The practical lesson for entrepreneurs of the case I’m about to describe is, never sign complex business agreements without your lawyer, and never ever sign such agreements in the last week of August when your vacationing lawyer is unreachable.
Deals to forge new business enterprises have a pace and momentum all their own. Business considerations, financial considerations, ownership considerations, legal considerations, tax considerations, personality considerations, and more — all have to coalesce and achieve critical mass in support of a meeting of the minds on the deal’s material terms to be memorialized in a binding, enforceable, written agreement.
The dynamics of the negotiations and externalities sometimes create a seize-the-moment mentality that induces one or both sides to push to sign an agreement that’s not fully baked, either to prevent a change of mind or with the expectation that remaining open issues can be cleaned up later. In even more extreme situations, the parties commit time and capital to the new venture while the negotiations are ongoing, that is, acting and treating each other as business partners before the deal is consummated.
Eagle Force Holdings, LLC v Campbell, Mem. Opinion, C.A. No. 10803-VCMR [Del Ch Sept. 1, 2017], decided earlier this month by Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery, is one of those extreme cases. Perhaps the most remarkable feature of the case, in which the court found unenforceable the transaction documents for a new venture, including signed operating and contribution agreements, is the heavy involvement of sophisticated legal counsel on both sides throughout the process — except for the critical moment when the two principals met alone and signed what was labeled a “draft” agreement just before the start of the Labor Day holiday weekend when their respective lawyers were unreachable. Continue Reading Don’t Let the Deal Get Ahead of the Documents