Delaware Business Litigation Report

Superior Court Finds Defendant Acted in Good Faith When it Terminated Asset Purchase Agreement Pursuant to Provision of Contract Allowing for Termination if Defendant Could be Exposed to Asbestos Liability

Rohn Industries, Inc. v. Platinum Equity LLC, 887 A.2d 983 (Del. Super. Ct. 2005), aff'd in part, rev'd in part, No. 591, 2005, 2006 WL 2988698 (Del. Oct 20, 2006). The plaintiff, the seller, sued the buyer for breach of an asset purchase agreement that was governed by New York law. The agreement contained a provision that allowed the purchaser to terminate the deal if the purchaser "determines in good faith that there is a reasonable basis in law and in fact to conclude" that the buyer "could reasonably be anticipated to have any . . . material liability for any asbestos-related claim." Following a non-jury trial, the Superior Court found for the defendant, holding that the defendant acted in good faith.

In November 2002, Rohn Industries and Platinum Equity entered into an Asset Purchase Agreement. While conducting its due diligence, Platinum discovered that Rohn's corporate history related to asbestos and insisted that termination language be placed into the agreement that would allow Platinum to terminate the deal if it would be exposed to asbestos liability. Although none of Rohn's assets were related to asbestos, Rohn had once been a division of UNR, an entity that was a successor to an entity that had made asbestos containing products. Because of asbestos liabilities, UNR declared bankruptcy in 1982. Rohn assured Platinum that no continuing asbestos liability survived the bankruptcy. However, based on advice on counsel, Platinum terminated the deal. At trial, the Court determined that there was no legitimate basis for Platinum to be concerned about successor liability. Although the Court found that Platinum's counsel's advice was objectively unreasonable, the Court also found that Platinum had subjectively acted in good faith when terminating the deal based on the unreasonable advice. Ultimately, the Delaware Supreme Court reversed this decision, finding that the Superior Court should have applied an objective rather than subjective good faith test. See Rohn Industries, Inc. v. Platinum Equity LLC, No. 591, 2005, 2006 WL 2988698, at *3-4 (Del. Oct 20, 2006). 

Share