Yatra Online, Inc., v. Ebix, Inc. concerned an abandoned merger that Plaintiff, Yatra Online Inc. (“Yatra”), asserts was sabotaged post-signing by Defendants, Ebix, Inc. and EbixCash Travels, Inc. after Ebix determined the deal was no longer attractive.

Delays were encountered as an S-4 was awaiting SEC clearance and Ebix sought to renegotiate certain matters.  Fed up with Ebix’s behavior during the extended renegotiations, and after the final outside closing date lapsed, Yatra terminated the Merger Agreement and filed a lawsuit against Ebix.  The complaint included an action for breach of the Merger Agreement amongst other things.

The relevant provision of the merger agreement read as follows:

“In the event of any termination of this Agreement as provided in Section 8.1, the obligations of the parties shall terminate and there shall be no liability on the part of any party with respect thereto, except for the confidentiality provisions of Section 6.4 (Access to Information) and the provisions of Section 3.26 (No Other Representations and Warranties; Disclaimers), Section 4.17 (No Expenses), this Section 8.2, Section 8.3 (Termination Fees) and Article IX (General Provisions), each of which shall survive the termination of this Agreement and remain in full force and effect; provided, however, that, subject to Section 8.3(a)(iii), nothing contained herein shall relieve any party from liability for damages arising out of any fraud occurring prior to such termination, in which case the aggrieved party shall be entitled to all rights and remedies available at law or equity. The parties acknowledge and agree that nothing in this Section 8.2 shall be deemed to affect their right to specific performance under Section 9.9 prior to the valid termination of this Agreement. In addition, the parties agree that the terms of the Confidentiality Agreement shall survive any termination of this Agreement pursuant to Section 8.1 in accordance with its terms.”

Ebix argued that Yatra’s decision to terminate the Merger Agreement barred its claims for breach of contract.  Yatra responded that the phrase “with respect thereto” can reasonably be read to modify “any termination of this Agreement” (as opposed to “obligations”). Under this construction, the provision cannot be understood to eliminate damages owed for prior breaches of “obligations,” but only damages caused by the act of terminating the Merger Agreement.

The Court found Yatra’s reading of the provision stretched the words beyond their tolerance. The comma following “Section 8.1” breaks the sentence, reading naturally to indicate the Merger Agreement’s drafters intended the phrase “with respect thereto” to modify “the obligations of the parties” as opposed to “any termination of this agreement.”

Yatra’s position—that the provision only extinguished liability arising from “any termination of this Agreement”—was inconsistent with the language immediately following “with respect thereto,” which “except[s]” certain obligations under the Merger Agreement, as specifically enumerated, from the effects of the contractual limitation of liability. That clause would be superfluous if the effect of the provision was to limit liability only arising from the act of terminating the Merger Agreement.

Moreover, contrary to Yatra’s contention that termination leaves claims for breach of contract based on prior acts unaffected, the Court noted Section 8.2 expressly carved out only liability for “fraud occurring prior to such termination,” implying that liability for all other claims (including contract based claims) for acts “occurring prior” to termination did not survive post-termination.

The Court also considered the precedent set by AB Stable VIII LLC v. Maps Hotels & Resorts One LLC. The court in AB Stable expressly observed that “[u]nder the common law, termination results in an agreement becoming void, but that fact alone does not eliminate liability for a prior breach.” The court went on to explain that when parties include a provision stating that “there shall be no liability on the part of either party” upon termination, they “alter[] the common law rule” and “broadly waive[] contractual liability and all contractual remedies.”

The Court rejected Yatra’s argument that the result was absurd.  By Yatra’s own admission, its obligations under the Merger Agreement “ceased, because Ebix materially breached the Merger Agreement.” Thus, the Merger Agreement provided a choice to a party faced with a breach by the counterparty: either (a) sue for damages (or specific performance) or (b) terminate the Merger Agreement and extinguish liability for all claims arising from the contract (except those specifically carved-out, including claims for fraud). According to the Court, the latter option would be preferable where the terminating party believed it had some liability exposure of its own and would prefer to terminate the Merger Agreement to eliminate that risk. This is a perfectly logical way for parties contractually to manage risk, and the Court should not to redline the parties’ bargained-for limitations of liability because one party now regrets the deal it struck.