JACOBS, Justice:
On May 14, 2012, the Court of Chancery entered a final judgment and order after a trial in this action initially brought by Martin Marietta Materials, Inc. ("Martin") against Vulcan Materials Company ("Vulcan"). Granting judgment against Martin on Vulcan's counterclaims, the Court of Chancery enjoined Martin, for a four month period, from continuing to prosecute its pending Exchange Offer and Proxy Contest to acquire control of Vulcan. That injunctive relief was granted to remedy Martin's adjudicated violations of two contracts between Martin and Vulcan: a Non-Disclosure Letter Agreement (the "NDA") and a Common Interest, Joint Defense and Confidentiality Agreement (the "JDA").
Martin appealed to this Court from that judgment. On May 16, 2012, this Court ordered that the case proceed on an expedited
Vulcan and Martin are the two largest participants in the United States construction aggregates industry. That industry engages in mining certain commodities and processing them into materials used to build and repair roads, buildings and other infrastructure. Vulcan, a New Jersey corporation headquartered in Birmingham, Alabama, is the country's largest aggregates business; and Martin, a North Carolina corporation headquartered in Raleigh, North Carolina, is the country's second-largest.
Since the early 2000s, Vulcan and Martin episodically discussed the possibility of a business combination, but the discussions were unproductive and no significant progress was made.
At the outset Nye was receptive to a combination with Vulcan, in part because he believed the timing was to Martin's advantage. Vulcan's relative strength in markets that had been hard hit by the financial crisis, such as Florida and California, had now become a short-term weakness. As a result, Vulcan's financial and stock price performance were unfavorable compared to Martin's, whose business was less concentrated in those beleaguered geographic regions. To Nye, therefore, a timely merger — before a full economic recovery and before Vulcan's financial results and stock price improved — was in Martin's interest.
Relatedly, although Nye was willing to discuss a possible merger with his Vulcan counterpart, he was not willing to risk being supplanted as CEO. The risk of Nye being displaced would arise if Martin were put "in play" by a leak of its confidential discussions with Vulcan, followed by a hostile takeover bid by Vulcan or a third party. Nye's concern about a hostile deal was not fanciful: recently Martin had engaged
Understandably, therefore, when Nye first spoke to Vulcan's banker, Goldman Sachs, in April 2010, he stressed that Martin was not for sale, and that Martin was interested in discussing the prospect of a friendly merger, but not a hostile acquisition of Martin by Vulcan. As the Chancellor found, Nye's notes prepared for a conversion with Vulcan's banker made it clear that "(i) Martin ... would talk and share information about a consensual deal only, and not for purposes of facilitating an unwanted acquisition of Martin ... by Vulcan; and even then only if (ii) absolute confidentiality, even as to the fact of their discussions, was maintained."
To secure their understanding, Nye and James agreed that their respective companies would enter into confidentiality agreements. That led to the drafting and execution of the two Confidentiality Agreements at issue in this case: the NDA and the JDA.
Nye related the substance of his conversations with James to Roselyn Bar, Esquire, Martin's General Counsel, and instructed Bar to prepare the NDA. In drafting the NDA, Bar used as a template an earlier agreement between Martin and Vulcan that had facilitated an asset swap transaction. Consistent with Nye's desire for strict confidentiality, Bar proposed changes to the earlier template agreement that were "unidirectional," i.e., that enlarged the scope of the information subject to its restrictions and limited the permissible uses and disclosures of that covered information.
In its final form, the NDA prohibited
Paragraph 3 of the NDA also prohibited the disclosure of the merger negotiations between Martin and Vulcan, and certain other related information, except for disclosures that were "legally required." Paragraph 3 relevantly provided that:
Paragraph 4 defined specific conditions under which "legally required" disclosure of Evaluation Material (and certain other information covered by Paragraph 3) would be permitted:
As the Chancellor found, "Paragraph (4) establishes the Notice and Vetting Process for disclosing Evaluation Material and Transaction Information that would otherwise be confidential under the NDA in circumstances [where] a party is `required' to do so in the sense that the party had received an External Demand."
Vulcan shared Martin's confidentiality concerns. It therefore agreed to include in the NDA the changes that Ms. Bar proposed to the predecessor template agreement.
Because the parties were exploring a combination of the two largest companies in their industry, antitrust scrutiny appeared unavoidable. After the NDA was signed, the two companies' inside and outside counsel met to discuss that issue.
The JDA, like the NDA, prohibits and limits the use and the disclosure of information that the JDA describes as "Confidential Materials." The critical prohibitions and limitations are found in JDA Paragraphs 2 and 4. Paragraph 2 prohibits the disclosure of Confidential Materials without "the consent of all Parties who may be entitled to claim any privilege or confidential status with respect to such materials...." JDA Paragraph 4 relevantly provides that "Confidential Materials will be used, consistent with the maintenance of the privileged and confidential status of those materials, solely for purposes of pursuing and completing the Transaction." The JDA defines "Transaction" as "a potential transaction being discussed by Vulcan and Martin[] ... involving the combination or acquisition of all or certain of their assets or stock...."
After the JDA and the NDA were executed, Vulcan provided to Martin nonpublic information that gave Martin a window into Vulcan's organization, including detailed confidential information about Vulcan's business, revenues, and personnel.
The Court of Chancery found, and Martin does not dispute, that Martin used and disclosed Vulcan's nonpublic information in preparing its Exchange Offer and its Proxy Contest to oust some of Vulcan's board members (collectively, the "hostile takeover bid"). Martin's position is that its use and disclosure of that nonpublic information was not legally prohibited by the Confidentiality Agreements. We address that legal argument in the Analysis section of this Opinion. At this juncture, we merely complete the factual narrative and highlight the trial court's findings regarding Martin's use and disclosure of Vulcan's non-public information to evaluate, plan and promote its Exchange Offer and Proxy Contest.
It is undisputed that antitrust counsel and other representatives of both companies met on various occasions and exchanged non-public "Confidential Materials" relating to antitrust divestiture risks and synergies. What resulted was a joint antitrust analysis prepared by antitrust counsel for both sides in 2010. Months later, a meeting between Martin's and Vulcan's CFOs and controllers took place on March 8, 2011. The information exchanged at that meeting and the nonpublic information Martin had previously received, caused Martin to revise its estimated merger synergies upwards by as much as $100 million annually, from the $150-$200 million it previously estimated.
Accordingly, as the talks floundered soon after the March 8 meeting, Martin and its bankers began using Vulcan's confidential, nonpublic information to consider alternatives to a friendly deal. By April 2011, Martin's bankers were evaluating the constraints imposed by the NDA upon a non-consensual transaction. At a mid-August 2011 meeting, Martin's board formally authorized management to pursue alternatives to a friendly deal. Four months later, Martin launched its unsolicited Exchange Offer.
As a regulatory matter, an exchange offer carries a line-item requirement under federal securities law to disclose past negotiations. Martin announced its Exchange Offer on December 12, 2011, by sending Vulcan a public "bear hug" letter and filing a Form S-4 with the United States Securities and Exchange Commission ("SEC").
Both before and after Martin commenced its hostile takeover bid, Martin disclosed Vulcan's nonpublic information, first to third party advisors (investment bankers, lawyers and public relations advisors), and later publicly. Martin did that without Vulcan's prior consent and without adhering to the Notice and Vetting Process mandated by the NDA.
As for its public disclosures, Martin's Form S-4 disclosed not only the history of the negotiations, but also other detailed information that constituted "Evaluation Material" and "Confidential Materials" under the respective Confidentiality Agreements. Those details, as the Court of Chancery found, included:
The disclosures by Martin to the SEC, the Chancellor found, "were ... a tactical decision influenced by [Martin's] flacks," and "the influence of these public relations advisors is evident in the detailed, argumentative S-4 filed by Martin[]."
Lastly, the Chancellor found that after it launched its hostile takeover bid, Martin disclosed Evaluation Material and other confidential information "in push pieces to investors, off the record and on the record communications to the media, and investor conference calls."
On December 12, 2011, the same day it launched its hostile takeover bid, Martin commenced this Court of Chancery action for a declaration that nothing in the NDA barred Martin from conducting its Exchange Offer and Proxy Contest. Vulcan counterclaimed for a mirror-image determination that Martin breached the NDA, and later amended its counterclaim to add claims that Martin had violated the JDA. Vulcan sought an injunction prohibiting Martin from proceeding with its hostile takeover bid.
In its Opinion, the Court of Chancery ultimately determined that Martin had breached the NDA and the JDA by impermissibly using and disclosing Evaluation Material under the NDA and Confidential Materials under the JDA. To reach those
Specifically, the Court of Chancery found that, although the Confidentiality Agreements did not contain a "standstill" provision, they did bar Martin (and Vulcan) from:
The record establishes, and the Court of Chancery found, that Martin's conduct inflicted on Vulcan "exactly the same kind of harm Nye demanded the Confidentiality Agreements shield Martin[] from."
Martin advances four specific claims of error on this appeal. First, Martin contends that the trial court erred in going beyond the plain language of the NDA, which unambiguously permitted the use of Evaluation Material to conduct its hostile Exchange Offer and Proxy Contest. Second, Martin claims that the court erroneously held that the NDA prohibited Martin from disclosing Evaluation Material and information about the merger discussions without prior notice and vetting, because
Martin's first three claims of error involve judicial interpretation of a contract, which present questions of law that this Court reviews de novo.
We conclude, for the reasons next discussed, that the Chancellor committed no legal error or abuse of discretion, and correctly concluded (inter alia) that: (i) the JDA prohibited Martin from using and disclosing Vulcan Confidential Materials to conduct its hostile bid; (ii) the NDA prohibited Martin from disclosing Vulcan Evaluation Material without affording Vulcan pre-disclosure notice and without engaging in a vetting process; (iii) Martin breached the use and disclosure restrictions of the JDA and the disclosure restrictions of the NDA; and (iv) injunctive relief in the form granted was the appropriate remedy for those adjudicated contractual violations. Because we affirm the Court of Chancery's judgment on these grounds, we do not reach or decide the other bases for the contractual violations adjudicated by the trial court.
Before turning to Martin's substantive claims of error, we first address a side assertion that pervades all of those claims. Martin asserts that by interpreting the Confidentiality Agreements in the manner it did, the Court of Chancery "stealthily" converted those two contracts into a standstill agreement, which neither party intended or agreed to. Besides being factually incorrect, this argument is irrelevant to, and distracts from, a proper analysis of the contractual issues genuinely presented. For that reason we first address that argument preliminarily.
Standstill agreements and confidentiality agreements are qualitatively different.
A confidentiality agreement, in contrast, is intended and structured to prevent a contracting party from using and disclosing the other party's confidential, nonpublic information except as permitted by the agreement.
It is undisputed that the Confidentiality Agreements in this case were true confidentiality agreements, not standstill agreements. They did not categorically preclude Martin from making a hostile takeover bid for Vulcan. What they did was preclude Martin from using and disclosing Vulcan's confidential, nonpublic information except insofar as the agreements themselves permitted. The Court of Chancery clearly understood that distinction. It interpreted and enforced the disputed agreements in this case as confidentiality
Having cleared away the underbrush, we turn to the merits of Martin's claims of error.
The Chancellor determined that Martin, in making its hostile bid, both "used" and "disclosed" Vulcan Confidential Materials in violation of the JDA. That agreement (the trial court found) unambiguously prohibits the use of "Confidential Materials" without Vulcan's consent, except "for purposes of pursuing and completing the Transaction," which the JDA defines as "a potential transaction being discussed by Vulcan and Martin...." The Court of Chancery found as fact that "the only transaction that was `being discussed' at the time the parties entered into the JDA was a negotiated merger,"
Martin asserts that those determinations are reversibly erroneous, for three reasons. First, Martin claims, the court erred in concluding that the only transaction "being discussed" when the parties entered into the JDA was a negotiated merger. Second, Martin advances the related claim that, even if "Transaction" meant a negotiated transaction, Martin committed no contractual breach, because "the JDA expressly allows the use of [protected] information `for purposes of pursuing and completing the Transaction,'"
Martin portrays its first argument — that the Chancellor erroneously concluded that neither the Proxy Contest nor the Exchange Offer was the "potential transaction being discussed" — as presenting a purely legal question of contractual interpretation that is subject to de novo review. That portrayal is not accurate. The challenged determination presents a mixed question of fact and law. Although our review of its contract interpretation component is de novo, the challenged factual component will not be overturned unless it is found to be clearly wrong.
The trial court properly found that the relevant operative language of the JDA — "a potential transaction being discussed" — is unambiguous, and Martin does not seriously contend otherwise. The only remaining dispute, accordingly, is factual: what transaction was "being discussed?" The only transaction being discussed, the
Equally unpersuasive is Martin's alternative contention that even if "Transaction" means a negotiated merger, Martin did not violate the JDA's use restriction, because the JDA expressly allowed Martin to use Confidential Materials "for purposes of pursuing and completing the Transaction," and Martin's hostile bid "ultimately will facilitate ... a negotiated transaction." That claim fails because the Chancellor found as fact that the only transaction being discussed would be "friendly" or "negotiated." That finding expressly and categorically excluded Martin's "hostile bid or a business combination ... effected by a pressure strategy."
Martin's third claim is essentially that the JDA creates no restrictions independent of those already imposed by the NDA. Therefore (the argument runs), since Martin did not violate the NDA, it could not have violated the JDA. The sole foundation for this argument is language found in Paragraph 12 of the JDA, which provides that "[n]either the existence of nor any provision contained in this Agreement shall affect or limit any other confidentiality agreements, or rights or obligations created thereunder, between the Parties in connection with the Transaction."
The Chancellor was not persuaded by this argument, and neither are we. If adopted, Martin's reading would turn Paragraph 12's language on its head. That provision, in context, plainly says — and means — that neither the existence nor the contents of the JDA ("this Agreement") shall "affect or limit any other confidentiality agreements (the NDA) or rights or obligations created thereunder." Martin's reading would generate the opposite result, namely, that the rights and obligations created in the NDA would specify and limit when Vulcan and Martin could use and disclose Confidential Materials protected by the JDA. As Vulcan correctly argues, no reasonable reading of the JDA (or the NDA) "support[s] that absurd result, which would reduce the JDA to a nullity...." That result would also violate the "cardinal rule ... that, where possible, a court should give effect to all contract provisions."
Other than its claim based on Paragraph 12, which we reject, Martin suggests no basis to overturn the Court of Chancery's
For these reasons, we uphold the Chancellor's conclusion that Martin used and disclosed Vulcan Confidential Materials in violation of the JDA.
We next consider Martin's challenges to the Chancellor's determination that Martin violated the disclosure restrictions of the NDA. The Chancellor found as fact that Martin disclosed Vulcan confidential information, including Evaluation Material, in the course of pursuing its hostile bid, and Martin does not contest that finding. Rather, Martin's claim before us is that its disclosure of Vulcan confidential information was permitted by Paragraph 3 of the NDA, and that the Court of Chancery erred in holding otherwise. This claim rests upon a somewhat intricate (and fragile) structure of subsidiary arguments, which run as follows: (i) Martin was entitled to disclose Vulcan confidential information, including Evaluation Material, that was otherwise protected under the NDA without Vulcan's prior consent, if disclosure was "legally required;" (ii) the disclosure of Vulcan's confidential information in publicly filed documents was "legally required" by SEC Rules applicable to exchange offers; (iii) the Vulcan confidential information that Martin disclosed to investors was legally permitted because that disclosure was already "legally required" by SEC Rules; and (iv) Martin was not contractually obligated to give Vulcan prior notice of any intended disclosures, or to engage in a pre-disclosure vetting process, because those procedural requirements applied only to disclosures made in response to an "External Demand" arising in the course of a legal proceeding,
These arguments were presented to the Court of Chancery, which rejected them for a host of reasons that entailed a searching and intensive analysis of a multitude of factual and legal issues. To oversimplify, the Court of Chancery analyzed Martin's position under two separate, alternative approaches. First, the court held that Paragraphs 3 and 4 were ambiguous. After resorting to extrinsic evidence, the court determined that Paragraph 3, most reasonably interpreted, does not independently allow a contracting party to make legally required disclosures, unless the disclosures are preceded and triggered by an External Demand. In the alternative, the Chancellor also held that Paragraph 3, viewed alone, unambiguously did not permit the disclosure of one specifically defined information category — "Evaluation Material" — even if disclosure
In our review of the Court of Chancery's resolution of this question, we need not, and do not, reach or decide the merits of its ambiguity-based analysis. Instead, we uphold the result based on the trial court's alternative holding. More specifically, we conclude, as a matter of law based upon the NDA's unambiguous terms, that: (i) Paragraph 3, of itself, does not authorize the disclosure of "Evaluation Material," even if such disclosure is otherwise "legally required;" (ii) Paragraph 4 is the only NDA provision that authorizes the disclosure of Evaluation Material; (iii) any disclosure under Paragraph 4 is permitted only in response to an External Demand and after complying with the pre-disclosure Notice and Vetting Process mandated by that paragraph; and (iv) because no External Demand was made and Martin never engaged in the Notice and Vetting Process, its disclosure of Vulcan's Evaluation Material violated the disclosure restrictions of the NDA.
The contract provisions that relate to this issue are Paragraphs 2, 3 and 4 of the NDA. Paragraph 2, entitled "Use of Evaluation Material," categorically prohibits the disclosure of a party's Evaluation Material to anyone other than the receiving party's representatives.
At this point it is helpful to pause and identify which "legally required" disclosures Paragraph 3 does — and does not — permit. By its terms, Paragraph 3 covers only three categories of information: (a) the fact that any Evaluation Material has been made available; (b) the fact that discussions or negotiations concerning a Transaction have been taken or are taking place; and (c) any of the terms, conditions or other facts with respect thereto [i.e., to the negotiations] including the status thereof [i.e., the negotiations] or that the NDA exists. Not included within those categories is the substance of a party's Evaluation Material — as distinguished from "the fact that ... Evaluation Material has been made available."
The omission of Evaluation Material from the coverage of Paragraph 3 is both
Paragraph 4 also mandates a procedural framework within which legally required disclosure of Evaluation Material is permissible. That framework has two elements. The first is that Evaluation Material must be the subject of an External Demand. The second is that a party contemplating disclosure of that information must give pre-disclosure notice of any intended disclosure and (where applicable) engages in a vetting process.
To illustrate how these two elements operate structurally, we divide Paragraph 4 into two parts. The first creates a right to prior notice to enable the adversely affected party to seek appropriate judicial relief:
The second part comes into play if a contracting party, for whatever reason, does not seek or obtain court protection. In those circumstances, Paragraph 4 mandates an extrajudicial "vetting" process:
To recapitulate, Paragraphs 2, 3, and 4, both internally and when read together, unambiguously permit a party to the NDA to disclose "legally required" Evaluation Material. But, that may be
Martin's contrary argument rests on the premise that Evaluation Material is textually included within the purview of Paragraph 3. Martin claims that the following italicized phrase in Paragraph 3 captures Evaluation Material: "[E]ach party agrees [not to disclose, other than as legally required,]... that discussions or negotiations have or are taking place concerning a Transaction or any of the terms, conditions, or other facts with respect thereto (including the status thereof or that this letter agreement exists)."
Martin's argued-for interpretation — that "other facts with respect thereto" must be read to cover Evaluation Material — finds no support in the specific language and structure of the NDA. It is also unreasonable. Any doubt about the scope of the phrase "other facts with respect thereto" is put to rest by considering the broader language of which that phrase is but one moving part. The context clarifies that the phrase, "other facts with respect thereto," means specific facts indicating that there were "discussions or negotiations... concerning a Transaction," including the fact that the NDA even exists. That peripheral species of information differs markedly from the substantive, company-specific internal information that the parties exchanged in order to facilitate their discussions or negotiations (i.e., Evaluation Material).
Evaluation Material is a term that is central to, and defined in, the NDA. That term is specifically referred to by name throughout the agreement. Martin's interpretation of the NDA attempts to shoehorn "Evaluation Material" into language in Paragraph 3 that does not, and is not intended to, include "Evaluation Material." If the drafters of the NDA intended to include Evaluation Material within the category of information disclosable under Paragraph 3, they easily could have done that by referring directly to "Evaluation Material," as they did repeatedly elsewhere in the NDA.
The NDA also clearly distinguishes Evaluation Material from the disclosable information covered by Paragraph 3. Paragraph 4 addresses the disclosure of "any of the other party's Evaluation Material or any of the facts, the disclosure of which is prohibited under paragraph (3) of this letter agreement."
We conclude, for these reasons, that the only reasonable construction of the NDA is that Paragraph 4 alone permitted the disclosure of Evaluation Material, and even then only if triggered by an External Demand and preceded by compliance with Paragraph 4's Notice and Vetting Process. The Court of Chancery found as fact that Martin disclosed Evaluation Material in the course of conducting its hostile bid, without having received an External Demand and without having engaged in the notice and vetting process. Martin has not challenged that finding. We therefore uphold the Court of Chancery's determination that Martin breached the NDA's disclosure restrictions.
Lastly, Martin claims that the Court of Chancery reversibly erred in balancing the equities and granting injunctive relief to Vulcan without any evidence that Vulcan was threatened with, or suffered, actual irreparable injury. The injunction prohibited Martin, for a four month period, from going forward with its Exchange Offer and Proxy Contest, from otherwise taking steps to acquire control of Vulcan shares or assets, and from further violating the NDA and the JDA. As earlier noted, we review this claim for an abuse of discretion.
Martin's claim fails both legally and factually. It fails legally because, as the trial court noted, in Paragraph 9 of the NDA both parties stipulated that "money damages would not be [a] sufficient remedy for any breach ... by either party," and that "the non-breaching party shall be entitled to equitable relief, including injunction and specific performance, as a remedy for any such breach."
Our courts have long held that "contractual stipulations as to irreparable harm alone suffice to establish that element for the purpose of issuing ... injunctive relief."
Unable to deny that the trial court so found, Martin shifts ground and asserts that any finding of harm was "speculative" and made "without any support." To the contrary, the adjudicated harm was not speculative and is supported by ample record evidence. For example, Vulcan's CEO James testified that when Martin revealed publicly the fact of the negotiations, "[i]t put us in play at a time that we would not have wanted to be put into play," because "this industry is in a recession." James also testified that "our employees were very concerned," and that "[o]ur executive team obviously is completely distracted from pursuing our internal strategic plan." That and other non-speculative record evidence solidly supports the Court of Chancery's finding of "actual" irreparable injury.
Martin also attacks the scope of the remedy itself, claiming that the injunction was unreasonable because it would delay Martin's Proxy Contest by one year, rather than four months. In different circumstances that kind of harm might be a legally cognizable factor that a court will take into account in balancing the equities for and against granting an injunction. Here, however, the "delay" is attributable to the NDA's May 3, 2012 expiration date, which — when combined with Vulcan's advance notice bylaw
Given those facts, the Court of Chancery did not abuse its discretion by holding that the equities favored Vulcan, because "Martin's breaches prevented Vulcan from seeking injunctive relief before the confidential information was made public" and Vulcan "[had] been measured in its request for injunctive relief."
For the foregoing reasons, the judgment of the Court of Chancery is affirmed.