## Facts

- Innoviva, Inc., a Delaware corporation, had a seven-member board and faced a proxy contest by Sarissa, an activist stockholder group seeking to elect three nominees.
- By early April 2017, proxy advisory firm recommendations increased the likelihood Sarissa would obtain board representation.
- The parties entered settlement discussions, with Sarissa’s Alexander Denner negotiating against Innoviva’s vice chairman, James Tyree.
- A central dispute was whether any settlement would include a standstill restricting Sarissa’s future stock acquisitions, proxy solicitations, or deal proposals.
- On April 19, 2017 (the day before the annual meeting), Innoviva’s board believed it would lose the contest based on information about major stockholder voting intentions.
- That day, the board resolved to propose settlement terms including: no standstill; expansion of the board from seven to nine seats; appointment of any two of Sarissa’s three nominees to the new seats; and Sarissa’s agreement to end its proxy campaign and provide a conciliatory quote for a joint release.
- The board designated Tyree as the lead negotiator and exclusive communications channel with Sarissa and authorized him to convey the proposal.
- During an April 19 call, Tyree communicated the board-approved terms; Denner accepted; and the parties confirmed they “had a deal” and would have counsel memorialize it.
- Innoviva later contended Tyree lacked authority to bind the company and that no agreement existed absent final written documentation; the annual meeting proceeded on April 20, and Innoviva’s slate prevailed.
- Sarissa filed a DGCL § 225 action seeking a determination that, under the settlement, two Sarissa nominees were entitled to seats on a nine-member board notwithstanding the election results.

## Issues

1. Whether Tyree had actual or apparent authority to bind Innoviva to settlement terms regarding board size and appointments.
2. Whether the April 19 communications formed a binding oral settlement agreement despite contemplation of later written documentation.
3. Whether, in a DGCL § 225 proceeding, the oral settlement agreement controlled the corporation’s de jure board composition notwithstanding the subsequent stockholder vote.

## Decision

- The Court of Chancery held Tyree had authority to bind Innoviva, including at least apparent authority and, in substance, actual authority based on the board’s delegation and resolutions.
- The court found a binding oral settlement agreement was formed on April 19 when Denner accepted the terms and the parties confirmed they had a deal, even though lawyers were to later “paper” the agreement.
- The court determined the agreement required Innoviva to expand the board to nine and appoint two Sarissa nominees to the new seats without a standstill.
- In the § 225 proceeding, the court ruled those two Sarissa nominees were entitled to be seated as de jure directors notwithstanding the election outcome.

## Legal Principles

- A corporation may be bound by an officer or director acting with actual authority conferred by board action, including authority to convey and finalize board-approved settlement terms.
- Apparent authority exists when the corporation’s conduct would cause a reasonable counterparty to believe the agent was authorized to act, including when the agent is designated the exclusive channel for negotiations.
- Under Delaware contract law, an oral agreement is enforceable when the parties manifest mutual assent on essential terms that are sufficiently definite, even if they plan to later memorialize the deal in writing.
- In a DGCL § 225 action, the court determines the corporation’s de jure directors; valid contractual commitments affecting board composition can control that determination when consistent with statutory requirements.

## Conclusion

The Court of Chancery enforced an oral proxy-contest settlement after finding that Innoviva’s board authorized its vice chairman to convey and conclude specific settlement terms, that the parties reached agreement on all essential terms on April 19, and that Innoviva was therefore required to expand its board and seat two Sarissa nominees as lawful directors despite the subsequent stockholder vote.


Sarissa Cap. Domestic Fund L.P. v. Innoviva, Inc., 2017 WL 6209597 (Del. Ch. 2017)