The Delaware Supreme Court on Agreements to Agree

In Cox Communications, Inc. v. T-Mobile, US, Inc., the Delaware Supreme Court construed one provision in a settlement agreement between Cox Communications (Cox) and T-Mobile’s predecessor in interest, Sprint Corporation (Sprint).  In § 9(e) of that agreement, Cox represented that, before it offered wireless mobile services to its customers, it would enter into an exclusive provider agreement with Sprint “on terms to be mutually agreed upon between the parties for an initial period of 36 months[.]”  Notwithstanding that provision, Cox entered into an agreement with Verizon, and T-Mobile alleged breach of the settlement agreement. 

Cox sued seeking a declaratory judgment that Section 9(e) is an unenforceable agreement to agree.  It raised two arguments that tickle my pedagogical itches.  First, it argued that § 9(e) is a “Type II” agreement that required only that it negotiate in good faith, which it claims it did.  Second, it claimed that its agreement was with Sprint, not T-Mobile, and it never agreed to Sprint’s assignment of its rights under § 9(e). What larks!

T-Mobile counterclaimed, alleging breach of contract and contending that, having failed to negotiate an agreement pursuant to § 9(e), Cox was precluded from entering the wireless mobile market at all.  The Chancery Court sided with T-Mobile.  The Delaware Supreme reversed.  Although Cox implicitly consented to the assignment by not raising its objections in a timely manner (rats!), this is indeed a Type II agreement, and the Court remanded the case to Chancery to determine whether the parties had negotiated in good faith.  

There were negotiations between the parties.  Cox was choosing between 3 1/2 year swing dance with Verizon and a 4 1/2 year waltz with T-Mobile.  The fancy get-ups associated with the waltz made T-Mobile’s offer $90 million more costly to Cox, and it went with Verizon.  T-Mobile attempted a last ditch counter-proposal, including a three-year term.  “We can swing too!” in short.  Cox went home with the partner it came in with.  

Finding that § 9(e) left material terms open, the Court found it to be a prototypical Type II agreement to agree that required negotiation in good faith.  The Court thus rejected the Chancery Court’s finding that § 9(e) entailed a promise not to enter into the wireless mobile market except through T-Mobile.  The Chancery Court had found that § 9(e) must entail more than a duty to negotiate in good faith, as it constituted consideration for Sprint’s agreement to drop a legal claim against Cox.  But a promise to negotiate in good faith is not nothing, and so it too can serve as consideration.

Two Justices dissented.  While they found plausible the Supreme Court’s reading of § 9(e) as entailing only one promise, they also found plausible the Chancery Court’s reading of the clause as entailing two promises.  The clause is, at best, ambiguous.  Moreover, the latter reading found more support in the evidentiary record.  The dissenters would have found the clause ambiguous and remanded to the Chancery Court for a finding, based on extrinsic evidence, of the parties’ intentions regarding § 9(e).

H/t John Wladis