Signature page mixing-and-matching leads to trouble in Delaware case

In my contract-drafting course we recently talked about how nowadays parties often circulate just signature pages to be signed, and the importance of making sure that the signed version is identified (e.g., with a running header). In a recent Delaware chancery court case, both a privately-held cosmetics company (“theBalm Cosmetics”) and its (former) VP of sales — but mainly the VP — did just about everything wrong in negotiating and signing an agreement to give the VP some equity in the company.

The lawsuit happened because, after leaving the company, the VP sued to compel the company to give her the equity that she claimed was due to her under the “signed” agreement. But the parties, after sending revised drafts back and forth, had apparently signed signature pages for different versions of the agreement. 

The problem was that the two versions contained seriously-different provisions on a critical issue (a post-employment non-competition covenant). Importantly, the parties never did agree on the terms of the noncompete, according to the court. Neither party had any decent paper trail to help the court figure out what happened (not even emails or texts). The only partial paper trail was in the email and document files of White & Case, a major NYC law firm that had drafted the equity agreement on behalf of the company. But the White & Case attorney had worked only with a company representative, not with the VP or her lawyer — and interestingly, the VP couldn’t even remember the name of either her lawyer or the lawyer’s firm.

Here’s the critical point:

So, how did Kotler [the sales VP] come to have a fully executed warrant in her possession that contained her narrow [non-compete] language? From the preponderance of the evidence, the best explanation I can muster is that Kotler printed her modified September 25 Draft from her computer [purportedly based on a conversation of that date with a company representative], added her own signature and attached [the company CEO’s signed] September 17 signature page. She then kept the document in her files, but did not circulate it or discuss it with anyone at the Company.

To be clear, Kotler’s purported fully executed warrant permits her to compete immediately after ending her consulting relationship with the Company while maintaining her warrant rights. In other words, Kotler’s [non-compete] provision effectively gave the Company zero protection. It is not surprising, then, that there is no evidence—beyond Kotler’s “fully executed” warrant—that the Company ever agreed to Kotler’s version of the non-compete.

(Emphasis added.)

The court (after a bench trial) concluded that the former VP had failed to prove that the parties had reached a meeting of the minds about the purported agreement to give her equity in the company; the court awarded judgment for the company.

My thought was:  Why didn’t this mixing-and-matching of signature pages constitute fraud on the part of the former VP? Apparently the same thought occurred to the company, but the court declined to reach the company’s fraud defense, saying, “I need not grapple with the competing evidence regarding Kotler’s mental state, or mens rea, as these events unfolded.”

The case is Kotler v. Shipman Assoc., LLC, No. 2017-0457-JRS (Del. Ch. Aug. 27, 2019). (Hat tip: Gwenn Barney and Lori Smith of White & Williams.)

Drafting lessons:  If you’re going to exchange signature pages:

1. put a version identifier in a running header on every page — I prefer a hand-typed date and time, e.g., “VER. 2019-09-08 18:00 CDT” — and

2. if you send out a signature page with your client’s signature, make sure you get the other side’s signed signature page back as well, and that the two versions match.