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.


The court’s 63-page opinion gives an exquisitely detailed description of the sequence of events leading up to the signing of the transaction documents and its ugly aftermath culminating with a five-day trial last February. Essentially, the story centers on the efforts of the two principals — Stanley Campbell and Richard Kay — to form a joint venture to market a patented pharmaceutical software system developed and owned by Campbell.

In November 2013, with counsel’s assistance the two signed a letter of intent, later amended in April 2014, anticipating the formation of one or more LLCs “in Virginia” (where Campbell’s existing business was based) including a holding company to be owned between them 50/50 to serve as parent for Campbell’s existing companies. It also anticipated Campbell’s contribution of his patented software and Kay’s investment of at least $1.8 million with the goal of raising $7.8 million in total financing to be contributed either by Kay or a mutually agreed upon investor.

Troubled Negotiations

Several complications arose while negotiations continued toward final agreement. For one, Campbell’s existing company entered into new employment agreements with key personnel including equity participation rights that automatically vested upon change in control. For another, Kay became involved in certain aspects of the day-to-day operations of the company and began funding Campbell’s existing business, ultimately to the tune of around $700,000.

As Kay became more involved, his relationship with Campbell began to sour. Negotiations continued nonetheless, and in May 2014 Kay’s lawyers presented draft transaction documents consisting of an LLC Agreement and Contribution Agreement, both of which referenced as the holding company a Delaware LLC (instead of Virginia as stated in the letter of intent) that Kay had formed months earlier without Campbell’s knowledge. The LLC Agreement included a forum selection clause consenting to personal jurisdiction in the Delaware courts.

Over the next three months Kay, Campbell, and their lawyers exchanged several revised drafts of the transaction documents in an attempt to close the gap on a number of unresolved issues, not the least of which were Kay’s demand for waivers from Campbell’s employees who had been granted equity participation rights, and complications arising from Campbell’s prior bankruptcy as to his representations concerning ownership of the intellectual property he was contributing to the enterprise.

The Signing

On the evening of August 28, 2014 — the Thursday before the Labor Day holiday weekend — Kay and Campbell met without their lawyers. They had with them the latest transaction documents consisting of a Contribution Agreement marked “DRAFT 8-26-14” and the LLC Agreement as an exhibit to the Contribution Agreement. At the meeting, after trying unsuccessfully to raise their lawyers by telephone, Kay and Campbell signed the documents even though, among other glitches in the drafts, most of the critical schedules identifying consideration and certain contractual rights and obligations were missing or blank.

The Unraveling

In September 2014, Kay and Campbell continued to discuss the missing aspects to their agreement. At a conference call with their lawyers on September 17, 2014, Kay stated his willingness to discuss potential “amendments” to the August 28 agreements but was unwilling to rescind and re-execute them. A few weeks later, as negotiations dragged on with no resolution, Campbell took the position that they had no binding agreement, writing to Kay that “we remain un-closed and this opportunity still does not have the remaining elements in agreement.”

In November 2014, as their relationship became even more frayed, Kay and his lawyer responded that Campbell was in breach by failing to contribute his intellectual property. Kay nonetheless continued to fund the payroll of Campbell’s “old” company through February 2015, when Campbell declared an impasse, advised Kay that his funding had been booked as a loan, and proposed that their attorneys negotiate “the means and methods for us to close this matter and allow us to move on.”

The Lawsuit

In March 2015, Kay sued Campbell in Delaware Chancery Court for breach of contract and breach of fiduciary duty, seeking specific performance of the August 28, 2014, Contribution Agreement and LLC Agreement along with money damages. Kay’s suit predicated the court’s personal jurisdiction of Campbell on the forum selection clause in the signed agreements. Campbell, a resident of Virginia, denied the enforceability of the agreements and therefore also objected to the personal jurisdiction of the court.

The court held a five-day trial in February 2017. As VC Montgomery-Reeves wrote in her post-trial opinion, “[i]n this unusual case, a full trial was necessary to resolve the question of personal jurisdiction because whether Campbell consented to personal jurisdiction in Delaware depends on whether Campbell is bound by the Transaction Documents.”

The court agreed with Campbell’s contention that the signed agreements were missing certain material terms showing that the parties never came to agreement. In particular:

  • The parties never completed the schedule referenced in the Contribution Agreement detailing the equity interests in his separate businesses that Campbell was supposed to contribute to the new holding company. This was a major element of the parties’ negotiations, as evidenced by many months of unresolved back-and-forth over the equity participation rights granted to several of Campbell’s employees and Kay’s unsatisfied demand that those employees waive their rights.
  • Also left blank in the signed Contribution Agreement were the schedules intended to identify contracts assigned by Campbell to the new holding company and Campbell’s intellectual property license agreements. “Absent definite terms regarding the remainder of the property to be contributed,” wrote VC Montgomery-Reeves, “I find that Campbell and Kay did not come to agreement on the consideration that Campbell would provide in the Transaction Documents” which, she added, “was highly material to the parties here” since it would directly affect the allocation of equity units between Campbell and Kay.
  • The court found no evidence that the parties “agreed to complete the Transaction Documents without those schedules” or that they agreed to the terms of the LLC Agreement separately from the Contribution Agreement since the two agreements cross referenced each other and the LLC Agreement was identified as an exhibit to the Contribution Agreement. “Thus,” the court wrote, “the LLC Agreement and the Contribution Agreement rise and fall together.”

In the end, the court concluded that “Kay and Campbell did not intend to bind themselves to the written terms in the Transaction Documents, and this Court does not have personal jurisdiction over Campbell through his consent.” Nor could personal jurisdiction be predicated on the letter of intent which included a Virginia choice of law provision and expressly contemplated formation of a Virginia LLC. Accordingly, the court ordered the complaint dismissed.

The Upshot

It’s a safe bet that an extraordinary amount of time, effort, and money was devoted to litigating the validity of the transaction documents, all for naught. It’s also a safe bet that, had the parties been able to reach their lawyers the night they signed the documents — and almost certainly in Campbell’s case — the lawyers would have strongly advised them not to do so because of the unresolved issues.

So the lesson is, don’t let the deal get ahead of the documents, and don’t sign business agreements without first getting your lawyer’s okay.

Update: In an opinion dated May 24, 2018 (read here), the Delaware Supreme Court reversed and remanded the Chancery Court’s decision, finding that “there is evidence within the four corners of the documents and other powerful, contemporaneous evidence, including the execution of the agreements, that suggests the parties intended to be bound. But we acknowledge that there is also evidence that cuts the other way. Given that this is a question of fact, we remand to the Court of Chancery to make such a finding.”