In the recent Delaware Supreme Court decision of Leaf Invenergy Co. v. Invenergy Renewables, LLC, No. 308, 2018 (Del. May 3, 2019), the High Court found that a nominal damages award of $1 by the Court of Chancery in a suit over a multi-billion dollar sale of a portion of  defendant/appellee Invenergy Wind LLC (“Invenergy”), a wind farm developer, should be reversed because the sale violated the consent rights of the plaintiff/appellant investor, Leaf Invenergy Co. (“Leaf”), warranting $126 million in damages.

The High Court found that Leaf had previously negotiated consent rights when investing $30 million into Invenergy, which required the investor’s permission in advance of any material sale.  Per the opinion, the relevant contract provision reflected each side’s intention to either move forward with a such a sale only with Leaf’s consent, or to require Invenergy to buy out Leaf if it did not consent to the transaction.  When the Court of Chancery determined that those rights had been breached, it should have upheld contractual provisions calling for a damages multiplier, per the Supreme Court.

Instead, Vice Chancellor Laster held that an “efficient breach” had occurred, because even though Invenergy did not seek Leaf’s consent prior to the sale, the trial court found that Leaf received more in the sale than it would have under the contract terms.  Vice Chancellor Laster thus decided on the $1 nominal damages award because he determined that Leaf was left no worse off despite the breaches, in light of the efficient breach doctrine.

When assessing damages, the High Court found that the Court of Chancery erred by limiting its focus on the harm to Leaf in the context of the results of the sale, rather than considering the full effect of Invenergy’s contractual breach in failing to seek Leaf’s consent and then failing to pay the target multiple.  The Supreme Court stated held the trial court should have taken a broader approach that “considered the combination of [all aspects of the contractual breaches] when assessing what injury Leaf suffered from Invenergy’s breach and thus what amount of damages would return Leaf to the position it would have been in had Invenergy not breached [the contract]”.  Slip op. at 28.

Accordingly, the Delaware Supreme Court found that Leaf was entitled to a payment of the contractual multiple given that it never provided its consent to the sale.  As a result, it reversed Chancery’s award of nominal damages and awarded Leaf $126 million in damages.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.