Court Of Appeals Upholds Contract Merger Clause

In Behler v. Kai-Shing Tao,the New York Court of Appeals found that the merger clause contained in a limited liability company agreement governed by Delaware law superseded an alleged prior oral agreement between the parties, despite their history of conducting business through oral arrangements.

Facts:

In 2012, Kai-Shing Tao ("Tao"), the CEO and Chairman of Remark Holdings, Inc. ("Remark"), asked his "close friend" Albert Behler ("Behler") to invest in Digipac LLC ("Digipac"), a special purpose vehicle created by Tao to hold shares of Remark. Behler initially expressed concerns about the liquidity of such an investment, citing "the inherent difficulty in liquidating shares of a limited liability company". To address these concerns, the parties entered into an oral agreement whereby Behler invested $3 million in Digipac, receiving a 24.14% stake in Digipac, and Tao promised Behler two exit strategies: