Chancery Resolves Contingent Claim Security Dispute Between Altaba and Verizon in Altaba’s Judicial Dissolution Proceedings
In re Altaba, Inc., C.A. No. 2020-0413-JTL (Del. Ch. Oct. 8, 2021)
Petitioner Altaba (formerly Yahoo!) implemented a statutory dissolution process whereby the Delaware Court of Chancery was charged with overseeing the winding up of Altaba’s affairs, including resolving any disputes about the amount and form of security to set aside for contingent, conditional, or unmatured contractual claims. In connection with this process, claimant Verizon objected to the amount and form of security that Altaba agreed to set aside to satisfy Verizon’s conditional claim relating to indemnification rights associated with consumer class action lawsuits against Altaba.
Three years prior to Altaba’s dissolution, Altaba entered into an agreement to sell its operating business to Verizon. Following Altaba’s disclosure of the lawsuits, Altaba agreed to indemnify Verizon for 50% of any liabilities arising out of the suits. Subsequently, the litigants entered into a $117.5 million settlement agreement, approved by a federal district court, under which Altaba and Verizon would each assume 50% ($58.75 million) of the settlement cost. Two objectors appealed the district court’s decision, and the appeal remained pending when Altaba initiated the dissolution process. Arguing that the appeal would be unsuccessful, Altaba refused to reserve as security for Verizon’s contingent claim any amounts beyond the $58.75 million settlement amount. While acknowledging that the appeal was without merit, Verizon argued that a security amount of $400 million (inclusive of the $58.75 million) should be reserved because, in the event the appeal succeeded and the settlement amount was increased or a greater liability was established in litigation, Verizon would assume 100% of that risk.
The Court’s decision provides a detailed discussion of the statutory scheme, policies, and standards at play where, as here, the Court is asked to decide a reserve dispute. Here, the Court erred on Verizon’s side, as the contingent contractual creditor, and ordered Altaba to reserve $400 million. The Court explained that Verizon’s claim as a contingent contractual creditor trumped Altaba’s desire to distribute dissolution proceeds to its shareholders under Delaware’s statutory scheme and the circumstances of the case. The Court also cited comity concerns with capping the security amount, which would handicap the outcome of litigation pending before a sister court.Share