Channel PES Acquisition Co., LLC v. Heritage-Crystal Clean, Inc. ( 2024 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
CHANNEL PES ACQUISITION CO., )
LLC, )
) C.A. No. N23C-08-206 MAA CCLD
Plaintiff, )
)
v. )
)
HERITAGE-CRYSTAL CLEAN, )
INC., )
)
Defendant. )
Submitted: March 28, 2024
Decided: June 30, 2024
Upon Defendant’s Motion to Dismiss the First Amended Complaint:
GRANTED in Part, and DENIED in Part.
MEMORANDUM OPINION
Stamatios Stamoulis, Esquire, and Richard C. Weinblatt, Esquire, of STAMOULIS
& WEINBLATT LLC, Wilmington, Delaware, and Richard A. Schwartz, Esquire
(Argued), of ROSS LLP, Los Angeles, CA, Attorneys for Plaintiff.
John P. DiTomo, Esquire, and Alec F. Hoeschel, Esquire, of MORRIS, NICHOLS,
ARSHT & TUNNELL LLP, Wilmington, Delaware, and Brian J. Massengill,
Esquire, and Matthew E. Fenn, Esquire (Argued), of MAYER BROWN LLP,
Chicago, IL, Attorneys for Defendant.
Adams, J.
I. INTRODUCTION
Plaintiff entered into an agreement with defendant to sell an environmental
services company. As part of the purchase agreement, the parties agreed that the
purchase price would be determined at closing based on a post-closing true-up. The
parties also agreed that disputes relating to that calculation would be submitted to
arbitration rather than through litigation. The parties set aside escrow funds for
potential claims, and defendant-buyer agreed to release those funds back to seller
after certain conditions were met. After closing, plaintiff-seller disputes defendant-
buyer’s post-closing calculations, and defendant-buyer’s refusal to release the
escrow funds. The parties have also proceeded through the dispute resolution
process and received a Final Determination from an Arbitrator. Defendant moved
to dismiss all of plaintiff’s claims on both procedural and substantive grounds. For
the reasons that follow, the motion to dismiss is GRANTED in part, and DENIED
in part.
2
II. FACTS1
A. THE PARTIES
Plaintiff, Channel PES Acquisition Co., LLC (“Plaintiff” or “Seller”), filed
suit against Defendant, Heritage-Crystal Clean, Inc. (“Defendant” or “Buyer”), a
Delaware company.2 Seller is a group of hands-on investors with its headquarters
in Santa Monica, California.3 Buyer is a billion-dollar public company.4
B. PLAINTIFF SELLS PATRIOT TO BUYER
In 2014, Seller acquired Patriot Environmental Services Inc. (“Patriot” or “the
Company”), “an environmental services company that specializes in industrial
hazardous and non-hazardous waste management[.]”5 Seller oversaw the day-to-
day operations of Patriot and was thus very familiar with its financial and accounting
functions.6
On June 29, 2022, the parties entered into the Stock Purchase Agreement (the
“SPA”), which facilitated Plaintiff’s sale of its wholly owned subsidiary, Patriot, to
Defendant.7 The sale was for approximately $156 million subject to a post-Closing
1
The facts are drawn from the First Amended Complaint and the Stock Purchase Agreement (Ex.
1 to Defendant’s Opening Brief in Support of Defendant’s Motion to Dismiss) which is
incorporated by reference to the Complaint. See In re Gen. Motors (Hughes) S’holder Litig., 897
A.2d 162, 169 (Del. 2006).
2
Am. Compl. ¶ 14.
3
Id. ¶¶ 17, 19.
4
Id. ¶ 20.
5
Id. ¶¶ 1, 19.
6
Id. ¶ 19.
7
Id. ¶¶ 1, 21.
3
true-up, “although the SPA provided that adjustments to the purchase price would
be made after the transaction closed based on Patriot’s financial condition as of
August 3, 2022 (“Closing”)[.]”8 Buyer gained control of Patriot on the Closing
date.9
Patriot’s financial condition at Closing was to be based on information within
the Buyer’s exclusive control, so the SPA detailed Buyer’s “affirmative obligation
to conduct and accurately maintain a ‘good faith calculation (in reasonable detail)’
after Closing of all Company accounts.”10 Between the time that the parties signed
the SPA and the Closing (the “Interim Period”), it was crucial that Buyer make good
faith calculations under the SPA because “[b]ooks and records would not be
finalized until several weeks or even months after the Closing[.]”11 In anticipation
of the necessity, the parties stipulated in the SPA that Buyer must produce a broad
range of documents and provide access to Seller to check Buyer’s accounting
practices during the Interim Period.12 The significant revenue earned during the
Interim Period belonged to Seller, but would not be known until Patriot was under
the exclusive control of Buyer.13
8
Id.
9
Id. ¶ 1.
10
Id. ¶ 2.
11
Id.
12
Id. ¶ 4.
13
Id. ¶ 3.
4
Seller estimated Patriot would continue to perform as it had in the months
before the Interim Period, and Seller relayed this estimation to Buyer before
Closing.14 During the weeks leading up to Closing, Patriot executives updated Buyer
on Patriot’s performance, but these updates never included discussions of issues or
substantial drops in Patriot’s performance.15
C. SUPPRESSION OF FINAL REVENUE ACCOUNTING FOR INTERIM PERIOD
Before Buyer delivered the Closing Date Statement, but after Closing, “Buyer
caused Patriot to provide certain credits to Patriot’s customers that would have the
effect of customers paying for obligations incurred during the Interim Period on
invoices that would be recognized during post-Closing periods[.]”16
Buyer neither provided Seller access to Company records nor produced all the
documents that Seller requested, but Seller was able to ascertain that Buyer made
false assertions regarding revenue earnings before Closing.17 Although “Patriot
averaged $10.2 million in revenue for the six months before Closing,” “Buyer claims
that July 2022 revenue fell 26% from the June 2022 level, to $7.7 million.”18
Company performance, however, had been consistent in July 2022, and Buyer’s
issuance of credits to customers after Closing for work performed before Closing
14
Id. ¶ 22.
15
Id.
16
Id. ¶ 23.
17
Id. ¶¶ 5–6.
18
Id. ¶ 6.
5
caused the decline in revenue earnings.19 This accounting practice allegedly violated
the express terms of the SPA.20 Immediately after Closing in August 2022, “Patriot’s
revenue returned to pre-Closing levels, and even exceeded the prior six-month
average.”21 Revenue increased 41% from July 2022 to $10.7 million in August, then
to $11.2 million in September 2022.22
Patriot’s then-CFO confirmed Patriot had not authorized the issuance of
credits during the Interim Period.23 Seller “earned and was entitled to” the revenue
that came in during this period, but Buyer’s accounting enabled Buyer to collect the
revenue after Closing.24 Neither the SPA nor generally accepted accounting
principles (“GAAP”) gave Buyer the right to “issue credits that would apply to
periods when Seller owned the Company or to send customers new invoices post-
Closing that included pre-Closing work.”25 As a result of the credits, Buyer reduced
the purchase price of the Company at Closing.26 The information that Seller
requested and Buyer did not produce “would show Buyer’s misconduct.”27
19
Id. ¶ 7.
20
Id.
21
Id. ¶ 8.
22
Id.
23
Id. ¶ 10.
24
Id.
25
Id. ¶ 11.
26
Id.
27
Id.
6
SPA § 2.4(b) mandates that Buyer make a “good faith calculation” of the
Interim Period accounts “in reasonable detail” and “based solely on facts and
circumstances as they exist as of the Effective Time or the Closing[.]”28 The SPA
also required Buyer to provide documents supporting its calculations.29 Buyer’s
obligation to produce documents is broad pursuant to § 2.4(c)(i).30 Buyer slowly
produced minimal documents “just five days before the end of the 30-day period
when Seller could object to Buyer’s accounting,” preventing Seller from challenging
Buyer’s accounting practices through arbitration.31 This small amount of Buyer’s
document production allegedly demonstrates Buyer’s fraudulent suppression of
Patriot’s pre-Closing revenue.32
Seller alleges Buyer’s minimal document production shows one of two things.
Either: (1) “Buyer provided credits to customers post-Closing but retroactive to July
31—when Buyer had no right to provide any credits” or (2) “Buyer later reversed
the ‘credits’ and re-billed those customers in the months after Closing.”33 Patriot’s
accounting system uniquely requires that to make any change in an invoice, one must
delete it in its entirety and reissue the old invoice with a new date.34 “Seller believes
28
Id. ¶ 27.
29
Id.
30
See id. ¶¶ 28–29.
31
Id. ¶¶ 30–32.
32
Id. ¶ 33.
33
Id. ¶ 34.
34
Id.
7
that Buyer abused this accounting system software quirk by transferring pre-Closing
revenue to the post-Closing period.”35 In one month, Buyer issued a larger dollar
amount of unauthorized credits than the total amount Seller issued in the eight years
that Seller owned Patriot.36 Patriot’s then-CFO, Geoffrey Milbrandt, had not been
aware of Buyer’s issuance of these unauthorized credits, distinguishing this instance
from Patriot’s previous adjustment of accrued revenue totals.37 In that instance, the
totals pertained to a one-off Huntington Beach/Amplify Energy oil spill in October
2021 and resulted from negotiated settlements with insurance companies and other
involved parties.38
Milbrandt “refused to comply with Buyer’s request to engage in the unusual
accounting that harmed Seller,” and lost his job shortly after.39 The Corporate
Controller of Buyer, Carol Okamoto, testified that she “collaborated with Jeff
Vejselli at Buyer to issue improper credits for pre-Closing jobs.”40 Seller asserts
those “revenue manipulations” violate several GAAP accounting rules and the SPA,
amounting to fraud as a matter of law.41 Buyer “under-accrued revenue by several
35
Id.
36
Id. ¶ 35.
37
Id. ¶¶ 35, 37.
38
Id. ¶ 35.
39
Id. ¶ 37.
40
Id. ¶ 36.
41
Id. ¶ 38.
8
million dollars” and violated its duty to make “good faith calculation[s]” by “billing
revenue to customers for periods when [Buyer] did not control Patriot.”42
D. ARBITRATION
The SPA provides in Section 2.4(c)(ii) that the “arbitration is ‘limited to
resolving such objections and determining the correct calculations to be used on only
the disputed portions of the Closing Date Statement as set forth in the Dispute Notice
(to the extent not otherwise resolved by the parties pursuant to this Section
2.4(c)).’”43 The parties have already arbitrated over post-Closing matters.44 Buyer
contends that the sole purpose of arbitration is for “correct[ing] calculations” and
limited to “what Seller places on the Dispute Notice.’”45 According to the complaint,
the arbitrator refused to arbitrate the purchase price dispute “based on adjustments
that were not contained in Buyer’s dispute notice—which Seller necessarily
formulated in reliance on the fraudulent and insufficient information Buyer provided
to Seller following Closing.”46 The arbitrator only arbitrated the “determination of
the purchase price under the SPA.”47
At issue is the fact that Seller purportedly could not provide an exhaustive list
of items in the Dispute Notice because Buyer failed to produce requested
42
Id. ¶ 39.
43
Id. ¶ 40.
44
Id.
45
Id. ¶ 41.
46
Id. ¶ 42.
47
Id.
9
documents—an act which constitutes a breach of the SPA.48 Buyer also inhibited
Seller from “discovering and including the bogus credits (and other improper actions
by Buyer) in the accounting-arbitration.”49 Seller did include in the Dispute Notice,
however, Buyer’s failure to produce documents and that Seller “reserved its rights
under the SPA to seek redress outside of [a]rbitration for these breaches by Buyer.”50
The arbitration was limited to the determination of “the validity of the
numbers included on the ‘Dispute Notice,’ which is a defined term under the SPA.”51
Seller, thus, asserts that adjudication in this Court is appropriate, and the SPA does
not limit remedies for fraudulent claims.52 Seller also alleges Buyer further violated
the SPA’s requirement to arbitrate credits because Buyer failed to produce credit-
related documents in a timely manner.53
E. ESCROW
The SPA required Buyer to release the representations-and-warranties escrow
one year after Closing, and Buyer refused to do so.54 Sections 8.1 and 8.2 of the
SPA provide that Seller’s “representations and warranties contained in the SPA” and
“indemnification obligations . . . with respect to such representations and warranties
48
Id. ¶¶ 43–44.
49
Id. ¶ 44.
50
Id. ¶ 43.
51
Id.
52
Id. ¶ 47.
53
Id. ¶ 48.
54
Id. ¶ 12.
10
expired on August 3, 2023, i.e., twelve months after the Closing Date (as defined in
the SPA) and the date of the Escrow Agreement.”55 Buyer deposited the Indemnity
Escrow Amount into the Indemnity Escrow Account.56 This deposit satisfied the
indemnification payment obligations enumerated in Section 8.6 of the SPA.57 On
the expiration date, August 3, 2023, Seller requested that Buyer release the funds “in
accordance with the terms of the Escrow Agreement by executing and delivering to
the Escrow Agent the Joint Release instructions.”58 Although Seller complied with
all representations and warranties, Buyer refused to release the funds.59
Buyer instead made a claim against Seller about a dormant matter over ten
years old, but Buyer never mentioned the allegation in any of its SEC filings,
disclosures to shareholders, or to its representations-and-warranties insurance
carrier.60 Buyer claimed that it “provide[d] notice of a third party claim that might
be satisfied from the Indemnity Escrow.”61 Seller asserts Buyer’s claim is invalid
because Buyer did not “comply with the express provisions of the SPA to make such
a claim valid or a proper basis to refuse to release the Indemnity Escrow.”62 Such
provisions are in Section 8.7 of the SPA, providing that in order to make a successful
55
Id. ¶ 50.
56
Id. ¶ 51.
57
Id.
58
Id.
59
Id. ¶ 52.
60
Id. ¶¶ 12–13.
61
Id. ¶ 53.
62
Id.
11
claim against the Indemnity Escrow, the claimant must “provide (a) a written notice
(b) setting forth reasonable detail of the facts and circumstances giving rise to such
claim for indemnification, and (c) identifying the amount of losses that would
result.”63 Buyer did not comply with any of these express conditions.64
Seller, in contrast, argues it has complied with all obligations under the SPA.65
During Seller’s control of Patriot, Seller met all SPA requirements, including those
in Section 5.2 and 5.1(b)(i)–(ii).66 Those require that Seller “continue its operations
at Patriot ‘in the Ordinary Course’ during the Interim Period and not to ‘transfer any
tangible assets except for the sale, transfer, or disposition of finished goods inventory
in the Ordinary Course.’”67
III. PROCEDURAL HISTORY
On August 21, 2023, Seller filed a Complaint alleging seven counts.68 On
November 7, 2023, Seller filed an Amended Complaint alleging six counts: (1)
Breach of Contract;69 (2) Breach of Contract;70 (3) Fraudulent Misrepresentation;71
63
Id.
64
Id.
65
Id. ¶ 54.
66
Id.
67
Id.
68
D.I. 1.
69
Am. Compl. ¶¶ 56–67.
70
Id. ¶¶ 68–80.
71
Id. ¶¶ 81–98.
12
(4) Intentional Breach of Contract;72 (5) Breach of Contract;73 and (6) Breach of the
Implied Covenant of Good Faith and Fair Dealing.74 On December 6, 2023, Buyer
filed a Motion to Dismiss Seller’s First Amended Complaint and an Opening Brief
in Support of Buyer’s Motion to Dismiss the First Amended Complaint.75 On
January 10, 2024, Seller filed its Opposition to Buyer’s Motion to Dismiss the First
Amended Complaint.76 On January 31, 2024, Buyer filed its Reply Brief in Further
Support of Buyer’s Motion to Dismiss the First Amended Complaint.77 The Court
held oral argument on March 28, 2024 and reserved decision.
IV. STANDARD OF REVIEW
A defendant may move to dismiss for lack of subject matter jurisdiction
pursuant to Superior Court Civil Rule 12(b)(1). In deciding the party’s motion, “the
Court ‘need not accept [the plaintiff’s] factual allegations as true and is free to
consider facts not alleged in the complaint.’”78 The plaintiff has the burden to prove
there is jurisdiction79 and thus “‘bears the ‘far more demanding’ burden.”80
72
Id. ¶¶ 99–116.
73
Id. ¶¶ 117–121.
74
Id. ¶¶ 122–130.
75
D.I. 19, 20, Def.’s Opening Br. in Supp. of Mot. to Dismiss [hereinafter “Def.’s Br.”].
76
D.I. 25, Pl.’s Answering Br. in Opp’n to Def.’s Mot. to Dismiss [hereinafter “Pl.’s Opp’n”].
77
D.I. 30, Def.’s Reply Br. in Supp. of Mot. to Dismiss [hereinafter “Def.’s Reply”].
78
In re Proton Pump Inhibitors Prods. Liab. Litig., 2023 WL 5165406, at *5 (Del. Super. Aug.
11, 2023) (quoting Appriva S’holder Litig., Co., LLC v. EV3, Inc., 937 A.2d 1275, 1284 n.14 (Del.
2007)).
79
See, e.g., Payne v. Samsung Elecs. Am., Inc., 2024 WL 726907, at *3 (Del. Super. Feb. 21,
2024).
80
Proton Pump Inhibitors, 2023 WL 5165406, at *5 (quoting Appriva, 937 A.2d at 1284 n.14).
13
Superior Court Civil Rule 12(b)(6) allows a party to move to dismiss a
complaint for failure to state a claim. When deciding on a motion to dismiss, “‘(i)
all well-pleaded factual allegations are accepted as true; (ii) even vague allegations
are ‘well-pleaded’ if they give the opposing party notice of the claim; (iii) the Court
must draw all reasonable inferences in favor of the non-moving party; and (iv)
dismissal is inappropriate unless the ‘plaintiff would not be entitled to recover under
any reasonably conceivable set of circumstances susceptible of proof.’”81 The Court
is limited to the matters in the pleadings, with the exception of “where an extrinsic
document is integral to a plaintiff’s claim and is incorporated into the complaint by
reference[.]”82 The Court may not consider any conclusory allegations without
factual support.83
81
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d at 168 (quoting Savor, Inc. v. FMR Corp.,
812 A.2d 894, 896–97 (Del. 2002)).
82
Furman v. Delaware Dep’t of Transp., 30 A.3d 771, 774 (Del. 2011) (citing Vanderbilt Income
& Growth Assocs. v. Arvida/JMB Managers, 691 A.2d 609, 613 (Del. 1996)).
83
Proton Pump Inhibitors, 2023 WL 5165406, at *6 (citing Ramunno v. Crawley, 705 A.2d 1029,
1034 (Del. 1998)) (“[T]he Court must ‘ignore conclusory allegations that lack specific supporting
factual allegations.’”).
14
V. ANALYSIS84
A. SUBJECT MATTER JURISDICTION OVER COUNTS I, II, III, IV, AND VI.85
1. The Parties’ Contentions
Buyer asserts Counts I, II, III, IV, and VI all are within the parties’
contractually agreed-to arbitration clause, and thus the Court lacks subject matter
jurisdiction over them.86 The SPA states: “‘adjustments to the Estimated Purchase
Price and the dispute resolution provisions provided for in Section 2.4(c) shall be the
exclusive remedies for the matters addressed herein.’”87 Buyer claims that all of
Seller’s aforementioned claims fall within the exclusive scope of the arbitration
clause because they are encompassed by Section 2.4(c) of the SPA.88
Buyer presents three separate reasons why the arbitration clause governs.
First, Buyer notes that Seller conceded this by actively participating in the arbitration
proceedings, and raising the same arguments as it now raises in this Court,
84
The Court notes that Seller asserted in its Opposition Brief that “if and to the extent the Court
concludes that any aspect of Seller’s claims are insufficiently or erroneously pled, leave to amend
should be granted to allow Seller to assert claims for rescission and rescissory damages.” Pl.’s
Opp’n at 29–30. The Court declines to grant any leave to amend. This is Seller’s second
complaint, having filed an amended complaint after Buyer already filed its first Motion to Dismiss,
and doing so without seeking leave of the Court beforehand. This request is insufficiently justified,
and the Court declines to consider it further.
85
Buyer also moved to dismiss for lack of subject matter jurisdiction over Count V, but withdrew
that motion at oral argument so the Court will not address it for purposes of subject matter
jurisdiction. Channel PES Acq. Co. v. Heritage-Crystal Clean, Inc., C.A. No. N23C-08-206 MAA
CCLD, at 18:22–19:4 (Del. Super. Mar. 28, 2024) (TRANSCRIPT).
86
Def.’s Br. at 17.
87
Id. at 18–19 (quoting Ex. 1 [hereinafter “the SPA”] § 2.4(d)(iv)) (emphasis added).
88
Id. at 19–20.
15
impermissibly seeking a “second bite at the apple.”89 Second, Buyer claims
“[Seller’s] allegations raise questions of procedural arbitrability that are questions
for the Arbitration Firm to decide.”90 Third, Seller “cannot now make an end-run
around the arbitration process through artful pleading just because it does not like
how the arbitration has proceeded.”91
Seller argues the Court should first determine whether the arbitration clause
here is narrow “because it sharply limits the types of disputes that fall within its
ambit.”92 Seller then asserts the Court must determine if the challenged conduct falls
within the scope of the narrow provision, which Seller claims it does not “because
Seller’s claims stem from Buyer’s misconduct in disabling Seller from learning or
raising the true issues requiring resolution through the accounting-arbitration.”93
Seller points to the language in the arbitration provision that “calculation of the
amount” suggests “that the scope of the arbitrable matters is limited to those in which
the parties both have access to the same source data and merely differ as to their use
of that source data to calculate Closing Net Working Capital or other salient
values.”94
89
Id. at 20.
90
Id. at 21.
91
Id. at 22.
92
Pl.’s Opp’n at 17 (citing Milton Inves., LLC v. Lockwood Bros., II, LLC, 2010 WL 2836404, at
*6 (Del. Ch. July 20, 2010)).
93
Id.94
Id. at 18 (emphasis added).
16
As an alternative argument, Seller argues the Court “[s]hould [a]ssume
[j]urisdiction to [a]void [s]anctioning [f]raud and [u]njust [r]esults[.]”95 Seller
claims that “Buyer’s interpretation of the SPA effectively would constitute an
advance release for breaches of certain future contractual obligations, which the law
abhors.”96
In response, Buyer argues that the narrow-ness of the clause does not matter—
though Buyer also disputes that it is narrow—because “the only question that matters
is whether the claims concern issues that the [p]arties contractually agreed to
arbitrate.”97 Buyer also disagrees with Seller’s interpretation of the phrase
“calculation of” because the “SPA’s arbitration provision governs the entire process
of resolving ‘disputed portions of the Closing Date Statement,’ which under the SPA
must be properly detailed in Seller’s Dispute Notice.”98 Buyer also notes that Seller
failed to address procedural arbitrability in its brief.99 Buyer lastly disagrees with
Seller’s policy argument, stating that “Buyer argues that the claims [Seller] has
asserted all fall within the arbitration clause” not that all possible claims are limited
to the arbitrator.100
95
Id. at 22.
96
Id. at 22–23.
97
Def.’s Reply at 4–5.
98
Id. at 6 (emphasis in original).
99
Id. at 8. Buyer is correct, Seller did not sufficiently brief the substantive/procedural arbitrability
issue, but did rely on cases interpreting arbitrability such that the Court will not find a waiver as
to the issue.
100
Id. at 12 (emphasis in original).
17
2. Delaware Law on Arbitrability
Delaware courts “lack subject matter jurisdiction to resolve disputes that
litigants have contractually agreed to arbitrate.”101 More precisely, Delaware courts
respect contractual agreements to arbitrate even in cases where sovereign authority
grants the court the right to hear a case.102 Consequently, if a claim “on its face, falls
within the arbitration clause of the contract” the Court will grant a motion to
dismiss.103 “A strong presumption exists in favor of arbitration, and, accordingly,
contractual arbitration clauses are generally interpreted broadly by the courts.”104
“Delaware courts will compel a party to arbitrate only if the contract reflects that the
parties clearly and intentionally bargained for whether and how to arbitrate.”105
The Supreme Court of Delaware’s seminal case of Parfi Holding AB v. Mirror
Image Internet, Inc.106 provides guidance on a trial court’s handling of arbitration
disputes:
101
NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 429 (Del. Ch. 2007) (citing
Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 295 (Del. 1999)).
102
See Gandhi-Kapoor v. Hone Cap. LLC, 307 A.3d 328, 339 (Del. Ch. 2023) (quoting Ingres
Corp. v. C.A., Inc., 8 A.3d 1143, 1145 (Del. 2010)) (“The court does not dismiss the case because
it lacks the power to hear it, but because ‘where contracting parties have expressly agreed upon a
legally enforceable forum selection clause, a court should honor the parties’ contract and enforce
the clause.’”).
103
NAMA Hldgs., LLC, 922 A.2d at 429 (quoting SBC Interactive, Inc. v. Corp. Media P’rs, 714
A.2d 758, 761 (Del. 1998)).
104
Id. at 430 (citing Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 581–82 (Del.
Ch. 2006)).
105
CLP Toxicology, Inc. v Casla Bio Hldgs. LLC, 2021 WL 2588905, at *9 (Del. Ch. June 14,
2021) (citing Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396 (Del. 2010)).
106
817 A.2d 149 (Del. 2002).
18
When the arbitrability of a claim is disputed, the court is faced with two
issues. First, the court must determine whether the arbitration clause is
broad or narrow in scope. Second, the court must apply the relevant
scope of the provision to the asserted legal claim to determine whether
the claim falls within the scope of the contractual provisions that require
arbitration. If the court is evaluating a narrow arbitration clause, it will
ask if the cause of action pursued in court directly relates to a right in
the contract. If the arbitration clause is broad in scope, the court will
defer to arbitration on any issues that touch on contract rights or
contract performance.107
Courts differentiate between substantive and procedural arbitrability.108
Substantive arbitrability refers to “gateway questions about the scope of an
arbitration provision and its applicability to a given dispute” and is presumed to be
decided by a court.109 “When examining substantive arbitrability, the underlying
question is ‘whether the parties decided in the contract to submit a particular dispute
to arbitration.’”110 Procedural arbitrability “concerns ‘whether the parties have
complied with the terms of an arbitration provision’”111 including “‘whether
prerequisites such as time limits, notice, laches, estoppel, and other conditions
107
Id. at 155. See also Legend Nat’l Gas II Hldgs., LP v. Hargis, 2012 WL 4481303, at *4 (Del.
Ch. Sept. 28, 2012) (citing McLaughlin v. McCann, 942 A.2d 616, 620–21 (Del. Ch. 2008)) (“In
considering a motion to compel arbitration, a court must consider: (1) whether the issue of
arbitrability should be decided by the court or the arbitrator; and if by the court, (2) whether the
claims should be resolved in arbitration (the issue of arbitrability).”).
108
See, e.g., Hargis, 2012 WL 4481303, at *4 (citing James & Jackson, LLC v. Willie Gary, LLC,
906 A.2d 76, 80 (Del. 2006)).
109
Willie Gary, 906 A.2d at 79.
110
Hargis, 2012 WL 4481303, at *4 (quoting Julian v. Julian, 2009 WL 2937121, at *4 (Del. Ch.
Sept. 9, 2009)).
111
Gandhi-Kapoor, 307 A.3d at 349 (quoting Viacom Int’l, Inc. v. Winshall, 72 A.3d 78, 82 (Del.
2013)) (cleaned up).
19
precedent to an obligation to arbitrate have been met.’”112 Issues of procedural
arbitrability are decided by an arbitrator.113 To overcome the presumption of a court
deciding substantive arbitrability, there must be “clear and unmistakable evidence”
that the parties agreed to do so.114
The parties’ arguments focus primarily on two cases from the Court of
Chancery regarding arbitration provisions, CLP Toxicology, Inc. v. Casla Bio
Holdings LLC115 and Darling Ingredients Inc. v. Smith.116
In CLP Toxicology, Inc. v. Casla Bio Holdings, LLC,117 the Court of Chancery
dealt with claims for breach of a purchase agreement wherein the parties contracted
to a dispute resolution process if the parties disagreed on the Closing Net Working
Capital Amount.118 After review of a party’s Dispute Notice, if the parties were
unable to resolve the conflict, the agreement provided that “either party shall have
the right to refer such disputes to the Designated Accounting Firm.”119 The parties
proceeded to the independent accounting firm where sellers raised several arguments
that buyers noted were not raised in the Dispute Notice.120 The independent
112
Id. (quoting Viacom, 72 A.3d at 82).
113
See id. (citing Fairstead Cap. Mgmt. LLC v. Blodgett, 288 A.3d 729, 751 (Del. Ch. 2023)).
114
Hargis, 2012 WL 4481303, at *4 (quoting Willie Gary, 906 A.2d at 79).
115
2021 WL 2588905 (Del. Ch. June 14, 2021).
116
2023 WL 8533204 (Del. Ch. Dec. 11, 2023).
117
2021 WL 2588905 (Del. Ch. June 14, 2021).
118
Id. at *3.
119
Id. (internal citation omitted).
120
Id. at *5.
20
accountant declined to rule on an issue both because it was not raised in the Dispute
Notice and because “[a]dditional disputes arising from or pertaining to adherence to
the SPA, or lack thereof (i.e., providing reasonable access to documents, etc.) likely
requires a legal interpretation which would have to be addressed outside of this
dispute process.”121
When noting the differences between substantive and procedural arbitrability,
CLP Toxicology emphasized that “[t]he only question a court should decide is
whether the subject matter in dispute falls within an arbitration provision.”122 The
court declined to consider whether breaching the contract by “divert[ing] funds away
from ABS and avoid[ing] meeting the Gross Profit required to trigger the Contingent
Payments” because those issues were clearly “unresolved disputes that arise in the
process of the calculation and payment of the Contingent Payments”—a
determination reserved for the arbitrator.123 The court further declined the
defendants’ argument that “they were relieved of their obligation to issue a Dispute
Notice due to the doctrine of futility” because even if futile, “the subject matter of
the issue . . . still falls within” the arbitration provision “and as such, is an issue of
121
Id. (internal citation omitted). “An assessment of this nature is outside the bounds of my
engagement as an Arbitrator at the Designated Accounting Firm.” Id. (internal citation omitted).
122
Id. at *9. “If the subject matter to be arbitrated is the calculation of an earn-out, or the amount
of working capital, or the company’s net worth at closing, then all issues as to what financial or
other information should be considered in performing those calculations are to be decided by the
arbitrator.” Id.
123
Id. at *10.
21
procedural arbitrability left for an arbitrator to decide.”124 In contrast, the court
found that the contractual obligation to provide books and records was not within
the arbitration provision and “the subject matter of the dispute is a gateway question
relating to the scope of an arbitration provision.”125
Darling Ingredients Inc. v. Smith126 likewise dealt with a dispute resolution
process set out in a stock purchase agreement.127 When a dispute arose between
sellers and buyers over a tax benefit calculation, the sellers had 30 days under the
agreement to issue a protest notice challenging the calculation. 128 “Although the
stock purchase agreement permitted the sellers to send Darling an information
request and toll the 30-day deadline, the sellers instead sent Darling a formal protest
notice” launching the contractual dispute resolution process.129 The accountant gave
124
Id.
125
Id. at *10–11. “Looking at the Agreement’s language itself (aided by Grant Thornton’s
arbitration determination), it’s clear that the question of whether CLP failed to grant reasonable
access to ABS’s books and records doesn’t fall within any arbitration provision. Because the
parties did not contractually agree to arbitrate disputes related to reasonable access to books and
records, arbitration provides no adequate legal remedy.” Id. at *11. The section detailing the
Calculation of the Gross Profit included the requirement that
From and after the delivery of the 2018 Audited Financials, Buyer and the
Company shall provide the Company Seller and any Representatives, accountants
or advisors retained by the Company Seller with reasonable access to the books and
records of the Group Companies for the purpose of enabling the Company Seller
and its accountants and advisors to calculate, and to review Buyer’s calculation and
preparation of Gross Profit as set forth on the 2018 Audited Financials and the
aggregate Contingent Payment payable to Sellers in connection therewith (if any).
Id. at *2.
126
2023 WL 8533204 (Del. Ch. Dec. 11, 2023).
127
Id. at *1.
128
Id.
129
Id.
22
the parties an engagement letter “confining the scope of its work to the issues it
raised in the sellers’ protest notice.”130 The sellers were unwilling to sign the
engagement letter until the accountant added issues that sellers put forth in a second
dispute notice.131 The accountant declined to interpret how the contract defined its
role.132 The parties requested the accountant to “resolve as a prefatory issue the
scope of what [the accountant] may consider under the Agreement in resolving the
dispute and provide that scope determination to the parties.”133 The accountant
refused stating that the parties were asking for a legal determination outside the
accountant’s scope.134
On cross-motions for summary judgment, the Court of Chancery interpreted
the dispute resolution provision as limiting sellers to filing one Protest Notice, not
multiple, nor amended notices.135 The court also noted that sellers did not invoke
their right to toll and request pre-protest information, instead filing the protest notice
was a choice and “[a]lthough the Sellers might now regret their hasty choice, the
130
Id.
131
Id.
132
Id. The agreement stated that the accountant’s review “must be ‘based solely on the [Closing
Tax Benefit Amount] and Protest Notice, together with all relevant supporting documentation, and
any other clarifying presentations and submissions by [Darling] and Sellers’ Representative as
[Deloitte] may reasonably request[.]’” Id. at *4.
133
Id. at *7.
134
Id.
135
Id. at *9. The provision of the agreement states that “[w]ithin thirty (30) days following
delivery of the [Closing Tax Benefit Amount], [Sellers] may deliver written notice (the ‘Protest
Notice’) to [Darling] of any disagreement that Sellers [] . . . may have as to the [Closing Tax
Benefit Amount].” Id.
23
Agreement does not grant them a protest notice do-over.”136 The court therefore
held that the accountant’s engagement letter was accurate as per the interpretation
of the agreement, and sellers were obligated to comply with the dispute resolution
process without their subsequent notice claim or additional issues considered.137
3. Overview of the SPA Arbitration Provision
The SPA’s Section 2.4 deals with the “Purchase Price Adjustment.”138
Pursuant to Section 2.4, Buyer was required to prepare and deliver a “Closing Date
Statement” “together with reasonably detailed supporting documentation, setting
forth in reasonable detail Buyer’s good faith calculation[s].”139 The SPA delineates
a dispute resolution provision for any disputes arising from the calculation of the
Closing Date Statement.140 Upon receipt of the Closing Date Statement, Seller has
thirty days to object to any of Buyer’s included calculations by delivering to Buyer
[A] written notice (a “Dispute Notice”) describing in reasonable detail
Seller’s objections to Buyer’s calculation of the amounts set forth in
such Closing Date Statement and containing a statement setting forth
the calculation of the amount of Closing Net Working Capital, Closing
Company Cash, Closing Company Indebtedness, and Company
Transaction Expenses, or the resulting calculation of the Purchase
136
Id. at *12. “The Sellers’ remorse over the November Protest Notice they cast does not allow
them to unilaterally expand the universe of what Deloitte may consider.” Id.
137
Id. at *13.
138
SPA at 18–22.
139
Id. § 2.4(b). The calculations consisted of the “(i) Closing Net Working Capital and the
resulting Working Capital Increase or Working Capital Decrease, as the case may be, (ii) the
amount of each of (A) Closing Company Cash, (B) Closing Company Indebtedness and (C)
Closing Company Transaction Expenses, and (iii) using the amounts in the foregoing clauses (i)
and (ii), the resulting calculation of the Purchase Price under Section 2.3(a).” Id. (emphasis in
original).
140
Id. § 2.4(c).
24
Price, in each case determined by Seller to be correct, as well as any
relevant supporting documentation.141
Anything Seller does not object to in the Dispute Notice will “be deemed to
have [been] agreed with” and “such calculations shall be binding and conclusive on
the Parties and shall not be subject to review in accordance with Section
2.4(c)(ii).”142 The parties then had have thirty (30) days after a valid Dispute Notice
is filed to resolve their issues “in good faith” otherwise “Buyer and Seller shall
jointly engage the firm of Marcum LLP (the ‘Arbitration Firm’) to resolve such
dispute.”143 The SPA provided:
[The] Arbitration Firm’s role shall be limited to resolving such
objections and determining the correct calculations to be used on only
the disputed portions of the Closing Date Statement as set forth in the
Dispute Notice . . . and the Arbitration Firm shall not make any other
determination, including any determination as to whether any other
items on the Closing Date Statement are correct, whether the Target Net
Working Capital Range is correct, and with respect to the timeliness of
delivery or receipt of any Dispute Notice.144
The written determinations of the Arbitration Firm are “conclusive and
binding on the Parties, absent manifest error.”145 Finally, Section 2.4 (d)(iv) states
“Buyer agrees that the adjustments to the Estimated Purchase Price and the dispute
141
Id. § 2.4(c)(i) (emphasis in original).
142
Id. (emphasis in original).
143
Id. § 2.4(c)(ii) (emphasis in original).
144
Id.
145
Id.
25
resolution provision provided for in Section 2.4(c) shall be the exclusive remedies
for the matters addressed herein.”146
4. The Court Lacks Subject Matter Jurisdiction over Counts I, II, III,
IV and VI.
Delaware respects valid arbitration provisions. Neither party argues the
arbitration provision here is invalid; rather, the parties dispute whether the valid
arbitration provision encompasses the claims at issue. The parties also do not dispute
that the arbitration clause is the “exclusive remedy” for those issues encompassed
by Section 2.4. Seller only disputes that Seller’s claims are fully encompassed by
that Section. The Court, therefore, need not analyze whether the provision is
mandatory or permissive:147 Section 2.4 is unambiguously mandatory.
The Court agrees with Seller’s argument that the arbitration clause is “narrow”
as opposed to “broad.”148 A broad provision uses language such as “any dispute
controversy, or claim arising out of or in connection with” the contract at issue.149
A narrow provision limits arbitration to “specific types of disputes.” 150 Buyer
disputes that the provision is narrow in its brief,151 but concedes the provision is
146
Id. § 2.4(d)(iv).
147
See, e.g., Maloney-Refaie v. Bridge at Sch., Inc., 958 A.2d 871, 885 (Del. Ch. 2008) (analyzing
whether an arbitration clause was mandatory or permissive).
148
Pl.’s Opp’n at 16–17.
149
See, e.g., Parfi, 817 A.2d at 155.
150
Specialty Dx Hldgs., LLC v. Lab’y Corp. of Am. Hldgs., 2020 WL 5088077, at *6 (Del. Super.
Jan. 31, 2020) (citing Lockwood Bros, II, 2020 WL 2836404, at *6)).
151
Def.’s Reply at 4–5.
26
limited to issues arising only from Section 2.4, rather than the entire SPA.152
Although the exact narrow-ness of the provision need not be determined, the Court
is satisfied the provision is limited to those issues within Section 2.4 of the SPA.
While the Court does not agree that such a distinction does not “matter” as Buyer
characterizes it,153 the Court does agree that the fact that the clause is narrow does
not end the analysis. The issue for the Court is to determine the scope of Section 2.4
and whether the subject matter of the claims fall within that “narrow” scope.154
The Court does not find Seller’s argument as to interpreting the phrase
“calculation of” persuasive. Seller’s assertion that the words “calculation of”
“signifies that the scope of arbitrable matters is limited to those in which the parties
both have access to the same source data and merely differ as to their use of that
source data to calculate Closing Net Working Capital or other salient values”155 is
too much of a stretch. Seller provides no support for such an extrapolation beyond
a vague case citation that courts assume no language is superfluous.156 This
152
See, e.g., Channel PES Acq. Co., C.A. No. N23C-08-206 MAA CCLD, at 55:5–20 (Del. Super.
Mar. 28, 2024) (TRANSCRIPT).
153
Def.’s Reply at 4–5 (“Although [Buyer] disagrees with this analysis, it’s not clear why this
characterization matters.”).
154
Viacom, 72 A.3d at 83 (“Once it is determined that the parties are obligated to submit the subject
matter of a dispute to arbitration, ‘procedural’ questions that grow out of the dispute and bear on
its final disposition should be left to the arbitrator.”) (internal citation and quotation omitted). The
Court consequently is unpersuaded by Seller’s assertion that upholding the arbitration provision
could unjustly sanction fraud. The arbitration provision is “narrow” and thus is limited to causes
of action encompassed within; fraudulent conduct is distinct and thus not sanctioned by the Court
upholding a bargained for arbitration provision the parties contracted.
155
Pl.’s Opp’n at 18.
156
Id. (citing NAMA Hldgs., 948 A.2d at 419).
27
conclusion, while true, does not permit a party to read more into a contract than the
parties mutually bargained for. Such an interpretation is also not supported by the
other language in Section 2.4(c), which includes requirements relating to Buyer
providing documentation to Sellers and for the parties to “reasonably
cooperate[.]”157 Reading the language “calculation of” as limited to only that which
the two parties have the same information is not supported by a plain reading of the
contract.
Buyer’s reliance on Darling is similarly unpersuasive. Unlike Darling, the
parties here did not have a separate tolling provision in which Seller could opt into
to seek additional information. Darling bound the sellers in that case to their dispute
notice because they opted to file the notice instead of otherwise filing an information
request to toll their dispute notice deadline.158 The parties here do not sufficiently
argue Seller had an alternative to filing the Dispute Notice. At oral argument, Buyer
suggested “Seller could have said, you know, we don’t have to go to arbitration,
we’re not bound by this provision.”159
The Court finds that CLP Toxicology is more closely aligned with this action.
CLP Toxicology distinguished between issues related to the calculation itself,
157
SPA § 2.4(c)(i).
158
Darling, 2023 WL 8533204, at *8–9.
159
Channel PES Acq. Co., C.A. No. N23C-08-206 MAA CCLD, at 54:14–19 (Del. Super. Mar.
28, 2024) (TRANSCRIPT).
28
including how the buyers allegedly diverted funds such that less would be owed to
sellers, from those related to books and records obligations. The dispute resolution
provisions are very similar between this case and CLP Toxicology, where both the
process of calculating the final amounts is delineated, as well as requirements to turn
over books and records so that the reviewing party can make an informed decision
on a dispute.160
The Court agrees with CLP Toxicology that disputes relating to diverting
funds were “clearly” within the “process of calculation and payment.” Here too, the
act of issuing credits as part of buyer’s conduct, and including those credits in its
calculations, are within the purview of the arbitrator to consider.
This leaves the Court with reviewing Count I regarding books and records.
CLP Toxicology did not deem the obligation to turn over books and records as within
the scope of the arbitration provision, despite the section explicitly detailing buyer’s
obligations to do so.161 Here, although the provisions in CLP Toxicology and this
action are similar, the actions of the two arbitrators (and the parties) regarding the
books and records issue compel a different result. In particular, the Court turns to
the Engagement Letter162 and the parties’ submissions. The Engagement letter states
160
Compare CLP Toxicology, 2021 WL 2588905, at *2–3 (outlining the agreement’s dispute
resolution provisions), with SPA § 2.4(c).
161
CLP Toxicology, 2021 WL 2588905, at *10–11.
162
Def.’s Br., Ex. 4.
29
that the Arbitration Firm163 would make an initial determination regarding “the final
list of Disputed Items (and amounts thereof) that are subject to resolution by the
Arbitrator pursuant to Section 2.4(c) of the Agreement, and which (or whether)
additional documents should be produced.”164 This alone could end the inquiry
about whether the Arbitration Firm had the authority to evaluate Seller’s access to
books and records.
Nonetheless, the Court’s review of the First and Second Determination Letters
demonstrate that the Arbitrator analyzed the arbitration provision and the terms of
the SPA to determine the issues that were properly disputed and what was (or was
not) within his power.165 Included in the Arbitrator’s analysis was an analysis of
Seller’s nine outstanding document requests for which it sought the production of
documents.166 In the First Determination Letter, the Arbitrator ordered Buyer to
produce documents in response to six of the nine requests.167 Then, on October 10,
2023, the Arbitrator provided his interrogatories and documents requests to the
Parties.168 On November 3, 2023, the Arbitrator issued supplemental interrogatories
and document requests.169 The parties submitted their responses on November 17,
163
Id. at 1 (defining Richard Lee as the “Arbitrator” of AlixPartners, the “Arbitration Firm”).
164
Id. sched. 1. (emphasis added).
165
Def’s. Br., Exs. 5, 10.
166
Def’s Br., Ex. 5 at 5–8.
167
Def.’s Br. Ex. 5.
168
Id., Ex. 10.
169
Id., Ex. 11.
30
2023 and produced documents.170 The Arbitrator issued a Determination Letter on
December 22, 2023.171 The Arbitrator’s and the parties’ conduct here compels one
result: Count I falls squarely within Section 2.4.172
The Court therefore deems Count I, II, III, IV, and Count VI as issues of
procedural arbitrability, encompassed within the scope of the arbitration provision.
As such, they are all matters for the Arbitrator to decide. The Court therefore
dismisses Counts I, II, III, IV, and VI for lack of subject matter jurisdiction.
B. MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM FOR BREACH OF
CONTRACT AS TO COUNT V.173
1. The Parties’ Contentions
As to Count V, Buyer indicates “it is not clear whether [Seller] is alleging that
Buyer breached the SPA or the Escrow Agreement” nor what terms of either
agreement were breached.174 Buyer also notes that Buyer served a valid Claim
170
Def’s Br. at 12–13.
171
Pl.’s Opp’n, Ex. 1. The Arbitrator concluded that:
My Final Determination described above is 50.82% in favor of Seller and 49.18%
in favor of Buyer. The total fees of the Accounting Expert are $421,721, half of
which has been invoiced to and paid by each Party. The allocation of the fees and
expenses based on the terms of the SPA is $207,394 to be borne by Seller ($421,721
x 49.18%) and $214,327 to be borne by the Buyer ($421,721 x 50.82%).
Id. at 26.
172
The Court notes that Chambers Belt Co. v. Tandy Brands Accessories, Inc., 2012 WL 3104396(Del. Super. July 31, 2012), relied upon by Seller, does not apply here. In Chambers Belt did not
review issues of procedural or substantive arbitrability. Rather, in Chambers belt, the court
determined whether “a Court of Chancery decision in a prior proceeding between Chambers and
Defendant Tandy Brands Accessories, Inc….concerning the same contract dispute at issue[] here[]
should be accorded res judicata or collateral estoppel effect.” Id. at *1.
173
Buyer also sought to dismiss Counts I, II, III, IV, and VI for failure to state a claim. The Court
declines to address the substance of these arguments for lack of subject matter jurisdiction.
174
Def.’s Br. at 29.
31
Notice in compliance with the SPA which has not been resolved, proving Count V
is unfounded.175
Seller argues Count V is sufficient because “the First Amended Complaint
states that Buyer does not (and could not) have a basis to withhold the funds that
Seller deposited for the representation-and-warranty escrow pursuant to the Escrow
Agreement because the underlying representations and warranties expired prior to
Buyer asserting any compliant claim.”176 Seller further asserts that any
consideration of the merits of the underlying claim is not appropriate at the motion
to dismiss stage.177
Buyer responds that Seller’s Opposition fails to explain the facts Seller relies
on, instead, Seller only asserts conclusions.178 As to the merits of the Claim Notice,
Buyer notes that Seller “has not pleaded any facts regarding its response to the Claim
Notice—because there was no response—or regarding [Seller]’s compliance with
Article VIII of the SPA’s clearly delineated process by which objection to Claim
Notices must be made and resolved—because [Seller] did not comply with Article
VIII.”179
175
Id. at 29–30.
176
Pl.’s Opp’n at 27.
177
Id. at 27–28.
178
Def.’s Reply at 15.
179
Id. at 17–18 (emphasis in original).
32
2. The Law
The pleading standards on a motion to dismiss are minimal.180 “[T]he
governing pleading standard in Delaware to survive a motion to dismiss is
reasonable ‘conceivability.’”181 All that is required is that the complaint “alleges
that it provided adequate notice to [defendant] and that [plaintiff’s] claim, if proven,
would entitled [plaintiff] to relief under a reasonably conceivable set of
circumstances.”182 To survive a breach of contract claim, the plaintiff “must allege:
(1) the existence of a contract; (2) that the contract was breached; and (3) damages
suffered as a result of the breach.”183 “In other words, ‘[d]ismissal is proper only if
the defendant[’s] interpretation is the only reasonable construction as a matter of
law.’”184 For the following reasons, the Court deems the breach of contract claim is
sufficiently pled.
Seller’s Count V asserts Buyer “breached the SPA by refusing to release the
representations-and-warranties escrow notwithstanding the lack of any proper claim
notice as required to continue to maintain the representations-and-warranties
escrow.”185 Seller here has not specifically alleged what provision of the SPA, or
180
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011)
(citing Savor, 812 A.2d at 896).
181
Id. at 537 (internal citations omitted).
182
Id. at 538.
183
Khushaim v. Tullow Inc., 2016 WL 3594752, at *3 (Del. Super. June 27, 2016) (citing
eCommerce Indus., Inc. v. MWA Intel., Inc., 2013 WL 5621678, at *13 (Del. Ch. Sept. 30, 2013)).
184
Id. (quoting Vanderbilt Income & Growth Assocs., 691 A.2d at 613) (emphasis in original).
185
Am. Compl. ¶¶ 118–120.
33
the Escrow Agreement, Buyer is alleged to have breached. Seller also fails to
explain why the claim notice was improper.
The Court acknowledges these allegations are vague, but nonetheless will
allow the claim to proceed at this stage noting its skepticism. Buyer asks the Court
to “simply take note” of the Claim Notice to indicate that Seller’s allegation should
fail because there is a valid claim notice.186 The Court agrees the Claim Notice is
fairly incorporated into the Complaint by reference, but the existence of the Notice
does not alone preclude Seller’s claim since Seller alleges that the notice was not
“proper.”187 Buyer’s request that the Court determine the existence of the Claim
Notice “which was served within twelve months after Closing and set forth in
reasonable detail a Third Party Claim”188 is not enough to overcome the minimal
pleading standard Seller has.189 Seller could have pled more detail as to how the
Claim Notice was improper, but is not required to. At this stage, it is “reasonably
conceivable” that Seller could prove the Notice Claim was improper and thus failed
to satisfy the Escrow Agreement, therefore, the Court declines to dismiss the claim
at this point.
186
Def.’s Reply at 17–18.
187
Am. Compl. ¶ 119.
188
Def.’s Reply at 18.
189
See Channel PES Acq. Co., C.A. No. N23C-08-206 MAA CCLD, at 39:10–19 (Del. Super.
Mar. 28, 2024) (TRANSCRIPT) (stating the claim notice was insufficient because “the original
notice failed to provide any actual notice of any valid basis for any claim for indemnification, it
didn’t include any supporting details as to what the basis, the underlying liability might have been
such that indemnification would be required”).
34
VI. CONCLUSION
In conclusion, Buyer’s motion to dismiss is GRANTED as to Counts I, II, III,
IV, and VI for lack of subject matter jurisdiction, and DENIED as to Count V
because Seller has sufficiently stated a claim for breach of contract.
IT IS SO ORDERED.
35