motion for summary
judgment in an action for reformation of a merger agreement, the Delaware
Supreme Court concluded that "the trial court must determine whether the
plaintiffs on the summary judgment record proffered evidence from which
any rational trier of fact could infer that plaintiffs have proven the
elements of a prima facie case [for reformation] by clear and convincing
Reformation. Reformation is an equitable remedy that is "sparingly"
granted. H. Prang Trucking Co., Inc. v. Local Union No. 469, 613 F.2d 1235,
1239 (3d Cir. 1980). "Reformation presupposes that a valid contract
between the parties was created but, for some reason, was not properly
reflected in the instrument that memorializes the agreement." Id. Under
Delaware law, two doctrines allow reformation.
The first is the doctrine of mutual mistake. In such a case, the
plaintiff must show that both parties were mistaken as to a material
portion of the written agreement. The second is the doctrine of unilateral
mistake. The party asserting this doctrine must show that it was mistaken
and that the other party knew of the mistake but remained silent.
Regardless of which doctrine is used, the plaintiff must show by clear
and convincing evidence that the parties came to a specific prior
understanding that differed materially from the written agreement.
Cerberus, 794 A.2d at 1151-52 (footnotes omitted). See also Emmert v.
Prade, 711 A.2d 1217, 1219 (Del.Ch. 1997) (a document may be reformed to
reflect the original intent of the parties but reformation is appropriate
"only when the contract does not represent the parties' intent because of
fraud, mutual mistake or, in exceptional cases, a unilateral mistake
coupled with the other parties' knowing silence.") (citation omitted).
"Reformation is not a mandate to produce a reasonable result." Collins
v. Burke, 418 A.2d 999, 1002 (Del. 1980). Rather, the principle of
reformation is "based on intention." Id.
Reformation has also been allowed to those in privy with the original
parties. "Reformation will be allowed not only as against the original
parties, but also against those claiming under them in privity, such as
representatives, heirs or designees, legatees, assignees, voluntary
grantees, or judgment creditors, or purchasers from them with notice of
the facts." Phoenix Chair Co. v. Daniel, 155 So. 363, 366 (Ala. 1934). In
Emmert, the executor of the estate of the decedent had standing to
pursue, albeit unsuccessfully, a reformation claim to reform beneficiary
designations of decedent's life insurance policy and pension plan to
match the disposition of assets under decedent's will. Emmert, 711 A.2d
at 1217-18. See also L.E. Myers Co. v. Harbor Ins. Co., 384 N.E.2d 1340,
1345-46 (Ill.App. 1st Dist. 1978) (reformation of written instruments may
be had by the immediate parties thereto and by those standing in privity
with them, such as their successors; a person not a party or a privy to
the transaction, even a person with a substantial interest therein, may
not maintain the action), aff'd, 394 N.E.2d 1200 (Ill. 1979).
The "mistake" requiring reformation, however, must have occurred
between the original parties to the contract and existed at the time the
contract is executed. Collins v. Burke, 418 A.2d 999 (Del. 1980)
(reformation granted based on "mistake" in original deed); Fitzgerald v.
Cantor, 1998 WL 781188 (Del.Ch. Oct. 28, 1998) ("mistake" at issue in
reformation claim was between parties to the original contract).
Reformation is not intended to bring documents into conformity with an
intention that arose after the original
contracts were executed. Emmert,
711 A.2d at 1219 (will may not be reformed where it accurately stated the
intention of the parties at the time it was executed, even though
decedent later expressed a contrary intent).
A. The Evidence Upon Which Plaintiff Relied.
Plaintiff asserts that its review of the following
documents/information convinced it that each Warrant was convertible into
forty-five shares of defendant's common stock: Bloomberg financial
information database; defendant's bankruptcy plan and disclosure
statement, and defendant's SEC Forms 8-K, 10-K and 10-Q. (Pl.'s Mem. of
Law Supp. Summ. J. at 8-9.) A review of these documents does not support
plaintiff's contentions. To the contrary, a review of these documents,
along with the review of the Warrant Agreement attached to defendant's
Form 8-K, Form 10-K and Debtors' Joint Plan Supplement, supports
defendant's motion for summary judgment on the issue of reformation.
1. Bloomberg Financial Information Database.
Bloomberg described the Warrants as follows: "Purchasers of the
Preferred Stock received warrants to purchase 45 shares of Common Stock
for each share of Preferred Stock acquired." (Def.'s Br. Opp. Summ. J. at
11.) The Bloomberg information upon which plaintiff's claimed to have
relied, belies plaintiff's position that it believed that only 40,000
Warrants were issued. The Bloomberg information contained a table showing
the equity interests held by defendant's principal shareholders, Anschutz
and Oaktree, as of April 17, 2000, after the issuance of the Warrants.
The table reflected that Anschultz held 652,329 Warrants, and that
Oaktree held 364,320 Warrants. Id. at 12 n. 6. The total Warrants held by
these two shareholders was 1,016,640. Moreover, this table reveals that
the exchange rate of the Warrants was one share of common stock for one
Warrant. Adding each shareholder's "New Common Stock" and the
"Subscription Warrants," equaled the "Total New Common Stock" published
in the table. Id. Exchanging each Warrant for forty-five shares of common
stock, would increase the number of common stock shares well in excess of
the totals described in the Bloomberg report.
2. Debtors'*fn5 First Amended Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code ("First Amended Plan").
The First Amended Plan contains the following relevant definitions:
1.84 Plan means this Chapter 11 joint plan of
reorganization, including, without limitation, the
Plan Supplement and all exhibits, supplements,
appendices and schedules hereto, either in its present
form or as the same may be altered, amended or
modified from time to time.
1.100 Rights Offering means the issuance to holders of
certain Claims in or potentially within Class 8 of
rights to purchase units consisting of Subscription
Preferred Stock and Subscription Warrants pursuant to
and in accordance with the terms of Article IX of the
1.116 Subscription Rights means the rights to purchase
units consisting of Subscription Preferred Stock and
Subscription Warrants pursuant to and in accordance
with the terms of § 9.1 of the Plan, Exhibit 3 to
1.121 Subscription Warrants means the warrants to
purchase 7.5% of New Forcenergy Common Stock on a
diluted basis to be issued pursuant to the
Rights Offering on the terms and subject to the
conditions set forth in § 9.1 of the Plan and the
Subscription Warrant Agreement.
1.122 Subscription Warrant Agreement means the warrant
agreement providing for the issuance of the
Subscription Warrants, which Subscription Agreement
shall be in substantially the form contained in the
(Pl.'s Affirms. and Affids. Supp. of Summ. J. (Rappaport Affirm. Ex. I.)
(hereinafter "Rappaport Affirm.") at 10-12.) Exhibit 3 attached to the
First Amended Plan described the "Rights Offering" as being an
"[o]ffering of rights to purchase units consisting of (i) one (1) share
of Preferred Stock, and (ii) a warrant to purchase 45 shares of the New
Forcenergy's Common Stock." (Rappaport Affirm. Ex. I at Ex. 3.)