On May 25, 2023, the First Department issued a decision in Mulacek v. ExxonMobil Corp., 2023 NY Slip Op. 02829, holding that a challenge to a merger was barred by a no-action clause, explaining:
CRP agreement § 3.05(d) clearly demonstrates that Exxon contemplated a nonjudicial manner in which to address certain disputes. Although § 3.05(d) provides for a § 6.02 carve-out from the dispute resolution process, the question that remains is whether the CRP agreement contemplates how to address this carve-out and other non-§ 3.05(d) challenges to it. To answer this question, we turn to CRP agreement § 8.05, a limitations on suit clause, entitled “Benefits of Agreement; Action by Required Holders,” which provides, in relevant part:
“Except as set forth in Section 4.02(g) [Exxon’s indemnification of the Escrow Agent], nothing in this Agreement, express or implied, will give to any Person (other than Parent, [Exxon] . . . the Holders, [and] the Holder Committee . . .) any benefit or any legal or equitable right, remedy or claim under this Agreement or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of Parent, [Exxon] . . . the Holders, [and] the Holder Committee. . . . The Holders and the Holder Committee will have no rights hereunder except as are expressly set forth herein. Notwithstanding anything to the contrary in this Agreement, only the Required Holders or the Holder Committee (with Required Holder approval) will have the right, on behalf of all Holders, by virtue of or under any provision of this Agreement, to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Agreement, and no individual Holder or other group of Holders will be entitled to exercise such rights. Subject to the preceding sentence, all representations and covenants of [Exxon] . . . set forth herein relating to the Holders are in favor of and for the benefit of the Holders.”
Section 8.05’s use of the words “this Agreement” means that all disputes or challenges to the CRP agreement, which include § 6.02, come within that section’s ambit. The wording of § 8.05 also demonstrates that it sets out the exclusive procedure as to how disputes and challenges to the CRP agreement that fall outside of § 3.05(d)’s scope, which includes § 6.02 claims, are to be handled. Specifically, it bestows only on the Required Holders or the Holder Committee (with Required Holder approval) the right, on behalf of all Holders, by virtue of or under any provision of this Agreement, to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Agreement. Clearly, this provision is meant to provide only the named parties with the right to commence a class action concerning the CRP agreement, which includes § 6.02 disputes.
Plaintiffs do not dispute that they cannot pursue their § 6.02 claim as a class action because they are neither Required Holders or members of the Holder Committee. Instead, plaintiffs contend that § 8.05 should be read narrowly to restrict them only from bringing a class action, and not be interpreted to limit their ability as Holders from pursuing a § 6.02 claim in a non-class action setting. They buttress this argument by pointing to § 3.05(d)’s carve-out for § 6.02 disputes, which ostensibly enables them to assert a § 6.02 claim, and to § 8.05’s language that “all representations and covenants of [Exxon] . . . set forth herein relating to the Holders are in favor of and for the benefit of the Holders.”
We note that the dissent disagrees with plaintiffs’ definitive interpretation, noting that the § 8.05 lawsuit limitations must be strictly construed and finding that it is, at best, ambiguous as to whether the Required Holders or the Holder Committee are the only party that may initiate putative class actions in connection with claims of breach of the agreement or whether they are the only party that may challenge the agreement at all. The dissent’s reasoning focuses on the inclusion of the words on behalf of all Holders, which the dissent believes strongly indicates that Section 8.05 was intended as a limitation only on who may bring class actions on behalf of all Holders, not on who may institute any claim at all. The dissent further reasons that, Section 8.05 could easily have been drafted with standard language frequently used in such contracts to provide that only the Required Holders or the Holder Committee were authorized to pursue any remedy with respect to CRP agreement. We disagree with plaintiffs’ reading of § 8.05 and its interplay with § 3.05(d), and respectfully disagree with the dissent’s view that the section is ambiguous.
Plaintiffs’ construction overlooks the fact that § 8.05 has a dual purpose — no-class action and no action. We discern no legal impediment to having a lawsuit limitations clause restricted to only a single purpose, rather than multiple purposes. The Court of Appeals has recognized the utility of limitation clauses:
“Defendants are correct that generally a no-action cause prevents minority securityholders from pursuing litigation against the issuer, in favor of single action initiated by a Trustee upon request of a majority of the securityholders. . . . [L]imitations on individual securityholder suits serve the primary purpose of a no-action clause, which is ‘to protect issuers from the expense involved in defending [individual] lawsuits that are either frivolous or otherwise not in the economic interest of the corporation and its creditors’. . . . These limitations further ‘protect[] against the risk of strike suits’. . . . Indeed, a no-action clause ‘make[s] it more difficult for individual bondholders to bring suits that are unpopular with their fellow bondholders’. . . . The no-action clause achieves these goals.”
This recognition is precisely why the Court held that a reading of a no-action clause must give effect to the precise words and language used, and the clause must be strictly construed. Where, as here, the language of the contract is clear, the terms of the document evince the parties’ intent. No particular talismanic words are required to draft an effective no-action clause. Simply put, all that is required is for the clause to be complete, clear, and unambiguous on its face and enforced according to the plain meaning of its terms.
Critically, § 8.05’s penultimate sentence not only provides that plaintiffs cannot bring a class action to challenge any aspect of the CRP agreement, but it also bars them from bringing any action or proceeding altogether, “[n]otwithstanding anything to the contrary in this Agreement . . . no individual Holder or other group of Holders will be entitled to exercise such rights.” Such rights, written in the plural as opposed to in the singular, refer to those set out in the beginning of the sentence — namely, instituting any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Agreement. We cannot help but note that the named authorized parties in § 8.05’s suit limitation clause is not inflexible. Only Required Holders or the Holder Committee (with Required Holder approval) have the right to bring an action to enforce the terms of the CRP agreement. Although the Holder Committee occupies a place under the agreement, the agreement makes clear that Required Holders have controlling authority. Had plaintiffs wished to pursue their § 6.02 claim under § 8.05, they could have achieved Required Holder status by acquiring more than 25% of the EVRs, or could have garnered the support of enough other Holders to pursue their claim. They did not. Under these circumstances, Supreme Court correctly found that § 8.05 bars plaintiffs from asserting a § 6.02 claim against Exxon.
(Internal quotations and citations omitted).