports the interpretation that the parties did not intend that
KPMG should value Murphy Marine in light of privatization of the Port. 101
D. The BLA is ambiguous regarding resolution of the KPMG value ranges to a price point; extrinsic evidence supports an agreement to use the midpoint.
The parties also dispute the meaning of Paragraph 4 of the BLA. That
provision instructs KPMG to prepare two valuations, one considering the presence
of a certain unfunded pension liability (which would yield the Pension Liability
Price), and one without such consideration (which would yield the Guarantee
Price).102 Paragraph 4 also provides that “[t]he Shareholders shall have the option,
in their sole discretion, to receive the Guarantee Price if, and only if, the
Shareholders guarantee to indemnify and pay on GT’s behalf any actual pension
101 For example: (a) KPMG exhibited confusion when GT raised the effect of privatization in response to its draft valuation, JX 145; (b) in an internal GT email, a GT director stated that, when he “requested privatization process to be considered,” the Murphy Marine lawyer’s response that he “had crossed a line and violated [the] agreement which was to not consider privatization,” which he agreed was a “[f]air point, but tough luck, I need to protect our position,” JX 142; and (c) an internal GT email chain showed a GT principal noting that Murphy Marine “will argue that [privatization] is not to be considered in the valuation which should assume a going concern concept” and asking “[s]hould we still accept this position as per our previous discussions? It brings the risk of a higher price but on the other hand the value of [Murphy Marine] would be very little if privatization is fully included.” JX 142. The response to that e-mail, from another GT principal, was “[a]s per our conversation this morning[,] play the card of the port privati[z]ation but be reasonable. If we want to finish this[,] we should be looking at accepting a value of less than $8M, without screwing them completely.” JX 142. 102 JX 102 ¶ 4.
22 liability that GT may incur after the execution of this Agreement . . . .” 103 It also
provides an exception, where “the difference between the Pension Liability Price
and the Guarantee Price [is] . . . zero ($0), then the Shareholders shall guarantee . . .
to indemnify GT for one-half (50%) of the then-unfunded pension liability
attributable to [Murphy Marine], not to exceed $3,000,000.”104 These references to
the Pension Liability Price and the Guarantee Price implicitly assume a valuation
price point.
On meeting with KPMG on July 6, 2018, the parties learned that KPMG was
willing to issue only a range of value, and not a price point, for each of the Pension
Liability Price and the Guarantee Price assumptions.105 It is clear that a range is
incompatible with the BLA, which, again, assumes a price point. The Plaintiffs
argue that KPMG’s agreement to provide a range of value for Murphy Marine
implies that the parties agreed that the Plaintiff stockholders would receive the
midpoint of the two valuations.106 The Defendant posits that the absence of an
explicit “midpoint agreement” in the BLA means that no such agreement was
103 JX 102 ¶ 4. 104 JX 102 ¶ 4. 105 Pls.’ Corrected Phase 1 Pre-Trial Br. 22–23, Dkt. No 209 [hereinafter “Pls.’ Pretrial Br.”]; Def’s Pretrial Br. 23. 106 Pls.’ Pretrial Br. 23.
23 reached.107 Accordingly, their position is that the KPMG valuation is insufficient to
set a price under the BLA. 108
As has been true for the rest of this Memorandum Opinion, I am again bound
by the well-settled principle that, unless a contract is ambiguous, I may only look to
the four corners of the agreement. 109 Here, however, the BLA is silent as to how the
parties were to reach a price point. This is particularly odd in light of the fact that
the logical place to address the issue, Paragraph 4, was in fact modified after the
parties learned that KPMG would produce a range of value, yet is silent as to the
parties’ intent.110 The Plaintiffs allege that the midpoint assumption is implied and
that the contract, with that implication, remains unambiguous.111 I disagree—the
parties could have agreed to one of a number of other metrics to reduce the range to
a price point.
GT, for its part, says that no agreement was reached on the matter. 112 The
assumption that no meeting of the minds on this point took place seems unlikely.
The parties were aware of the issue when they executed the BLA. 113 It is clear that
107 Post-Trial AB 42; Def.’s Pretrial Br. 24. 108 See Answer, at Affirmative Defenses ¶ 10. 109 See Section II.A supra. 110 Pls.’ Pretrial Br. 22–23; see Def.’s Pretrial Br. 23. 111 Pls.’ Pretrial Br. 23; Post-Trial OB 20. 112 Post-Trial AB 42. 113 See Pls.’ Pretrial Br. 23; Post-Trial OB 20.
24 they reached a meeting of the minds with respect to the material elements of the
contract. I therefore turn to extrinsic evidence.
That evidence is conflicting. John Brown, Jr., Murphy Marine’s chairman of
the board and who signed the BLA on behalf of Murphy Marine’s stockholders,
testified at trial that he proposed, at the July 6, 2018 meeting, that the parties employ
a midpoint of the ranges as the price point.114 Per Brown, Peter Richards, GT’s CEO,
“looked at [Brown] and said ‘I think that makes sense to me.’” 115 Richards then
looked at Jesper Boll, another GT principal, who nodded.116 Richards then
confirmed that the parties would “take the mid-range between the two prices.”117
That testimony was corroborated by Craig Mills,118 the legal counsel for Murphy
Marine.119 GT attempts to discredit this testimony by discrediting Mills himself,
noting that if Mills’ testimony was true, he would have “overhear[d] the verbal
negotiation and agreement of a critical part of the deal [the agreement to use a
midpoint] and not ensure[d] that its details were incorporated into a written contract
he (physically) and the parties were still revising!” 120 Per GT, “[s]uch an inference
is unbelievable, and an effective abdication of Mills’[] responsibilities to his
114 Trial Tr. 2, at 441:5–441:16. 115 Trial Tr. 2, at 441:10–441:11. 116 Trial Tr. 2, at 441:11–441:15. 117 Trial Tr. 2, at 441:15–441:16. 118 Trial Tr. 1, at 41:1–441:14. 119 Trial Tr. 1, at 19:18–20:2. 120 Post-Trial AB 45 (emphasis removed).
25 client.”121 GT also attempts to discredit Brown’s testimony. 122 GT points to
testimony that other participants did not recollect the Brown, Jr.-Richards-Boll
interaction.123 GT does not, however, proffer its own interpretation of how the
range-to-price-point issue was to be resolved, despite acknowledging that the parties
signed the BLA after knowing that KPMG was only going to provide a range of
values.124
On balance, I find the Plaintiffs’ proffer of evidence more persuasive. First, I
note that Brown’s testimony supports a resolution of the range issue that is neutral,
and not self-serving; a self-serving (for the Plaintiffs) resolution of the issue of
range-to-price-point would be to take the high point of the range, rather than the
midpoint. Second, I find it telling that GT does not proffer its own interpretation of
how the range-to-price-point problem was resolved, instead arguing that, despite the
parties’ awareness of the problem, the parties signed an agreement that left the
resolution undetermined. Such a result is, to my mind, unlikely. Finally, I assessed
Brown’s testimony during trial in this regard as forthright and believable.
Accordingly, I resolve the ambiguity of the range-to-price-point issue in favor of the
121 Post-Trial AB 45. Despite GT’s heated argumentation, I find the criticism of Mills misplaced. 122 Post-Trial AB 48–49. 123 Post-Trial AB 46 (citing the trial testimony of Richards and Boll at Trial Tr. 1, at 189:3 – 189:21; Trial Tr. 2, at 337:2 – 337:7; Trial Tr. 2, at 406:24–408:6). 124 Def.’s Pretrial Br. 24.
26 midpoint. 125 I find that the intent of the parties was to include that method in their
agreement, by a preponderance of the evidence.
For completeness’ sake, I address GT’s argument that the midpoint
assumption is a separate contract that fails for want of consideration. I find that the
BLA was ambiguous as to resolution of the range issue, and that the parties agreed
to an implied term—the midpoint. The undisputed consideration for the BLA itself
is sufficient to the implied term.
III. CONCLUSION
I conclude that the BLA, alone, represents the whole agreement between GT
and the owners of Murphy Marine regarding the purchase and sale of 100% of the
equity interest of Murphy Marine. I conclude that the BLA unambiguously
prohibited KPMG from valuing Murphy Marine assuming privatization of the Port
of Wilmington. And finally, I conclude that extrinsic evidence supports the midpoint
method as the agreed-upon method to select a price point from the range of value
KPMG agreed to produce. All other relevant issues remain for Phase II of this
litigation.
125 It is also worth noting that, even if the Defendant is correct that no agreement on how to resolve the range-to-price-point issue was reached, such a gap in the agreement would likely be filled by the Court under the implied covenant of good faith and fair dealing. In re El Paso Pipeline Partners, L.P. Deriv. Litig., 2014 WL 2768782, at *16 (Del. Ch. June 12, 2014) (“The implied covenant is . . . the doctrine by which Delaware law cautiously supplies implied terms to fill gaps in the express provisions of an agreement.”). Given an agreement, the BLA, that otherwise addressed all material issues, I would likely have filled the gap in the BLA with a midpoint analysis in any event, as it is neutral to the parties.