Hell-or-High-Water Clauses in Uncertain Regulatory Times

In a deal market as uncertain as this one, we have seen transactional lawyers more frequently resorting to pushing what are known as “hell or high water” clauses—clauses that obligate parties to take “any and all actions necessary” to achieve some stated goal. Most frequently these clauses are seen in the context of complying with antitrust laws and obtaining necessary regulatory approvals. As antitrust matters take the spotlight in a number of cases, especially given the Department of Justice’s and Federal Trade Commission’s aggressive competition policy, it is important to understand how courts are likely to read these clauses, and how they might view alleged breaches.

Notably, Delaware courts have taken the view that the effort a party expends towards the goal is less important than whether the goal is, or even could be, achieved. One significant case involved the planned $54 billion merger between Anthem and Cigna, referred to as a “corporate soap opera” by the Delaware Chancery Court in its opinion from August 2020. The agreement required both parties take “any and all actions necessary to avoid each and every impediment” posed by antitrust laws. When relations between the two parties soured, Cigna sought to weaken Anthem’s position by undermining Anthem’s defense of the antitrust action brought by the Department of Justice. The court found that Cigna clearly breached its obligations under the merger agreement, and even agreed that Cigna’s actions were material to the failure to obtain regulatory approval, but still concluded that Anthem was not entitled to damages because it failed to prove that the merger would have been approved by the regulatory bodies without Cigna’s interference. Cigna’s breach of the hell or high water provision allowed Anthem to terminate the merger agreement, but neither party was successful in obtaining termination fees from the other party.

Clearly, even the highest standard for performance do not guarantee specific results, and a party’s recourse in the event of a breach might depend on more than just how they and the other parties acted. It is important for deal lawyers to understand each party’s obligations to secure regulatory approvals, and what the ramifications are if those efforts fail. Specificity (and collaboration with an antitrust expert) remain key in these scenarios.