Jewel Companies, Inc. v. Pay Less Drug Stores Northwest, Inc.

Pay Less Drug Stores (Pay Less), a publicly traded company, retained an investment banking firm to identify a merger partner. Jewel Companies, Inc. (Jewel) (plaintiff) was contacted about a merger, and soon Pay Less and Jewel had negotiated the terms of a tax-free merger. The boards of both Jewel and Pay Less agreed to the terms of the merger, which included obligations that Pay Less would use its best efforts to fulfill the terms of the merger and that no other contracts, outside the normal course of business, would be executed by the board. After the Jewel–Pay Less merger was announced, another potential merger partner, Payless Drug Stores Northwest, Inc. (Northwest) (defendant) announced its intention to offer a competing tender offer for the Pay Less stock. Jewel then filed suit, seeking a temporary restraining order against Northwest’s tender offer and making a tortious-interference claim against Northwest. The Pay Less board unanimously recommended that the Northwest offer be accepted and later signed a merger agreement with Northwest. After a majority of Pay Less shares were tendered to Northwest, the Pay Less shareholder rejected the Jewel merger agreement. Jewel then tendered its previously acquired shares in Pay Less. Subsequently, Jewel dropped all claims against Northwest except for the claim of tortious interference with a contract and prospective commercial advantage, for which it sought damages. The trial court found that Northwest had not tortiously interfered with the Jewel–Pay Less agreement because the Jewel–Pay Less agreement was not a valid contract, as the shareholders of Pay Less had not agreed to it at the time Northwest began its merger efforts. Jewel appealed.