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East Balt LLC v. East Balt US, LLC

Court of Chancery of Delaware

May 28, 2015

East Balt LLC
v.
East Balt US, LLC

Date: Submitted: February 27, 2015

Peter J. Walsh, Jr., Esquire Jacob R. Kirkham, Esquire Potter Anderson & Corroon LLP

John P. DiTomo, Esquire Morris, Nichols, Arsht & Tunnell LLP

Dear Counsel:

Plaintiffs seek the release, over Defendants' objections, of funds held in escrow, where the money was placed to indemnify Defendants against certain risks. Defendants challenge the subject matter jurisdiction of this Court to hear Plaintiffs' claims. Although Plaintiffs seek money, they submit that a court of law cannot afford them the certain, efficient, and complete relief available from this Court through an order compelling specific performance and the payment of funds out of escrow.

I. BACKGROUND

In November 2012, East Balt US, LLC (f/k/a OEP East Balt Holdings LLC) and OEP East Balt B.V. (together, the "Defendants") purchased certain assets and assumed certain liabilities of East Balt, Inc. (the "Seller").[1] The Seller owned and operated, directly and through subsidiaries, businesses that mixed, baked, marketed, and distributed bakery products. Pursuant to the Asset Purchase Agreement (the "APA"), Defendants paid over $250 million, consisting of assumed debt and approximately $70 million in cash. Seller later converted into East Balt LLC ("East Balt"), the limited liability company plaintiff in this action.

Under the APA, a portion of the purchase price (the "Escrow Amount") was placed in escrow, pursuant to an escrow agreement (the "Escrow Agreement") with JPMorgan Chase Bank, National Association (the "Escrow Agent"), to indemnify Defendants against potential losses from post-closing claims subject to the APA's indemnity provision. Seller and K.F. Trust No. 1 (the "Trust, " and with East Balt, "Plaintiffs") agreed jointly and severally to indemnify Defendants for, inter alia, breaches of representations or warranties, noncompliance with covenants, misstatements regarding the Seller's indebtedness, and particular third party claims.[2]

The Escrow Amount was to be released eighteen months after closing (the "Release Date"), unless Defendants had asserted indemnifiable claims. On the Release Date, the parties to the APA were to "execute joint written instructions to the Escrow Agent to release the then existing Escrow Amount to Seller . . . less the amount of unresolved claims for indemnification asserted by the Purchaser Indemnitees, which have not been paid. Such unreleased amount shall be retained by the Escrow Agent."[3]

Up until the Release Date, Defendants could make a claim for indemnification by providing written notice (a "Claim Notice") "promptly after . . . receiv[ing] any written notice of any Proceeding against or involving [them] . . . or otherwise discover[ing] the liability, obligation or facts giving rise to such claim for indemnification . . . ."[4] Any such Claim Notice was required to describe the nature and estimated amount of Defendants' loss.

On June 27, 2014, the last business day before the Release Date, Defendants sent a Claim Notice to Plaintiffs and the Escrow Agent, asserting seven purported claims for indemnity from the Escrow Amount, totaling more than $7.9 million. Accordingly, the Escrow Agent made no disbursement on the Release Date. On July 8, 2014, Plaintiffs responded to the Claim Notice through an objection letter, which contested Defendants' entitlement. Under these circumstances, the Escrow Agent is required to hold the disputed funds until (i) the parties reach a written agreement or (ii) a court of competent jurisdiction enters a final and non-appealable order or judgment resolving the dispute, which is certified in writing by Defendants' counsel.[5]

II. NATURE AND STAGE OF THE PROCEEDINGS

Plaintiffs filed their Complaint on December 16, 2014, asserting breach of the APA and the Escrow Agreement. They alleged that Defendants have (i) asserted claims and losses for which they are not entitled to indemnification, (ii) failed to provide the requisite support for their stated claims, and (iii) wrongfully refused to provide the Escrow Agent with joint written instructions directing the release of the Escrow Amount. Plaintiffs also charge Defendants with breach of the implied covenant of good faith and fair dealing.

Relevant to the current motion is Plaintiffs' requested relief-specific performance of the APA and the Escrow Agreement. Plaintiffs seek an order requiring Defendants to provide joint written instructions directing the Escrow Agent to release the remaining Escrow Amount, as well as an order compelling Defendants to supply complete and accurate information on the claims and losses for which they seek indemnification. Alternatively, this Court could ...


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