Chancery Construes Notice Provisions Associated With Escrowed Funds Under an Asset Purchase Agreement
Delaware courts will apply the plain terms of an unambiguous asset purchase agreement (“APA”), including its provisions governing notices and the release of escrowed funds.
Defendant acquired plaintiff’s assets and certain liabilities via an APA. The APA contained provisions for post-closing price adjustments and indemnification. Defendant failed to deliver its price-adjustment calculations by the ninety-day post-closing deadline. Plaintiff engaged defendant in communications regarding potential calculations and ultimately objected to defendant’s late-arriving calculation. Defendant refused to provide plaintiff with documentation that supported its calculations. Defendant then issued a claim for indemnification via mail sent on the deadline by overnight courier, which plaintiff received the next business day.
The Court first held that defendant’s indemnification notice was adequate. Under the APA, delay in receiving the indemnification notice constituted failure only to the extent it caused actual and material prejudice. Plaintiff had offered no evidence of such prejudice. Second, on the issue of price adjustments, the Court found that plaintiff was entitled to summary judgment. Defendant’s obligation to deliver its price-adjustment calculation within ninety days post-closing was mandatory and unconditional, and none of plaintiff’s subsequent communications included the express waiver required under the APA to deviate from the APA’s terms. The Court rejected defendant’s arguments that the doctrine of unclean hands precluded summary judgment on the price-adjustment issue, as plaintiff’s alleged conduct already related to defendant’s indemnity claim. The Court concluded that release of the price-adjustment escrow funds should not occur until final judgment on the parties’ dispute over indemnification obligations.