## Facts

- A coverage and allocation dispute arose from an insurance program governed by an Insurance Agreement created during the 1996 breakup of a predecessor corporation.
- One plaintiff, Newport News Shipbuilding Inc. (NNS I), was acquired through a merger structure: NNS I merged into a wholly owned acquisition subsidiary, which survived and then changed its name to Newport News Shipbuilding Inc. (NNS II).
- During the pending litigation, NNS II moved to be substituted for NNS I under Court of Chancery Rule 25(c).
- Defendants opposed substitution only as to claims under the Insurance Agreement, citing a contractual provision barring assignment or delegation “by operation of law or otherwise” without consent.
- The same contract provision also stated that the agreement would be binding on and enforceable by the parties’ “successors and assigns.”

## Issues

1. Whether the merger and name-change transaction constituted a prohibited “assignment . . . by operation of law” under the Insurance Agreement’s non-assignment clause, requiring the other parties’ written consent.
2. Whether, despite the non-assignment clause, the surviving corporation could be substituted under Rule 25(c) to continue litigating claims arising under the Insurance Agreement.

## Decision

- The court granted the motion to substitute NNS II for NNS I.
- The court held the merger did not effect a prohibited assignment that would bar NNS II from asserting rights under the Insurance Agreement.
- The ruling resolved only substitution and standing to pursue the contract claims, not the underlying coverage and allocation merits.

## Legal Principles

- In a Delaware statutory merger, the surviving corporation succeeds by operation of law to the rights and obligations of constituent corporations and may “stand in the shoes” of the predecessor for contractual enforcement.
- An anti-assignment clause that references assignments “by operation of law” must be read together with any “successors and assigns” language; the contract is construed as a whole.
- Absent clear, specific contractual language barring merger succession, routine corporate succession through merger is not treated as an impermissible transfer to a stranger solely because rights pass by operation of law.
- Court of Chancery Rule 25(c), consistent with Delaware merger statutes permitting continuation or substitution in pending actions, authorizes substitution of a successor in interest after a merger when appropriate.

## Conclusion

The court permitted substitution of the post-merger surviving entity as plaintiff because the Insurance Agreement’s non-assignment language, read in context with its successors-and-assigns clause and Delaware merger law, did not clearly prohibit enforcement of the agreement by a successor following a statutory merger.


Tenneco Auto., Inc. v. El Paso Corp., 2002 Del. Ch. LEXIS 26 (Del. Ch. 2002)