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Chancery Addresses Ripeness for Indemnification Claims Concerning Tax Liabilities

Posted In Indemnification

Hill v. LW Buyer LLC, C. A. No. 2017-0591-MTZ (Del. Ch. July 31, 2019).

As this summary judgment decision illustrates, even where parties to a securities purchase agreement agree on a buyer’s entitlement to indemnification for future tax liabilities, absent specific language to the contrary, the buyer generally must suffer harm before such a claim will be ripe for decision.  That is because, under the ripeness doctrine, Delaware courts will decline to decide issues presenting only hypothetical harm.

In Hill v. LW Buyer, one of the buyer’s claims alleged that it faced potential tax liabilities after purchasing companies from the seller and discovering the seller failed to pay taxes properly. While the buyer provided an opinion from an independent auditor as to potential liability, no taxing authority had assessed liability for most of the disputed amount.  Applying the ripeness doctrine, the Court of Chancery dismissed the buyer’s claim as to the unassessed liability without prejudice, holding that the buyer could pursue those issues in the future, should any assessment be made.