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Hill v. LW Buyer, LLC

Court of Chancery of Delaware

April 8, 2019, Submitted; July 31, 2019, Decided

C.A. No. 2017-0591-MTZ

Opinion

MEMORANDUM OPINION

ZURN, Vice Chancellor.

The parties to this case entered into a securities purchase agreement in 2015 and escrowed funds to pay for valid post-closing indemnification claims. In mid-2016, the buyer asserted claims for indemnification of a diverse set of alleged tax deficiencies and breaches of the sellers' representations and warranties. In 2017, the sellers sued to settle the fate of those escrow funds and their personal liability, and the buyers counterclaimed. The sellers moved for partial summary judgment. In this opinion, I grant in part and deny in part the sellers' motion.

I. BACKGROUND

In the late 1990s, Matthew J. Hill founded Liquid [*2]  Web, Inc. and Liquid Web, B.V. (together, "Liquid Web"). He and his father, Gregg H. Hill (together with Matthew J. Hill, the "Hills" or the "Sellers"), owned all of Liquid Web's equity.1 They also jointly owned Hillcorp Properties LLC (together with Liquid Web, the "Companies"), an entity organized in 2005 that held real property associated with Liquid Web.2 Private equity funds managed by Madison Dearborn Partners, LLC ("Madison Dearborn") created LW Buyer, LLC ("LW Buyer") to acquire Liquid Web.3

A. LW Buyer Acquires The Companies.

Madison Dearborn and the Hills began discussing a potential acquisition of Liquid Web in early 2015 (the "Acquisition").4 On May 22, 2015, LW Buyer entered into a securities purchase agreement (the "Purchase Agreement")5 with the Hills and the Companies.6 On July 1, the Acquisition closed (the "Closing Date").7 LW Buyer paid $224,127,189 in cash on the Closing Date for the Companies, with an additional $416,000 following later that year as a working capital adjustment to the purchase price.8

As part of the Acquisition, the parties also entered into an escrow agreement (the "Escrow Agreement").9 Under the Escrow Agreement, LW Buyer delivered $11,250,000 (the [*3]  "Escrow Funds") to the escrow agent to hold subject to valid claims for indemnification under Article 11 of the Purchase Agreement.10 On July 11, 2016, the escrow agent was to disburse the Escrow Funds to the Hills unless pending claims for indemnification required it to keep the Funds under lock.11

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2019 Del. Ch. LEXIS 286 *; 2019 WL 3492165

MATTHEW J. HILL and GREGG H. HILL, Plaintiffs, v. LW BUYER, LLC, a Delaware Limited Liability Company, Defendant.

Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

CORE TERMS

Buyer, purchase agreement, Indemnified, indemnification, parties, Notice, Taxes, Sales, financial statement, escrow fund, representations, Counterclaims, summary judgment, warranties, Exposure, Receivable, Monthly, Recurring, Third-Party, provisions, Losses, Misstatements, Survival, Answering, obligations, use tax, breaches, Records, waived, indemnity claim

Business & Corporate Compliance, Contract Modifications, Contracts Law, Contract Modifications, Civil Procedure, Summary Judgment, Entitlement as Matter of Law, Appropriateness, Genuine Disputes, Materiality of Facts, Contracts Law, Contract Interpretation, Ambiguities & Contra Proferentem, Intent, Parol Evidence, Appeals, Reviewability of Lower Court Decisions, Preservation for Review, Contract Interpretation, Contract Conditions & Provisions, Indemnity Clauses, Waivers, Notice, Jurisdiction, Subject Matter Jurisdiction, Jurisdiction Over Actions, Justiciability, Ripeness, Tests for Ripeness, Appellate Briefs, Declaratory Judgments, State Declaratory Judgments, Grounds for Relief, Scope of Declaratory Judgments