Court Declines to Dismiss Shareholder Lawsuit Alleging Failure to Use “Commercially Reasonable Efforts” to Develop Product

The Delaware Court of Chancery recently denied a motion to dismiss a breach of contract suit brought by former shareholders of a corporation, who alleged that the corporation’s buyers had failed to fulfill their obligations under a merger contract. Himawon, et al. v. Cephalon, Inc., et al, C.A. No. 2018-0075-SG, mem. op. (Del. Chanc. Ct., Dec. 28, 2018). Since Delaware law tends to influence businesses around the country, the ruling could be relevant to California business disputes. The case presents interesting questions about the use of highly subjective language to define a party’s obligations in a contract. In this case, the buyers agreed to use “commercially reasonable efforts” to develop a valuable product owned by the corporation, id. at 2, and the plaintiffs allege that they failed to do so. Although the plaintiffs in Himawon are shareholders of the corporation, it is not a shareholder derivative suit. Instead, it is a suit for breach of…

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