Richie Leisner

In the following guest post, Richard M. Leisner, a Senior Member in the Trenam law firm in Tampa, takes a look at an unusual and interesting recent decision from the Delaware Chancery Court, Stacey Kotler v. Shipman Associates, LLC (here). Regardless of where you sit, this decision is worth consideration, as the parties had a fully executed stock purchase agreement yet as a result of the court’s decision the intended beneficiary came up empty. As Richie points out, there are some important lessons from this decision. I would like to thank Richie for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to publish a guest post. Here is Richie’s article.




In a recent Delaware Chancery decision, Stacey Kotler v. Shipman Associates, LLC, 2019 WL 3945950 (Del. Ch. Aug. 21, 2019), Vice Chancellor Joseph R. Slights, III found that a fully executed stock purchase warrant agreement was unenforceable.  This somewhat unexpected decision and the details in its underlying facts harbor important lessons for transactions attorneys in today’s fast paced corporate practice.

In 1999, Marissa Shipman began mixing cosmetics in her kitchen sink, launching a business that became known as “theBalm.”[1]  In 2003, Ms. Shipman hired her friend Stacey Kotler as an independent contractor salesperson.  Ms. Shipman and Ms. Kotler proved to be a good team and theBalm flourished.  Working on a “handshake” agreement for commissions, Ms. Kotler eventually was designated as the company’s Vice President of Sales and Business Development.  By 2017, when the litigation was filed, Ms. Shipman was CEO of a privately owned family business tagged with a value of between $600 and $700 million.

The litigation concerned the validity of a stock purchase warrant agreement allegedly granted to Ms. Kotler in 2007 giving her the right to acquire up to 5% of the company’s equity.[2]  Using the low end of the 2017 valuation, Ms. Kotler’s warrant would have covered equity with a value of approximately $30 million.[3]

The first steps down the road to the current litigation began with Ms. Kotler’s repeated requests for equity ownership in theBalm.  The parties are in agreement that Robert Shipman, the founder’s father who handled the operational side of the business, repeatedly promised Ms. Kotler she would be rewarded with a measure of equity ownership.  Over a period of approximately eight months in 2007, the parties exchanged and negotiated several drafts of a stock purchase warrant agreement.

Oliver Brahmst, a partner in the New York City office of White & Case, was the company’s principal lawyer.  In something of a departure from customary practice, it appears Mr. Brahmst did not communicate regularly with Ms. Kotler’s attorney or copy Ms. Kotler with draft agreements as they were prepared. Instead, Mr. Brahmst sent drafts to the company which in turn forwarded documents to Ms. Kotler.  Ms. Kotler then sent her comments and suggested changes to the draft warrant agreements back to Robert Shipman at the company.  Ms. Kotler did not send copies to Mr. Brahmst.  Apparently, Mr. Shipman negotiated directly with Ms. Kotler and Ms. Shipman did not participate actively in the negotiations.  The opinion does not report the extent to which Mr. Brahmst or Ms. Kotler’s counsel were involved in the parties’ negotiations or whether there were any counsel-to-counsel negotiations.

In the litigation, the discovery process failed to develop many of the key the facts regarding the history of the warrant agreement negotiations.  Ms. Kotler was unable to recall key elements of the underlying facts at several junctures. These lapses in Ms. Kotler’s memory extended to the name of her lawyer.  Ms. Kotler’s memory issues were exacerbated by similar memory lapses by each of Marissa and Robert Shipman and a paucity of documentary evidence.  Neither side retained emails or other correspondence.  Indeed, the court described theBalm’s informal corporate recordkeeping practices as “at best, careless.” In addition, many corporate records “disappeared” sometime after the 2007 warrant agreement negotiations, making them completely unavailable in the litigation.  The court lamented that, other than the various draft warrant agreements, the record held very little in the way of helpful contemporaneously created records.

Early in the 2007 negotiations, the parties agreed the warrant would cover approximately 5% of the company’s stock.[4]  However, the parties did not agree on company requested restrictive covenants. As proposed,[5] the covenants prohibited Ms. Kotler from engaging in certain broadly defined competitive activities (for convenience, “no compete” and “no solicit” provisions).  The no compete and no solicit provisions would never expire.  Violation of the no compete or no solicit provisions would automatically trigger total forfeiture of the warrant’s stock purchase rights.

Ms. Kotler initially objected to any restrictive covenants after her relationship with the company ended. Eventually, it appears Ms. Kotler may have been agreeable to a no compete and no solicit while she was an independent contractor and a no solicit that would survive for 18 months after she and the company ended their relationship.  Neither side could recall having changed from their initial positions regarding the no compete covenant.

The court recounts in excruciating detail the multiple drafts and varying negotiating positions and arguments, including drafts of February 25, June 8, August 6, September 5, September 12, September 17 and September 25.  Chancellor Slights’ factual summary occupies most of the opinion. The opinion is augmented by 206 footnotes, many of which are rich with more facts or reference to specific pages of the trial transcript, joint trial exhibits and pretrial stipulation.[6]  Nevertheless, the parties’ memory lapses and modest records outside the drafts leave events and issues shrouded in uncertainty.

The most important uncertainties surround Marissa Shipman’s execution of the signature page of the fully executed “wet ink” warrant agreement referenced in the opening paragraph of this article (the September 17 draft).[7]

Did Ms. Shipman sign an “orphan” blank signature page provided by Ms. Kotler; did Ms. Shipman sign the signature page at the end of or accompanied by the September 17 draft; or did she sign a different draft of a complete agreement?  Did Ms. Kotler “switch” the signature page from the earlier September 12 draft with its perpetual no compete and 24 month post termination no solicit or did Ms. Shipman simply sign the September 17 draft without reviewing it?

Significantly, Ms. Kotler prepared the September 17 draft making changes from the September 12 draft prepared by Mr. Brahmst.  Among the changes Ms. Kotler made in the September 12 draft were a reduction in the number of shares from 533 to 502 shares and including no solicit, no compete and forfeiture provisions that were far less restrictive (less company favorable) than had been demanded by the company up to that point in the negotiations.[8]

What happened next is unclear.[9]  Chancellor Slights noted: “. . . of course, none of the witnesses had a clear memory of what happened.”

What is known according to the court’s opinion is that:

(1)    Stacey Kotler signed the September 17 draft and sent it to Robert Shipman without an explanation of changes made from the September 12 draft.[10]
(2)    Mr. Shipman did not review the document carefully.
(3)    Mr. Shipman did not send a copy of the agreement to Mr. Brahmst at White & Case.
(4)    Mr. Shipman told his daughter Marissa about receiving a signed agreement from Ms. Kotler but did not send her a copy.
(5)    Ms. Kotler sent execution materials to Marissa Shipman, the specifics of what she sent are unclear: possibly a signature page alone, or possibly the signature page accompanied by or as part of the September 17 draft.
(6)    Marissa Shipman signed a signature page on or about September 17 and returned it to Ms. Kotler in New York without retaining a copy of the signature page or any agreement that may have accompanied it.
(7)    As noted above, Mr. Brahmst was not “in the loop” regarding any of these events and was, therefore, uninformed at that time about any of these events.


From later events, it appears that a few days after September 17, Ms. Kotler executed the signature page Marissa Shipman executed (and previously sent to Ms. Kotler).  This fully executed signature page became part of what Ms. Kotler later referred to as the “wet ink” fully executed warrant agreement.

Stacey Kotler’s relationship with theBalm ended in the spring of 2009, after the company rejected Ms. Kotler’s demands for more compensation, more equity and greater responsibility. In July 2009, shortly before launching a competing venture, Ms. Kotler sent a letter to the company claiming that she held a warrant for 502 shares of common stock and requesting that she be notified of any triggering events.[11]  The company did not respond to this letter or contact Mr. Brahmst at White & Case.

In 2013, the September 17 draft executed by Ms. Kotler (but not by Ms. Shipman) was found in the company’s records.  In 2016, as the company pursued a possible sale, questions arose regarding the validity of Ms. Kotler’s warrant and Ms. Kotler’s counsel provided the company with a copy of the “wet ink” fully executed September 17 draft warrant agreement.  The company engaged separate counsel to pursue settlement with Ms. Kotler.  Those efforts were not successful. This litigation followed in 2017.

Chancellor Slights ruled that Ms. Kotler failed to meet the plaintiff’s burden of proof: to prove the existence of a binding warrant agreement by a preponderance of the evidence.  True, there was a fully executed warrant agreement, but there also were the defendant’s credible assertions that the company would never have agreed to the significantly reduced restrictive no compete and no solicit covenants that were found in Ms. Kotler’s fully executed agreement.

The Chancellor then turned a bit philosophical about his ruling:

. . . I acknowledge that my verdict is quite possibly the product of the harsh reality that trials do not always replicate real life events. Trial outcomes are driven by burdens of proof and evidence as gathered and presented to the factfinder. In this case, Kotler proved to be an incomplete and unreliable historian, the drafting history was inconclusive and the circumstances surrounding the final execution of the warrant agreement supported the Company’s version of events as much as, if not more than, Kotler’s version. Under these circumstances, judgment must be entered for the Defendant.[12]

It is certainly fair to leave this case with questions about the “fairness” of the court’s ruling.  The company repeatedly promised Ms. Kotler that she would receive equity in the company, but the court left Ms. Kotler empty handed on the courthouse steps.

There was a signed warrant agreement with valid signatures.  In the absence of fraud or other extenuating circumstances, parties signing written agreements will find courts enforce such agreements according to their terms.[13]  The court in this litigation could have chosen to give the company the unenviable task of carrying the burden to prove why the signed agreement shouldn’t be enforced.  The court took a different approach, one that brought victory to the defendant.

The court gave Ms. Kotler the burden of proof to establish that a meeting of the minds occurred in 2007.  Marissa and Robert Shipman argued that they would “never have agreed to the terms” in the executed warrant agreement.  It seems that the parties’ collective significant memory lapses, while straining credulity, ultimately worked to the great benefit of the defendant’s side of the argument.[14]

In retrospect, regardless of how one feels about the court’s ruling, this case begets several practical lessons for today’s corporate transactions lawyers.

1.             Use orphan signature pages with care.  It is common practice to circulate and execute signature pages separate from the agreements to which they belong, often before the parties have reached agreement on all the terms (for convenience, an “orphan” signature page).[15]  Counsel for the party with principal drafting responsibilities often will hold the separate executed signature pages as an informal and undocumented escrow agent for all the parties; and, after the approval of counsel for the counter-party, such counsel will attach the executed signature pages to the agreed to final documents. This litigation illustrates the inherent risks of assuming that unsophisticated or unscrupulous clients will understand and respect the informal escrow agent process.  It appears that the parties in this litigation did not consider using an informal escrow for the signature pages to the warrant agreement.
Better practice for using orphan signature pages calls for written understandings, agreed to by both counsel and clients, confirming the “informal escrow” arrangement and the procedures for making sure the signature pages are placed on the proper final agreements. One or two emails should ameliorate the risk of unintentional page/agreement mix-ups or, as was averred by the defendant in this case, intentional page-switching to the “wrong” agreement (fraud).

2.             Trust but verify.[16]  Cautious counsel may decide never to use orphan signature pages. Instead, such counsel requires the complete document be used for execution purposes.  This policy may eliminate one area of risk while leaving open another – the potential for executing the “wrong” final agreement.  In this litigation, Robert Shipman was sent the September 17 draft executed by Ms. Kotler.  Apparently, Mr. Shipman assumed this was the September 12 draft prepared by Mr. Brahmst and just filed the agreement without checking its content.  Today, it is easy to use a redline program to make sure the agreement you or your client have received is the same one you emailed to the opposing counsel/party.  Indeed, redlining programs were readily available in 2007 when Ms. Kotler sent the executed warrant agreement to Mr. Shipman.

To ponder application of this practical lesson, consider the following innocent fact situation:  You are coordinating with a relatively sophisticated non-lawyer senior officer at your client on the terms of an employment agreement for a new hire; you have not communicated with the new executive or his counsel.  The senior officer at your client tells you the other side has agreed to all the terms in your last draft and executed the agreement. A PDF scan of the signed agreement accompanies your client’s email to you.  Did you just file the executed agreement and move on to other work?  Did you redline the executed agreement against your last draft to make sure that the signed agreement hasn’t been changed from your last draft?

3.             Know the working group members (who’s on first).[17] Before the ubiquity of the internet, it was customary at the start of most significant deals to prepare and circulate a “working group” list.[18] Today, paper working group lists are the rare exception, in part because of the ease of obtaining contact information for the deal team members.  Regardless of how you decide to keep track of the players in a particular transaction, counsel should know who is playing on each team and who is supposed to be receiving copies of deal documents and related communications.

Younger lawyers reading this “lesson” may be rolling their eyes or thinking “C’mon, no one under the age of 60 would use a distribution list.” Consider this: If the parties involved in negotiating Ms. Kotler’s warrant agreement had used a working group list with established distribution instructions, the parties might have avoided the confusing exchanges with the September 12 and September 17 drafts and the executed signature pages, which exchanges were the genesis of this litigation.

4.             Keep control of the drafting pen. The party with the most deal leverage in a transaction usually “holds the drafting pen,” having responsibility for preparing and controlling changes to the principal transaction documents.  All changes and revisions with redlines are supposed to flow through the person holding the drafting pen. Effective use of this customary arrangement depends on the parties adhering to proper “drafting pen etiquette” and agreeing on working group protocol.[19]

It appears that Ms. Kotler and Mr. Brahmst were each revising the draft warrant agreement without the other party being advised or directly receiving their revisions.  If there had been a clear working group distribution list and respect for Mr. Brahmst as the person holding the drafting pen, the parties may not have experienced disparate drafts passing like “ships in the night” and Mr. Shipman might not have filed the executed September 17 warrant agreement without a careful review for changes.

5.             Face-to-face negotiations can be a good thing.  Today, most transaction documents are “negotiated” by email exchanges.  Often, revised drafts are sent without any substantive explanation of why changes were made. In decades past, after exchanging several drafts, lengthy face-to-face negotiation sessions were often used to resolve open items. Today, email negotiations avoid the hassle of clearing multiple calendars, travel costs and time lost from not being physically in the office. In this litigation, negotiation via email stretched from February to September. The main sticking points that surfaced in the second draft – about the no compete and no solicit provisions – remained unresolved in September.

Perhaps better results would have emerged from an updated version of the old school face-to-face negotiation. In 2007, multi-party telephone or video conference calls were available but apparently were not used.

6.             Communication about deal status is crucial.  The court notes Robert Shipman instructed Mr. Brahmst to stop working on the warrant agreement towards the end of September 2007.[20] The record presented by the court does not indicate if Mr. Brahmst communicated with his client about the status of this deal:  Had the parties agreed on and signed binding agreements?  If they had, what were the terms of the no compete and no solicit provisions?  Who has copies of the signed agreements and could you please send one to your counsel?[21]  Any communications of this type with Mr. Brahmst may have never found their way into the court’s purview in this case.

The lesson here is clear.  Counsel should communicate with the client about deal status, particularly when the “deal is dead” or counsel’s role in the transaction has ended.  End of deal communications should be memorialized in writing (email) and preserved.

7.             Memories fade; save your records.  If you want to be able to prove how you advised your clients, take a few extra minutes to file your emails and other client communications in the appropriate document management system files.  Take a few more minutes to scan your contemporaneous handwritten notes and again save them to the right DMS file. Adopt practical document retention practices to preserve your digital files for a reasonable period of time. It is fair to speculate that this litigation might have been avoided or ended sooner if there had been contemporaneously prepared and preserved records of client communications and other important events.

* * * *

[1]  The company’s website is available at (last visited September 10, 2019).

[2]  Originally incorporated in 1999 as “The,” the company soon changed its name to “Shipman Associates, Inc.”  The warrant purchase agreement drafts prepared in 2007 covered shares of common stock of Shipman Associates, Inc.  In 2014, the company completed a complex holding company reorganization.  For convenience, references in this article to “equity” are to the common stock of Shipman Associates before the reorganization.

[3]  This projected valuation was reported in The Wall Street Journal and was noted in the parties’ pretrial stipulation.

[4]  Although the number of shares covered by the draft warrant agreement changed several times, the record indicates that the parties in the litigation ultimately agreed to 502 shares or approximately 5% of the company’s undiluted common stock. The first draft covered 1,055 shares, approximately 10% of the company’s stock; subsequent drafts covered 533 shares, 5% of the equity on a fully-diluted basis; late in the negotiations, after in person discussions between Mr. Shipman and Ms. Kotler, there was agreement to a further reduction to 502 shares, 5% of the undiluted stock.

[5] The first draft of the warrant agreement in February 2007 omitted any no compete or no solicit provisions.  In subsequent drafts, the company included no compete and no solicit provisions with perpetual terms.

[6] The footnotes occupy 7.5 pages while the body of the opinion uses only 6.5 pages.

[7]  There was no suggestion that Ms. Shipman’s signature was forged.  It was admitted that she signed the signature page.

[8]  All the other drafts had been prepared by Mr. Brahmst of White & Case.  The September 17 draft apparently was based upon the September 12 draft prepared by Mr. Brahmst which included a signature page, making it suitable for becoming a binding agreement upon execution by the parties.

[9]  Despite the apparent impasse on the no compete and no solicit provisions, the court reported that both sides believed they had in September 2007 reached agreement and signed a binding warrant agreement.  The court did not explain how the parties arrived at these beliefs or which versions of the no compete and no solicit provisions were in their binding agreements. There were no contemporaneous records evidencing the parties’ beliefs in September 2007 about having signed a binding warrant agreement.

[10]  All the documents exchanged at this time were limited to paper versions; no digital copies of these materials were provided to the parties in the exchanges described above.

[11]  The letter was sent by certified mail, return receipt requested.

[12]  2019 WL 3945950, 2

[13]  As a general proposition, a party signing an agreement without reading it, in the absence of fraud, is going to find the agreement is enforceable.  6 William Meade Fletcher, et al., Fletcher Cyclopedia of the Law of Corporations §2585.10 (Westlaw, September 2019 Update), nn. 34, 35 & 36.

[14]  The court found it unnecessary to rule on the allegations that Ms. Kotler defrauded the Shipmans; nevertheless, Chancellor Slights’ dicta about this issue indicates such allegations most likely would have been unsuccessful.

[15]  Special thanks to Francis G. X. Pileggi of Eckert Seamons who first blogged about the Kotler Shipman litigation a few days after the decision, highlighting the risks of orphan signature pages and suggesting that counsel keep agreements and signature pages “together” at all times, “Fully Executed Contract Ruled Unenforceable,” Delaware Corporate & Commercial Litigation Blog (August 26, 2019) available at (last visited September 18, 2019).

[16]  A phrase widely attributed to President Ronald Reagan in connection with the negotiation of nuclear disarmament terms with the Soviet Union.  Also, claimed by some sources as a Russian folk proverb.

[17]  It is easy on a first reading of the opinion to be confused trying to keep track of the multiple drafts and negotiating positions.  I was reminded of the Bud Abbot and Lou Costello classic “Who’s on First” vaudeville routine, available at (last visited September 12, 2019).

[18]  A working group list, often in tabular form, shows principal parties (including key individuals and respective support staff members at each entity), the respective advisers to the principal parties. The information on these lists would usually include individual names, employer name, position, mailing address, email, telephone and fax numbers and other contact information.  Sometimes, particularly on larger transactions, these working group lists would note which parties on the list were to receive particular types of communications (all, only execution copies, none, etc.). Even without such helpful designations, the act of preparing the working group list usually triggers an informal discussion with support staff and clients about who was to receive which types of communications.

[19]  Breaches of this informal rule today are not subject to the same opprobrium as in years past, because most deal documents are prepared and circulated as electronic documents.  If a party who does not hold the drafting pen prepares and circulates a revised draft, the other parties can easily redline the new draft against the old.  Before relining software was readily available, reviewing a new draft for changes required one person to “read” the new draft aloud, one word at a time to a second person holding a copy of the last draft listening for any change or omission.

[20]  Mr. Brahmst prepared a September 25 draft reducing to 502 shares from 533 shares shown on his September 12 draft on instructions from Robert Shipman that Ms. Kotler had just agreed to 5% of undiluted equity and had undertaken to modify her copy of the agreement.  The September 25 draft included an 18-month post separation no solicit and perpetual no compete.  Mr. Brahmst did not circulate the September 25 draft.

[21]  The court noted that both parties thought that in September 2007 they had reached agreement and had signed a binding warrant agreement (2019 WL 3945950, 1), although a reading of the full opinion and the facts cited therein raises doubts about the accuracy of this assertion.  Importantly, it appears that the company took no actions in the fall of 2007 consistent with the existence of a valid stock purchase warrant.  Mr. Shipman failed before 2013 to take note of and review the September 17 warrant agreement executed by Ms. Kotler in 2007 that had been in the company’s possession since 2007. In addition, in 2009 when Ms. Kotler began to compete with theBalm, she was not told her warrant rights had been forfeited. During the litigation, the company explained that it had assumed the warrant was forfeited automatically and that no notification was needed.


Richard M. Leisner


Richard Leisner is an experienced expert witness in complex commercial litigation and legal malpractice cases.  In addition, Richard enjoys a broad-based corporate and securities transactions practice.

Richard has been recognized in every edition of The Best Lawyers in America (1983-2020), Corporate, Securities/Capital Markets, Securities Regulation and Corporate Governance Law.