Wisk Aero LLC v. Archer Aviation Inc.

Background

Wisk Aero LLC sued Archer Aviation Inc. in 2021, alleging theft of trade secrets and patent infringement. The parties settled in August 2023 and dismissed the lawsuit. The court retained jurisdiction to enforce the settlement agreement.

Under the settlement, Archer could satisfy a guaranteed payment amount with cash, shares of common stock, or a combination of both. The agreement referred to a second group of shares, called the Initial Unvested Share Tranche or Tranche 2. The attached warrant provided that these shares would remain unvested and unexercisable until Archer delivered a required payment-election notice. Shares corresponding to the portion of the guaranteed payment made in stock would then become vested and exercisable.

Archer did not make the required payment on the original date. It later sent the payment-election notice, paid part of the amount by wire transfer, and delivered 8,664,259 Tranche 2 shares. Archer confirmed that the shares were vested, but told Wisk that they could not be exercised unless a Liquidation Event occurred. Wisk then moved to enforce the settlement agreement. Archer opposed the motion.

Legal standard and governing law

The court explained that a federal district court may summarily enforce a settlement agreement when the agreement is complete, legally enforceable, and authorized by the parties or their counsel. Contract-law principles govern interpretation and enforcement of a settlement agreement. The settlement agreement selected California law, while the warrant selected Delaware law. The court applied those respective laws and stated that the result would be the same under either state’s law.

Breach of the settlement agreement

The central issue was whether the Tranche 2 shares had to be immediately exercisable or could be exercised only after a Liquidation Event. The court interpreted the agreement and warrant according to their plain language.

The settlement agreement stated that Archer could satisfy the guaranteed payment amount by vesting and making Tranche 2 shares immediately issuable. It also required any remaining unpaid amount to be paid in cash if the shares were not properly vested or immediately issuable. The warrant stated that the Tranche 2 shares would become vested and exercisable when Archer delivered the payment-election notice. It further stated that any shares that did not become vested and exercisable upon delivery of that notice would never become exercisable and would be forfeited.

The court concluded that these provisions plainly made the delivered shares exercisable when Archer delivered the payment-election notice. Because Archer did not argue that the shares had been forfeited, the court concluded that they were exercisable. The court rejected Archer’s argument that the warrant’s references to a Liquidation Event limited exercise to that circumstance. In the court’s reading, the Liquidation Event provision explained what would happen to unexercised shares if such an event occurred; it did not say that exercise was forbidden before then.

The court also rejected Archer’s reliance on the warrant’s procedures for exercising Tranche 1 shares, reasoning that those provisions applied only to Tranche 1 and did not override the language making Tranche 2 shares exercisable. The absence of a separate exercise procedure or form for Tranche 2 did not invalidate the agreements or make them ambiguous. Because the contract language was unambiguous, the court did not consider the parties’ extrinsic evidence, meaning evidence outside the written contracts.

The court held that Archer provided cash and nonexercisable shares even though the agreement required the shares it used for payment to be exercisable. It therefore found that Archer breached the settlement agreement.

Remedy

Wisk requested immediate payment in cash of the remaining guaranteed payment amount, plus interest. Archer argued that, if it had breached the agreement, it should instead be allowed to make the shares immediately exercisable.

The court rejected Wisk’s interpretation of the settlement’s payment provision as requiring cash whenever Archer provided the correct number of shares in the wrong form. The provision allowed Archer to choose cash, shares, or a combination, and did not state that a breach involving the form of the shares required a cash remedy.

Applying California contract law, the court determined that the closest equivalent to the benefit Wisk would have received from performance was to require Archer to provide the Tranche 2 shares and permit Wisk to exercise them immediately. The court ordered Archer to do so within seven days of the order. The court also found that Wisk was entitled to prejudgment interest because the amount owed at the time of the breach was certain. It stated that interest would be calculated at 10 percent per year from March 21, 2024, the date Wisk tried to exercise the shares and Archer refused, through the August 14, 2024 hearing. The interest amount was to be paid within fourteen days of the order.

Disposition

Judge William H. Orrick granted Wisk’s motion to enforce the settlement agreement in part. Wisk was ordered to calculate the amount owed, confer with Archer, and submit a proposed order within seven days. The opinion does not provide readable dollar amounts for the payment or interest figures in the supplied text.