Delaware Business Litigation Report

Court of Chancery Substantially Denies Motion to Dismiss Complaint Seeking Release of Escrowed Funds and Other Relief

Bonham v. HBW Holdings, Inc., C.A. No. 820-N, 2005 WL 3589419 (Del. Ch. Dec. 23, 2005). Former stockholders sued acquirer for release of $25 million held in escrow for purpose of indemnification for breach of warranty claims and other relief. The acquirer moved to dismiss the complaint on the grounds that it properly and timely noticed claims for breach of warranty and other issues, Plaintiffs failed to allege that those claims were made in bad faith, and certain of the claims were subject to mandatory arbitration under the terms of the stock purchase agreement. The court largely denied the acquirer's motion. The court found that under one possible construction of the relevant agreements, the acquirer may not have provided sufficient notice to Plaintiffs of its intention to hold escrow funds past the release date. The court similarly found that Plaintiffs alleged facts which, if true, could establish bad faith by the acquirer. The court also concluded that discovery was needed to determine whether certain of Plaintiffs' claims properly fell within the category of claims subject to mandatory arbitration. Share