GMG Capital Invs. LLC v. Athenian Venture Partners I, L.P.

• Decision Date: 03 January 2012
• Docket Number: No. 614, 2010,No. 514, 2010,C. A. No. 08C-04-084,514, 2010,614, 2010
• Citation: GMG Capital Invs. LLC v. Athenian Venture Partners I, L.P., C. A. No. 08C-04-084, No. 514, 2010, No. 614, 2010 (Del. Jan 03, 2012)
• Parties: GMG CAPITAL INVESTMENTS, LLC, a Delaware Limited Liability Company, GMG CAPITAL PARTNERS III, L.P., a Delaware Limited Partnership, GMG CAPITAL PARTNERS III COMPANION FUND, L.P., a Delaware Limited Partnership, and GMS CAPITAL PARTNERS II, L.P., Defendants Below-Appellants, v. ATHENIAN VENTURE PARTNERS I, L.P. and ATHENIAN VENTURE PARTNERS II, L.P., Plaintiffs Below-Appellees. GMG CAPITAL INVESTMENTS, LLC, a Delaware Limited Liability Company, GMG CAPITAL PARTNERS III, L.P., a Delaware Limited Partnership, GMG CAPITAL PARTNERS III COMPANION FUND, L.P., a Delaware Limited Partnership, and GMS CAPITAL PARTNERS II, L.P., Defendants Below-Appellants, v. ATHENIAN VENTURE PARTNERS I, L.P. and ATHENIAN VENTURE PARTNERS II, L.P., Plaintiffs Below-Appellees.
• Court: Supreme Court of Delaware

GMG CAPITAL INVESTMENTS, LLC, a Delaware Limited Liability Company,

GMG CAPITAL PARTNERS III, L.P., a Delaware Limited Partnership,

GMG CAPITAL PARTNERS III COMPANION FUND, L.P.,

a Delaware Limited Partnership, and GMS CAPITAL PARTNERS II,

L.P., Defendants Below-Appellants,

v.ATHENIAN VENTURE PARTNERS I, L.P. and ATHENIAN

VENTURE PARTNERS II, L.P., Plaintiffs Below-Appellees.

GMG CAPITAL INVESTMENTS, LLC, a Delaware Limited Liability Company,

GMG CAPITAL PARTNERS III, L.P., a Delaware Limited Partnership,

GMG CAPITAL PARTNERS III COMPANION FUND, L.P., a Delaware Limited

Partnership, and GMS CAPITAL PARTNERS II, L.P., Defendants Below-Appellants,

v.ATHENIAN VENTURE PARTNERS I, L.P. andATHENIAN VENTURE PARTNERS II, L.P., Plaintiffs Below-Appellees.

No. 514, 2010

C. A. No. 08C-04-084

No. 614, 2010

SUPREME COURT OF THE STATE OF DELAWARE

Submitted: October 12, 2011

Decided: January 3, 2012

Court Below: Superior Court of the State of Delaware in and for New Castle County

Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS, and RIDGELY, Justices, constituting the Court en Banc.

Upon appeal from the Superior Court. REVERSED AND REMANDED.

Michael D. Goldman, Esquire, Timothy R. Dudderar, Esquire (argued), Abigail M. LeGrow, Esquire, and Matthew D. Stachel, Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware, and Brian P. Fagan, Esquire, Keevican Weiss Bauerle & Hirsh LLC, Pittsburgh, Pennsylvania for Appellants.

R. Judson Scaggs, Jr., Esquire (argued), Leslie A. Polizoti, Esquire, and Karl G. Randall, Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, for Appellees.

RIDGELY, Justice:

Defendants-Below/Appellants GMG Capital Investments, LLC, GMG Capital Partners III, L.P., GMG Capital Partners III Companion Fund, L.P., and GMS Capital Partners II, L.P. (collectively, "GMG"), appeal from a Superior Court opinion and order granting summary judgment in favor of Plaintiffs-Below/Appellees Athenian Venture Partners I, L.P. and Athenian Venture Partners II, L.P. (collectively, "Athenian") in this dispute over the remedy for a breach of contract. GMG also appeals from a Superior Court order awarding Athenian attorneys' fees, costs, and expenses incurred in that action.

GMG contends that the Superior Court erred as a matter of law by granting summary judgment on Athenian's claim for money damages because the parties' agreement unambiguously provides that Athenian's sole remedy is the pledged securities. Alternatively, GMG contends that the agreement is, at the very least, ambiguous as to the appropriate remedies, so as to preclude an award of summary judgment. With respect to the fee order, GMG contends that if the summary judgment order is reversed, the fee order must also be reversed.

A three-justice panel of this Court heard oral argument on October 12, 2011. After argument, the matter was scheduled for rehearing and determination by the Court en Banc on the briefs. We find the parties' agreement to be ambiguous and hold that the ambiguity precludes an award of summary judgment. Thus, we reverse and remand both matters for further proceedings.

Facts and Procedural History

GMG is a venture capital fund that invests in technology and consumer product companies. Athenian is a venture capital fund that invests in information technology and life sciences companies. In 1999, GMG and Athenian both invested in Alloptic, Inc. ("Alloptic"), a start-up company in the technology sector. As a result of their investments at both the initial and subsequent rounds of financing, GMG and Athenian became Alloptic's two largest equity holders. GMG owned approximately sixty percent of Alloptic, which was likely GMG's largest investment. Athenian owned approximately ten percent of Alloptic, having invested approximately $8.5 million.

In 2005, Alloptic was suffering financially and struggling to meet its projections. A downturn in the venture capital market made it difficult for Alloptic to obtain financing from new or existing investors. GMG approached Ritchie Capital Management ("Ritchie") to discuss a potential investment. Ritchie agreed to invest in Alloptic, but conditioned its investment on bringing in a new board of directors. That condition meant that GMG and Athenian would have to relinquish their board seats. Athenian had a contractual right to its board seat and initially refused to accept Ritchie's condition.

GMG and Athenian then negotiated for the sale of Athenian's Alloptic stock to GMG, in a deal that would enable GMG to offer Athenian's board seat toRitchie. The parties ultimately reached an agreement (the "Agreement"), which consisted of four documents: a Term Sheet, a Letter Agreement to Purchase Equity in Alloptic, a Limited Recourse Note (the "Note"), and a Pledge Agreement. Under the Agreement, Athenian pledged its Alloptic securities (the "Pledged Securities") in exchange for the Note, whose principal amount was $6,000,000. The Pledged Securities were held in escrow. As part of the Agreement, GMG would make monthly payments of $15,000 of principal on the Note to Athenian (the "Mandatory Payments") if one of two events occurred. Specifically, the Note states that the Mandatory Payments must begin on the first full month of the earlier of "(i) the date upon which there are subscriptions for $200,000,000 for investments in GMG Capital Partners IV, L.P. (as defined below) or (ii) the date of the final closing of all investments in GMG Capital Partners, IV, L.P."¹

The parties do not dispute that a "Triggering Event" occurred, that obligated GMG to make the Mandatory Payments starting in January 2008. GMG decided not to make those payments for January 2008 or any subsequent month that triggered an "Event of Default" under the Agreement. GMG contends that Athenian's only remedy for this breach of the Agreement is recourse to the Pledged Securities, as set forth in Section 1(g) of the Pledge Agreement. Atheniancontends that the Agreement permits an election of remedies, one of which is money damages for failure to make the Mandatory Payments.

Athenian filed suit against GMG in the Superior Court for money damages and a declaratory judgment that GMG breached the Note by failing to make the Mandatory Payments. The parties conducted discovery, including the depositions of transaction counsel. Athenian then moved for summary judgment. The Superior Court granted summary judgment from the bench after oral argument. The Superior Court later issued a written order confirming that ruling, and awarding attorneys' fees.

GMG appealed the summary judgment award. That appeal was consolidated with GMG's appeal of the Superior Court order awarding attorney's fees to Athenian. Oral argument before this Court was scheduled for January 12, 2011. Before oral argument, this Court remanded the matter, directing the Superior Court to express in a supplemental written opinion the specific reasons why it concluded that the Agreement was unambiguous and that Athenian's interpretation of the relevant provisions was correct as a matter of law.

On April 19, 2011, the Superior Court issued a revised supplemental opinion in favor of Athenian. The parties then submitted supplemental memoranda, and oral argument was held before a three-justice panel of the Court. The paneldecided to schedule the matter for rehearing and determination by the Court en Banc on the briefs. This is the Court's decision on the consolidated appeal.

Analysis

GMG argues that the unambiguous Agreement language establishes that Athenian's sole remedy is the Pledged Securities. Alternatively, GMG argues if the Court does not find the Agreement unambiguous, GMG's interpretation of the Agreement is at least as reasonable as Athenian's, precluding an award of summary judgment.

We review the Superior Court's grant of summary judgment de novo "to determine whether, viewing the facts in the light most favorable to the nonmoving party, the moving party has demonstrated that there are no material issues of fact in dispute and that the moving party is entitled to judgment as a matter of law."² We review questions of contract interpretation de novo.³

A. The Agreement Is Ambiguous as to Remedies

When interpreting a contract, the Court will give priority to the parties' intentions as reflected in the four corners of the agreement.⁴ "In upholding the intentions of the parties, a court must construe the agreement as a whole, givingeffect to all provisions therein."⁵ The meaning inferred from a particular provision cannot control the meaning of the entire agreement if such an inference conflicts with the agreement's overall scheme or plan.⁶

The Court will interpret clear and unambiguous terms according to their ordinary meaning.⁷ "Contract terms themselves will be controlling when they establish the parties' common meaning so that a reasonable person in the position of either party would have no expectations inconsistent with the contract language."⁸ "A contract is not rendered ambiguous simply because the parties do not agree upon its proper construction."⁹ Rather, an ambiguity exists "[w]hen the provisions in controversy are fairly susceptible of different interpretations or may have two or more different meanings."¹⁰ Where a contract is ambiguous, "the interpreting court must look beyond the language of the contract to ascertain the parties' intentions."¹¹

1. The Relevant Agreement Provisions

Here, the parties each rely upon various provisions of the Agreement to argue that the Agreement is unambiguous and supports their respective interpretations. GMG's argument rests in large part on Section 1 of the Pledge Agreement. Section 1 (e) provides that:

At any time after a breach or default occurs under the Note or this Agreement (an "Event of Default"), [Athenian] may deliver to the Pledge Agent and [GMG] a certificate which certifies that an Event of Default has occurred and describes the nature of the Event of Default.¹²

That section then provides for Athenian to receive the...