Submitted: January 14, 2015.
Case Closed February 10, 2015.
Court Below: Superior Court of the State of Delaware in and for New Castle County. C.A. No. N10C-07-103 JRJ CCLD.
Denise S. Kraft, Esquire, Laura D. Hatcher, Esquire, Brian A. Biggs, Esquire, DLA Piper LLP, Wilmington, Delaware; Donald J. Wolfe, Jr., Esquire (argued), Arthur L. Dent, Esquire, Potter Anderson & Corroon LLP, Wilmington Delaware; John A. Tarantino, Esquire, Adler Pollock & Sheehan P.C., Providence, Rhode Island, for Appellant.
C. Barr Flinn, Esquire (argued), Tammy L. Mercer, Esquire, Benjamin Z. Grossberg, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware, for Appellee.
Before STRINE, Chief Justice; HOLLAND and VAUGHN, Justices.
STRINE, Chief Justice:
Textron, Inc. appeals from a judgment by the Superior Court holding that the company is not entitled to reimbursement from its former fastening manufacturing business, now known as Acument Global Technologies, Inc. (" Acument" ), for paying certain pre-closing contingent liabilities in the United States. The Superior Court's opinion centered on the meaning of a " tax benefit offset" provision in the parties' Purchase Agreement under which Acument was required to reimburse Textron if Acument received a " tax benefit" related to the contingent liabilities. The Superior Court rejected Textron's interpretation of
the Agreement that Acument only needed to be hypothetically able to take advantage of a tax benefit to trigger the offset, in the sense that any step-up in Acument's tax basis constituted a benefit even if the overall effect of the transaction was tax-neutral because of an off-setting step-down. Textron claims not to appeal that aspect of the Superior Court's ruling, but argues that even if the tax benefit has to be actual rather than merely hypothetical, the Superior Court erred by not finding that Acument actually enjoys the right to tax benefits. Textron contends that its payment of the pre-closing liabilities constitutes a tax benefit because the payments automatically increase Acument's tax basis under U.S. tax law.
But, as Acument points out, the increase in Acument's basis is fully offset by a simultaneous decrease because Textron, not Acument, paid the liabilities per the parties' Agreement. In other words, the Agreement, taken as a whole as it must be, guaranteed that Acument would not receive a net tax benefit simply because Textron made a required indemnification payment. Accordingly, Textron's argument that Acument has received a tax benefit triggering Textron's right to reimbursement is without merit, as the total effect of Textron's payments is tax-neutral.
Similarly, Textron's second and related claim that the Superior Court erred in " redefining" the required tax benefit to mean only a " deduction" rather than any " reduction" is meritless. The Superior Court made clear that it intentionally used the term " deduction" in the opinion solely to reflect the language used by both parties to describe what the Purchase Agreement required. The Superior Court also limited its determination that the required tax benefit must be a deduction to the claims that are specific to this case, and thus did not prejudice Textron's ...