EORHB, INC., a Georgia corporation, and COBY G. BROOKS, EDWARD J. GREENE, JAMES P. CREEL, CARTER B. WRENN and GLENN G. BROOKS, each as personal representatives and trustees of the estate of Robert H. Brooks, Plaintiffs,
HOA HOLDINGS LLC, a Delaware limited liability company, and HOA RESTAURANT GROUP, LLC, a Delaware limited liability company, Defendants and Counterclaim Plaintiffs,
EORHB, INC., a Georgia corporation, and COBY G. BROOKS, EDWARD J. GREENE, JAMES P. CREEL, CARTER B. WRENN and GLENN G. BROOKS, each as personal representatives and trustees of the estate of Robert H. Brooks, Counterclaim Defendants.
RICHARD P. ROLLO, ESQ. JOHN MARK ZEBERKIEWICZ, ESQ. Richards,
Layton & Finger, P.A. for Plaintiffs/Counterclaim
THOMPSON BAYLISS, ESQ. Abrams & Bayliss LLP -and-DOUGLAS
H. HALLWARD-DRIEMEIER, ESQ. CHRISTOPHER G. GREEN, ESQ. AMY D.
ROY, ESQ. of the Massachusetts bar Ropes & Gray LLP for
BEFORE: HON. J. TRAVIS LASTER, VICE CHANCELLOR
MOTION FOR PARTIAL SUMMARY JUDGMENT MOTION TO DISMISS
COUNTERCLAIM AND RULING OF THE COURT
COURT: Welcome, everyone. Mr. Bayliss, how are you?
BAYLISS: Good afternoon, Your Honor. Tom Bayliss on behalf of
HOA Restaurant Group. I rise to introduce Mr. Douglas
Driemeier, Chris Green and Amy Roy from Ropes & Gray.
COURT: Great. Welcome to all of you. Mr. Rollo, how are you
ROLLO: I'm doing well, Your Honor. Yourself?
ROLLO: For the record, this is Rich Rollo of Richards, Layton
& Finger, and I represent the plaintiffs in this action.
With me at counsel table is my colleague, John Mark
COURT: Mr. Zeberkiewicz, how are you. Mr. Zeberkiewicz has
not often darkened the doors of the courtroom.
ZEBERKIEWICZ: Absolutely correct.
COURT: It's good to see you, a transactional lawyer
learning how to make his way down to 500 King Street.
You're always welcome here, Mr. Zeberkiewicz.
ZEBERKIEWICZ: Thank you, Your
ROLLO: Your Honor, we're before the Court today on our
motion for partial summary judgment and also a motion to
dismiss. I know Your Honor is familiar with the papers, so
I'll briefly summarize our position and then address any
questions Your Honor may have.
believe this case is relatively simple. Sophisticated parties
negotiated a settlement that included the exchange of a
specific release. Neither side claims they were tricked or
defrauded or some mistake occurred that resulted in the
we simply disagree over what the words on the page mean. The
release was executed in May 2011 which was about four months
after the parties engaged in a merger transaction pursuant to
which the buyers purchased the Hooters restaurant chain from
release was exchanged as part of a global settlement of a
prior litigation before Your Honor involving, among other
things, who had the right to purchase the restaurant chain.
time in May of 2011, the transaction had closed, but the
parties had continuing obligations under the merger agreement
which we wanted to preserve. So we included a carveout.
It's the scope and operation of that carveout that is the
dispute before the Court today.
the release is attached as Exhibit G to our opening brief. On
the third page is the language that's disputed, the
beginning of it. It starts, and it's a single sentence
that begins with, I'll say, your typical laundry list
identifying the types of claims and rights released,
including the conflicting adjectives to include everything
under the sun and make clear that there are no limitations.
because this is a specific release, toward the bottom of the
page, about five lines from the bottom, there is a limitation
on that laundry list, and I'm paraphrasing, arising from
or related to indirectly or directly any of nine enumerated
categories. In clause five, it says the sale of Hooters. Now,
I'm paraphrasing that as well, but it's the sale of
Hooters pursuant to the merger transaction.
rights and any obligations under the merger agreement would
have been eliminated without a carveout. So following the
list of nine categories, there are two provisos separated by
semicolons. The first, about halfway down the page on the
third page, begins "provided however, " and it
creates a specific carveout for enforcement of the settlement
agreement. It doesn't purport to modify the definition of
released claims. It says "provided however, nothing in
the second proviso begins four lines later and starts after
the second semicolon with "provided further, however,
" and it creates a carveout for the merger and related
transactions. That's followed by a carveback where it
says "except that" and the carveback says released
claims cannot be the basis for a breach of the merger
agreement and won't result in a purchase price adjustment
pursuant to the operative contract.
think that the only reasonable read -- in fact, the only read
of this language -- is that the parties agreed that they
could, on a forward-looking basis, enforce the merger
agreement and that any breach of contract claims that existed
from that date back in time were released.
the indemnifications we're here today about are
predicated upon purported breaches of the merger agreement
that occurred before the release date; in fact, in or around
January 2011 when the reps and warranties were supposed to
have been true, and there's also one claim with respect
to a pre-closing operation of the company, the pre-closing
operations covenant. All of those were released, we say,
under the operative agreement.
friends make several arguments, and I'll respond to most
of them on rebuttal, but there is one I'd like to address
briefly. That's the argument that some temporal ambiguity
exists in the document that precludes summary judgment.
Briefly, and they'll state it for themselves, in the
beginning part of the contract, there is a phrase that says
"which now exists or heretofore after existed or may
hereafter exist." I think I mangled that. I could say it
again, but Your Honor understands the concept. Seven lines
later, there's another phrase that says "in
existence from the beginning of time to the date of this
that alleged conflict -- and we, in our reply brief, say we
don't believe it's a conflict, but let's assume
that is a conflict. It doesn't matter in this case.
We're not arguing about breaches that supposedly occurred
after execution of the release. We're arguing about
breaches that existed on the date of the release under either
definition. Under either temporal phrase, they fall within
the definition of released claims. Because they fall within
the definition of released claims, they were barred under the
second part of the second proviso.
I'm happy to address any of the arguments or questions
Your Honor may have. I think it may be more efficient if my
friends, since they have several arguments, would state the
arguments and I can reply on rebuttal.
COURT: Let me ask you one thing before you sit down.
ROLLO: Yes, Your Honor.
COURT: How do you pronounce the entity that is now successor
to the estate, EORHB?
ROLLO: EORHB is how I say it. It's the Estate of Robert
COURT: The estate, as the predecessor to EORHB, signed a
comparable release that is one of the ones that you
collected, that is collected behind Exhibit E; true?
ROLLO: Yes, Your Honor.
COURT: EORHB's claim to additional monies from the
indemnification agreement arose at closing, right?
ROLLO: I don't believe I agree with that, Your Honor. A
certain amount of the consideration payable to us was set
aside in an escrow account. And if valid claims were not
presented under that, we received it when the escrow expired.
That is a contractual obligation under the merger agreement
and separately under the escrow agreement. And under the
releases, there is a carveout for future enforcement of the
COURT: You think that claim for the access of the
indemnification agreement falls under the enforcement of the
merger agreement proviso?
ROLLO: Yes, Your Honor.
COURT: You don't think that a right against the escrow
agreement is a right that would fall under the definition of
ROLLO: I don't, Your Honor, for two reasons. First, it is
a contractual obligation under the escrow, and that if valid
claims are not made against the escrow, the escrow agent is
directed to tender the rest of that money to us last summer.
So if, at that point in time, $11 million remained, it's
either given to us or it stays there presumably in perpetuity
because the buyers wouldn't have a claim against it.
COURT: I hear you. Released claims means any and all claims.
It means rights, blah, blah, blah, of any kind whatsoever,
whether known or unknown. Well, this one was known. Fixed or
contingent. Well, this is a little bit of both. As you say,
it's a fixed contractual right of which the amount the
definition of released claims, if one were to read it broadly
to include everything related to the sale of HOA, it seems to
me is sufficiently capacious to cover, in the first instance,
EORHB's claim against the escrow fund.
ROLLO: Perhaps I misunderstood Your Honor's earlier
question. I believe the initial definition does. I think then
it is saved by the second proviso that says "provided
further, however, the foregoing shall not include any claims
to enforce the terms and conditions of the merger agreement
or directly related to the transaction contemplated
COURT: Why doesn't it then founder again on the idea that
receipt of that money would result in an adjustment to the
ROLLO: Because receipt of that money, by definition on the
bottom of the second proviso, does not result in a
modification of the merger agreement. There is a --
COURT: It doesn't fall under the modification of the
merger agreement, but --
ROLLO: Purchase price adjustment. We expressly excluded that
in the bottom of the second proviso. No release claim and no
liability or payment under the accompanying settlement
COURT: The problem with that is Section 9.7 which says,
"All payments made pursuant to this Article 9 shall be
treated as adjustments to the merger consideration for tax
purposes." I agree that's for tax purposes, but it
would seem to say that the release of funds from the escrow
would be an adjustment to the merger consideration.
ROLLO: It would be an adjustment to the merger consideration
COURT: That would take it into the second "except"
clause which would mean you'd be back to the idea that
really what I ought to be doing is granting summary judgment
for the other side saying that they released their claims to
everything in the escrow fund.
ROLLO: I disagree, because I think the second portion, Your
Honor, is predicated on breaches of the merger agreement. The
first is "obligations under, " and the second is
"breaches under." Future enforcement of contractual
provisions is not a breach of the merger. If tomorrow we
breached, it would fall within that provision, so I think
there's a distinction in the first part between
"obligations under" and "breaches under."
COURT: Walk me through that again.
ROLLO: The indemnification obligation that my friends are
seeking to pursue is predicated upon purported breaches of
the merger agreement.
COURT: That's a problem for them under Romanette
ROLLO: Correct. But, for example, I'll use an example --
COURT: I'm focused on Romanette "ii". I think
your problem is the breadth of your argument as to released
claims is so powerful that it seems to me that it runs into
exception two. I agree with you your issue isn't that
it's a breach under exception one.
seems to me to be your problem is that you agree
contractually that any additional money you got was going to
be an adjustment to the merger consideration, and you're
now telling me that you released anything that fit within the
definition of released claims that could result in an
adjustment to the merger consideration, and so by the force
of your powerful interpretation of released claims,
hasn't your fellow given up his adjustment to the merger
ROLLO: I don't believe so, because as I read the second
Romanette, it says "no released claims shall result in
adjustment to the merger consideration."
the merger consideration is a defined term under the merger
agreement. The escrow didn't result in a lower amount. It
was simply an amount of money that was set aside and the
merger consideration itself remained constant. That payment
was just delayed. Had it resulted in a reduction, which I
believe Your Honor is positing, that escrow amount would then
be deducted from the overall merger consideration. That would
then be barred by Romanette "ii". I believe
Romanette "ii" operates to prevent the exact issue
that Your Honor is raising.
a provision, I believe, at Section 9.3 that talks about how
purchase price adjustments are made under the merger
agreement. It's Section 2.3 of the merger agreement.
Basically, it provides a process post-closing where either
side can identify certain issues that would result in a
change in the merger consideration.
adjustments aren't based upon a claim that we breached
the merger agreement or that the other side breached the
merger agreement. It was simply the accounting process in
place. Romanette "ii" in the release is focused on
order for I believe what Your Honor is positing that the
escrow functionally is waived, that would presuppose that by
putting the escrow funds in escrow, it somehow impacts the
merger consideration, and I would submit to Your Honor it
does not. The consideration is the consideration. 11.5 of
that consideration was simply held for a period of time
subject to the rights under 9.3 for indemnification.
COURT: It does create an interesting interpretive question
because 2.1(b) says that your company membership interests
that EORHB owned were converted into the right to receive
Romanette "i", net merger consideration plus
various other amounts which include amounts released from the
escrow agreement, and it defines those latter amounts as
contingent merger payments.
again, I look at that, and I think, okay, well, are
contingent merger payments part of the merger consideration
such that they represent an adjustment? They seem to be
something other than net merger consideration. Then I get
back here to 9.7, treatment of indemnity payments, and it
says, "All payments pursuant to this Article 9 shall be
treated as adjustments to the merger consideration for tax
what you're telling me is that Section 9.7 is only
intended to be payments to HOA and folks, not releases from
the escrow agreement.
ROLLO: I think functionally that's correct, Your Honor,
because the escrow agreement itself is a separate document
that says if you don't have indemnification claims
validly made against it, then, at the end of its term, those
funds are released, and that in terms of merger
consideration, whether that consideration is contingent or
absolute, it's still merger consideration.
Your Honor's definition of 2.1(b), contingent merger
payments, those are still part of the merger consideration.
Then if you go back to the release Romanette "ii"
it says that the settlement agreement and whatnot will not
result in a modification of the merger consideration,
paraphrasing, of course.
COURT: You obviously resist any broad construction of the
release that gave up the escrow.
ROLLO: Absolutely, Your Honor. THE COURT: All right. Let me