What Legal Arguments Can MLSP and Oasis Make in a Share Forfeiture Dispute?

Question from sanam, What Legal Arguments Can MLSP and Oasis Make in a Share Forfeiture Dispute?

Answer from AI:

In a case where MLSP (a foreign investor) and Oasis are disputing the forfeiture of shares, several legal arguments can be made by both parties. The key facts are that the managing director from Oasis made the decision to forfeit MLSP’s shares due to a slight shortfall in the EBITDA target, which was influenced by the COVID-19 pandemic. There is no force majeure clause in the contract. Below are potential arguments for both sides.

Arguments on Behalf of MLSP (Claimant)

1. **Breach of Fiduciary Duty**:
– The managing director from Oasis may have breached their fiduciary duty by making a unilateral decision without the presence or consent of the other directors.
– Fiduciary duties require directors to act in the best interest of the company and all shareholders, not just their own interests.

2. **Improper Procedure**:
– The decision to forfeit shares should have been made by the board of directors as a whole, not unilaterally by one director.
– Reference: *Smith v. Van Gorkom*, 488 A.2d 858 (Del. 1985), which emphasizes the importance of proper board procedures.

3. **Substantial Performance**:
– MLSP could argue that they substantially met the EBITDA target, achieving 299.96 million out of 300 million, which is a negligible shortfall.
– Courts often recognize substantial performance in contract law, as seen in *Jacob & Youngs, Inc. v. Kent*, 230 N.Y. 239 (1921).

4. **Unforeseeable Circumstances**:
– The impact of COVID-19 was unforeseeable and significantly affected business operations.
– While there is no force majeure clause, courts may consider the pandemic as an extraordinary circumstance.

Arguments on Behalf of Oasis (Respondent)

1. **Strict Compliance with Contract Terms**:
– Oasis can argue that the contract explicitly required an EBITDA of 300 million, and MLSP failed to meet this target.
– Courts often enforce the clear terms of a contract, as seen in *MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino, S.p.A.*, 144 F.3d 1384 (11th Cir. 1998).

2. **No Force Majeure Clause**:
– The absence of a force majeure clause means that MLSP cannot rely on the pandemic as an excuse for non-performance.
– Reference: *Kel Kim Corp. v. Central Markets, Inc.*, 70 N.Y.2d 900 (1987), which held that force majeure clauses must be explicitly stated in the contract.

3. **Business Judgment Rule**:
– The managing director’s decision could be protected under the business judgment rule, which presumes that directors act on an informed basis, in good faith, and in the best interest of the company.
– Reference: *Aronson v. Lewis*, 473 A.2d 805 (Del. 1984).

4. **Material Breach**:
– Oasis can argue that failing to meet the EBITDA target, even by a small margin, constitutes a material breach of the contract.
– Courts have held that material breaches justify significant remedies, as seen in *Sackett v. Spindler*, 248 Cal. App. 2d 220 (1967).

When to Seek Legal Advice

Given the complexity of this case, it is crucial for both parties to seek legal advice. A legal professional can provide personalized guidance based on the specific facts and jurisdiction of the case.

For more information on fiduciary duties and the business judgment rule, you can refer to the [Delaware General Corporation Law](https://delcode.delaware.gov/title8/c001/sc04/index.html).

For general contract law principles, the [Uniform Commercial Code](https://www.law.cornell.edu/ucc) is a useful resource.

In conclusion, while this overview provides a general understanding of potential arguments, consulting with a legal professional is essential for tailored advice and strategy.