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Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Company LLC

Supreme Court of Delaware

June 27, 2017

CHICAGO BRIDGE & IRON COMPANY N.V., Plaintiff Below, Appellant,
v.
WESTINGHOUSE ELECTRIC COMPANY LLC and WSW ACQUISITION CO., LLC, Defendants Below, Appellees.

          Submitted: May 3, 2017

         Court Below: Court of Chancery of the State of Delaware C.A. No. 12585.

         Upon appeal from the Court of Chancery. REVERSED.

          David E. Ross, Esquire, Garrett B. Moritz, Esquire, Ross Aronstam & Moritz LLP, Wilmington, Delaware; Theodore N. Mirvis, Esquire (argued), Jonathan M. Moses, Esquire, Kevin S. Schwartz, Esquire, Andrew J.H. Cheung, Esquire, Cecilia A. Glass, Esquire, Bita Assad, Esquire, Wachtell, Lipton, Rosen & Katz, New York, New York, for Plaintiff Below, Appellant, Chicago Bridge & Iron Company N.V.

          Kevin G. Abrams, Esquire, John M. Seaman, Esquire, Abrams & Bayliss LLP, Wilmington, Delaware; Peter N. Wang, Esquire (argued), Susan J. Schwartz, Esquire, Yonaton Aronoff, Esquire, Douglas S. Heffer, Esquire, for Defendants Below, Appellees, Westinghouse Electric Company LLC and WSW Acquisition Co., LLC.

          Before STRINE, Chief Justice; VALIHURA and SEITZ, Justices.

          STRINE, Chief Justice:

         In giving sensible life to a real-world contract, courts must read the specific provisions of the contract in light of the entire contract. That is true in all commercial contexts, but especially so when the contract at issue involves a definitive acquisition agreement addressing the sale of an entire business.

         In this case, Chicago Bridge & Iron Company N.V. ("Chicago Bridge") and Westinghouse Electric Company ("Westinghouse") had an extensive collaboration and complicated commercial relationship involving the construction of nuclear power plants by Chicago Bridge's subsidiary, CB&I Stone & Webster, Inc. ("Stone"), including two which would be the first new nuclear power plants in the United States in thirty years. As delays and cost overruns mounted, this relationship became contentious. To resolve their differences, Chicago Bridge agreed to sell Stone to Westinghouse. The agreement to do so was unusual in a few key respects. First, the purchase price to be paid at closing by Westinghouse was set in the contract at zero, [1] a figure in Yiddish that, perhaps appropriately given Chicago Bridge's Chicago connection, sounds like an iconic linebacker. The parties came to that figure in part by considering Stone's historical financial statements and management projections and by basing it upon a target for Stone's net working capital-its current assets less current liabilities-of $1.174 billion. That target is referred to in the Purchase Agreement as the "Target Net Working Capital Amount, " and we will refer to it as "the Target" for short.[2] The parties also agreed Chicago Bridge might receive certain payments at closing if project milestones were met by that time or at a later date through an earnout provision.[3] Given the difficulties with the nuclear projects, it was likely that no money would change hands at closing, or, that after closing, the only money to change hands would be the amount constituting the difference between Stone's actual net working capital as of closing and the Target. In other words, if the value of Stone's working capital stayed at the Target as of the time of closing, Chicago Bridge would receive zero. If the value of Stone's working capital was different from the Target, Chicago Bridge would owe the delta if the difference was negative, and Westinghouse would owe the delta if the difference was positive. We refer to the process the Purchase Agreement sets out for calculating these payments as the "True Up" and the resulting price including the delta as the Final Purchase Price.[4] So, at closing, Westinghouse would get Stone and might have to make a payment to Chicago Bridge, to account, for example, for the expectation that Chicago Bridge would make substantial capital expenditures before closing so Stone's construction projects could continue. This was almost certain because the Purchase Agreement contained a covenant requiring Chicago Bridge to continue to run Stone, a construction firm, in the ordinary course of business until closing. But, regardless, Chicago Bridge would not be walking away from the deal with a check in hand constituting anything one could call sale profits in the colloquial sense of that term.

         Second, and important for understanding how this zero purchase price made commercial sense, although Chicago Bridge was only selling a subsidiary and would carry on business after the transaction concludes, Westinghouse agreed that its sole remedy if Chicago Bridge breached its representations and warranties was to refuse to close, and that Chicago Bridge would have no liability for monetary damages post-closing (the "Liability Bar"). Furthermore, Westinghouse agreed to indemnify Chicago Bridge for "all claims or demands against or Liabilities of [Stone]."[5] The agreement was also predicated on Chicago Bridge obtaining liability releases from the power utilities that would ultimately own the nuclear plants being built in the United States.[6] Thus, this transaction gave Chicago Bridge a clean break from the spiraling cost of the nuclear projects. That view of the overall transaction is buttressed by the Westinghouse CEO's apparent description of the transaction as a "quitclaim."[7] In other words, although Chicago Bridge was to get no profit from the sale at the time of closing and had little likelihood of any future upside through the earnout, it also got to walk away and not worry about the projects.

         The True Up also contained provisions to settle any disputes over the Final Purchase Price by referring them to an independent auditor who was to act "as an expert and not as an arbitrator, "[8] had to issue its decision in the form of a "brief written statement" in an expedited time frame of 30 days, and had to rely on the parties' written submissions as the sole basis for its decisions.[9]

         In contesting Chicago Bridge's calculation of the Final Purchase Price, Westinghouse asserted that Chicago Bridge, which had been paid zero at closing and had invested approximately $1 billion in the plants in the six months leading to the December 31, 2015 closing, owed it nearly $2 billion! As Westinghouse admits, the overwhelming percentage of its claims are based on the proposition that Chicago Bridge's historical financial statements-i.e., the very ones on which Westinghouse could make no post-closing claim-were not based on a proper application of generally accepted accounting principles ("GAAP"). By way of example, Chicago Bridge had historically booked as an asset certain large claims it had against Westinghouse for construction costs Chicago Bridge incurred on their joint nuclear projects, claims that Westinghouse obviously knew about and that were among the reasons principally motivating the transaction. Westinghouse now argues that those claims were not accounted for in Stone's financial statements in accordance with GAAP. But, although Westinghouse says it believed that to be true before closing, Westinghouse, which had the right to refuse to close if Chicago Bridge had breached its representations and warranties, chose to close anyway. Westinghouse then raised this and other claims that were dependent on proving that the accounting practices that undergirded the financial statements on which no claims could be brought post-closing were improper, but argued that it nonetheless could do so as part of the contractual True Up resulting in the Final Purchase Price.

         After Westinghouse made these claims, Chicago Bridge and Westinghouse unsuccessfully attempted to resolve their differences. But, once it was clear that Westinghouse would seek to have the Independent Auditor require Chicago Bridge to pay over $2 billion to it based on contentions that Chicago Bridge's historical accounting practices were not GAAP compliant, Chicago Bridge filed this action seeking a declaration that Westinghouse's changes based on assertions that Stone's financial statements and accounting methodologies were not GAAP compliant are not appropriate disputes for the Independent Auditor to resolve when those changes are, in essence, claims that Chicago Bridge breached the Purchase Agreement's representations and warranties and therefore are foreclosed by the Liability Bar. Westinghouse moved for judgment on the pleadings, arguing that the Purchase Agreement established a mandatory process for resolving the parties' disagreements. The Court of Chancery held for Westinghouse, reading the True Up as providing Westinghouse with a wide-ranging, uncabined right to challenge any accounting principle used by Chicago Bridge, however consistent that principle was with the ones used in the financial statements represented to be GAAP compliant, and empowering the expert to resolve that dispute in a truncated, rapid proceeding. We conclude that the Court of Chancery erred in interpreting the Purchase Agreement this way.

         When viewed in proper context, the True Up is an important, but narrow, subordinate, and cabined remedy available to address any developments affecting Stone's working capital that occurred in the period between signing and closing. By way of example, the True Up emphasizes that net working capital should be determined using the same accounting principles that were used in preparing the financial statements represented by Chicago Bridge to be GAAP compliant. It does so by stating that working capital was "to be determined in a manner consistent with GAAP, consistently applied by [Chicago Bridge] in preparation of the financial statements of the Business, as in effect on the Closing Date."[10] This language is in line with other pertinent language, which requires consistency with "past practices" and with the basic idea that the True Up is used to set a Final Purchase Price based on developments after the initial price of zero was set.[11] Thus, the True Up was tailored to address issues that might come up if Chicago Bridge tried to change accounting practices midway through the transaction or if it stopped work on the projects, rather than continue to invest as expected.

         By reading the True Up as unlimited in scope and as allowing Westinghouse to challenge the historical accounting practices used in the represented financials, the Court of Chancery rendered meaningless the Purchase Agreement's Liability Bar. The Court of Chancery also slighted the requirement in the text of the Purchase Agreement that Westinghouse indemnify Chicago Bridge for a broad set of claims related to Stone. Not only that, it then subjected Chicago Bridge to unlimited post-closing liability by way of an expedited proceeding before an accounting expert who was charged with delivering a rapid decision based solely on written submissions of the parties.[12] By so interpreting the contract, the Court of Chancery failed to give adequate weight to the structure of the Purchase Agreement and the subordinate and confined purpose of the True Up. And, it failed to consider that the reason parties can hazard having an expert decide disputes in this blinkered, rapid manner is because when considering claims under the True Up, the expert is addressing a confined period of time between signing and closing using the same accounting principles that were the subject of due diligence and contractual representations and warranties, and thus formed the foundation for the parties' agreement to sign up and close the transaction.

         We therefore reverse and require the entry of a judgment on the pleadings for Chicago Bridge. The Court of Chancery should declare that, under the Purchase Agreement, Westinghouse's arguments based on assertions that Chicago Bridge's historical financial statements and practices did not comply with GAAP may not be heard in proceedings before the Independent Auditor and should enjoin Westinghouse from submitting to the Independent Auditor or continuing to pursue already-submitted claims not based on changes in facts and circumstances between signing and closing.

         I.

         A.[13]

         Chicago Bridge built nuclear power plants through its subsidiary Stone. Stone is an engineering and construction firm, with substantial experience in power generation projects, which Chicago Bridge purchased in 2013. Westinghouse designs nuclear power plants. In 2008, Westinghouse and Stone were hired as part of a consortium to build two nuclear power plants. One was to be built in Georgia and the other was to be built in South Carolina. Both plants would be cutting-edge AP1000 models designed by Westinghouse.[14] These would have been the first new nuclear power plants built in the U.S. in over thirty years and the first to be built under a new regulatory regime. Indeed, the relevant regulator did not approve construction of the reactors until 2012. The construction suffered from delays and material cost overruns, driven by various factors including regulator-driven design changes. This resulted in disagreements between Westinghouse and Chicago Bridge. To resolve those differences, they agreed that Westinghouse would acquire Stone from Chicago Bridge in exchange for, among other things, Chicago Bridge ceasing to have responsibility for the nuclear projects.

         B.

         Before they signed the Purchase Agreement, Chicago Bridge and Westinghouse held extensive negotiations. Chicago Bridge gave Westinghouse Stone's financials, including the June 30, 2015 balance sheet, "[n]ear the start of negotiations" in July 2015.[15] During negotiations leading to signing, Chicago Bridge and Westinghouse also agreed to a net working capital target of $1.174 billion- what we've been calling the Target-and that was referred to in documents like the August 13, 2015 "Aligned Positions" term sheet.[16] Through the True Up process, Chicago Bridge and Westinghouse would compare Stone's actual working capital to the Target and pay one or the other party to the extent the actual working capital differed from the Target. The result of the True Up would be added together with any earnout payments due at closing to comprise the Final Purchase Price. Thus, the Target was a basic building block of the exchange Chicago Bridge and Westinghouse were contemplating along with its zero value starting price.

         As part of the documents prepared for signing, the parties prepared an example of the calculations they would exchange as part of the True Up: Schedule 1.4(f) of the Purchase Agreement. The Purchase Agreement defined the actual net working capital at closing (the "Net Working Capital Amount") as Stone's current assets less current liabilities "solely to the extent such assets and liabilities are described and set forth on Schedule 1.4([f])."[17] The calculation for the Target included accounts encompassing accounts receivable, the net Construction in Progress asset account which was comprised of completed but unbilled work and the "claim cost" asset, and accounts payable for the two nuclear projects. That Schedule uses the June 30, 2015 balance sheet Chicago Bridge represented was GAAP compliant.[18] The Schedule is fairly simple:

         Schedule 1.4(f) - Sample Calculation of Net Working Capital Amount

         (adjusted to reflect the Business)

         (in thousands)

Balance as of June 30, 2015

Assets:

Cash and Cash Equivalents

416

Accounts Receivable

108, 415

Inventory

0

Prepaid Expenses

5, 049

Costs and estimated earnings in excess of billings

1, 250, 066

Other Current Assets

587

Total Current Assets

1, 364, 533

Liabilities:

Trade and accounts Payable

211, 934

Accrued Expenses and other current Liabilities

40, 190

Billings in Excess of costs and estimated earnings

85, 981

Total Current Liabilities

338, 105

Estimated Net Working Capital Amount

$1, 026, 428

Target Net Working Capital Amount (in thousands):

$1.174.000

Difference between the Target Net Working Capital Amount and Estimated Net Working Capital Amount (in thousands):

$147, 572[19]

         Another way of putting it is this. Assume the parties decided to close retroactively to the June 30 financials or closed at a date when Stone's net working capital was exactly the same as on Schedule 1.4(f). If that was the case, Chicago Bridge would have owed Westinghouse around $147.5 million because Stone's working capital in the June 30 financials was that amount below the Target. So, the Target was important because it was the benchmark value that the parties were to use in coming to the purchase price, which would have to account for, among other things, the reality that Chicago Bridge had to continue to spend around $1 billion on the nuclear projects before closing.

         C.

         On October 27, 2015, Chicago Bridge and Westinghouse signed the Purchase Agreement, which provided for a purchase price of $0 at closing, [20] subject to the post-closing adjustment True Up and with the potential for deferred consideration and earnout payments based on project milestones in the future:

(a) The aggregate consideration for the purchase of the Transferred Equity Interests shall be an amount in cash equal to:
(i) (A) $0, less (B) the Closing Indebtedness Amount, (C) (x) if the amount of the Target Net Working Capital Amount exceeds the Net Working Capital Amount, less the amount by which the Target Net Working Capital Amount exceeds the Net Working Capital Amount and (y) if the Net Working Capital Amount exceeds the Target Net Working Capital Amount, plus the amount by which the Net Working Capital Amount exceeds the Target Net Working Capital Amount, less (D) the Company Transaction Expenses (the amount resulting from the calculation in this Section 1.2(a)(i), the "Closing Date Purchase Price"); plus
(ii) any Deferred Purchase Price that becomes due and payable to Seller Parent or any of its Affiliates in accordance with this Agreement; plus
(iii) any Net Proceeds Earnout Amounts that become due and payable to Seller Parent or any of its Affiliates in accordance with this Agreement; plus
(iv) any Milestone Payments that become due and payable to Seller Parent or any of its Affiliates in accordance with this Agreement (together with the Closing Date Purchase Price, Deferred Purchase Price and Net Proceeds Earnout Amounts, the "Aggregate Purchase Price").[21]

         In exchange, Chicago Bridge would be released from all future liabilities related to Stone, and especially the two still-incomplete nuclear power plants. That release took the form of the Liability Bar, [22] indemnification by Westinghouse of Chicago Bridge, [23] and a condition to closing that the power utilities that would operate the plants sign agreements releasing Chicago Bridge from claims related to the construction of those plants.[24]

         i.

         Chicago Bridge made representations as part of the Purchase Agreement, including that Stone's financial statements for the year ending December 31, 2014 and as of June 30, 2015, had "been prepared in accordance with GAAP"[25] and that Stone had no undisclosed liabilities.[26] But, as has been discussed, Section 10.1 of the Purchase Agreement, what we have called the Liability Bar, stated that those representations, along with virtually all the other representations and warranties made by Chicago Bridge, would not survive closing[27] and Chicago Bridge would have "no liability for monetary damages after the Closing" absent actual fraud.[28] Provisions like the Liability Bar are unusual. The American Bar Association Business Law Section M&A Market Trends Subcommittee's survey of private transactions completed in 2014 suggests virtually all private deals provided for some post-closing survival of representations and warranties.[29] Indeed, "[b]y far the most common matter with respect to which indemnities are given is a Seller's breach of the representations and warranties . . . rendered in the acquisition agreement in favor of the Buyer."[30] Section 10.3, however, carved out the True Up:

This Article X shall not (i) operate to interfere with or impede the operation of the provisions of Section 1.4(c) providing for the resolution of certain disputes relating to the Final Purchase Price between the parties and/or by an Independent Auditor . . . .[31]

         ii.

         In contrast to the lack of indemnification of Westinghouse as buyer for post-closing breaches of the seller's representations and warranties, the Purchase Agreement required Westinghouse to indemnify Chicago Bridge. This indemnification for claims related to Stone was broad: "regardless of where or when or against whom such claims, demands or other Liabilities are asserted or determined or whether asserted or determined prior to, on or after [signing or closing]."[32] This too is an unusual provision. In purchase agreements, "there is invariably an article dealing with indemnification of the purchaser by the seller or seller's stockholders. Never the other way around . . . ."[33] As another commentator noted, although "indemnification can inure to the benefit of a Seller, " it is "generally considered in the context of a Buyer's right to collect from the Seller."[34] Indeed, even where those commentators allow that it is conceivable that a seller might be indemnified, they appear to be focused strictly on indemnification for breaches of representations and warranties, not the broad indemnification for all liability found here.[35]

         The Purchase Agreement also contained an additional, material limitation on Chicago Bridge's liability related to Stone's construction projects. One condition precedent to closing-one of only three that was a condition to both Chicago Bridge's and Westinghouse's obligation to close-stated that neither party was obligated to close if liability releases Chicago Bridge anticipated receiving from the power plant owners were not "valid and binding and in full force and effect" as of the Closing Date.[36]

         iii.

         It is worth summarizing where things stood when Westinghouse signed the Purchase Agreement on October 27. Westinghouse had copies of Stone's financial statements that Chicago Bridge represented complied with GAAP. Westinghouse also had, in the form of Schedule 1.4(f), an indication that, at least based on those financials for the first half of 2015, Stone's net working capital would have been slightly below the Target and so Chicago Bridge could have been expected to make a payment to Westinghouse if they had closed the deal on those financials. But, Westinghouse also knew that the Purchase Agreement obligated Chicago Bridge to continue to operate Stone in the ordinary course of business, [37] which, given that its business was construction, would involve continuing to invest in the nuclear projects. Thus, Westinghouse would have expected that, as happened throughout the projects, Chicago Bridge's continued funding of Stone's work would result in an increase in net working capital. Furthermore, Westinghouse knew that the Purchase Agreement the parties were signing would rid Chicago Bridge at closing of current and future liability for the spiraling costs associated with Stone's projects, and covering those liabilities would be the responsibility of Westinghouse and the projects' ultimate owners. In exchange, Chicago Bridge would give Stone to Westinghouse for a price set presumptively at zero.

         D.

         i.

         After signing, Chicago Bridge continued Stone's construction of the two nuclear plants, spending around $1 billion on their construction between June 30 and closing alone.[38] Westinghouse and the ultimate plant owners didn't pay nearly that amount to Chicago Bridge, [39] so, as commonly occurs when a business does the thing that it is in business to do and doesn't get paid immediately, Stone's short-term assets like accounts receivable increased.

         The multi-step True Up process began just before closing. First, at least three business days before closing, Chicago Bridge had to deliver a statement to Westinghouse of its good faith estimate of certain amounts (the "Closing Payment Statement"), including the Net Working Capital Amount. The Closing Payment Statement had to be "prepared and determined from the books and records of the Company and its Subsidiaries and in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated and with the Agreed Principles."[40] The Agreed Principles provided:

Working Capital . . . will be determined in a manner consistent with GAAP, consistently applied by [Stone] in preparation of the financial statements of the Business, as in effect on the Closing Date. To the extent not inconsistent with the foregoing, Working Capital . . . shall be based on the past practices and accounting principles, methodologies and policies applied by [Stone] and its subsidiaries and the Business (a) in the Ordinary Course of Business and (b) in the preparation of: (i) the balance sheet of the [Stone] and its Subsidiaries for the year ended December 31, 2014 (adjusted to reflect the Business); and (ii) the Sample Calculation set forth on Schedule 1.4(f).[41]

         So, on December 28, 2015, three days before closing, Chicago Bridge presented Westinghouse with its Closing Payment Statement, which included an estimated Net Working Capital Amount of $1.6 billion, approximately $428 million more than the Target. The increase was largely a result of the substantial construction costs Chicago Bridge incurred during the second half of 2015. Thus, absent other changes, Westinghouse would have been on the hook for that $428 million in bills Westinghouse and the utilities hadn't paid to Stone, a contribution that was expected given the ongoing nature of the construction on the projects. Westinghouse received this Closing Payment Statement, which it concedes was identical in form to what the Purchase Agreement required in Section 1.4(f) and Schedule 1.4(f). And, with that Statement in hand, on December 31, 2015, Westinghouse chose to close.

         ii.

         In the second step of the True Up, Westinghouse had to deliver to Chicago Bridge no later than ninety days after closing its calculations of certain amounts (the "Closing Statement"), including the Net Working Capital Amount and its estimate of the Final Purchase Price, which, like the Closing Payment Statement, was to be "prepared and determined from the books and records of the Company and its Subsidiaries and in accordance with United States generally accepted accounting principles ('GAAP') applied on a consistent basis throughout the periods indicated and with the Agreed Principles."[42] Westinghouse asked for an extension of the ninety-day deadline, which it received.

         Then, on April 28, 2016, Westinghouse presented the Closing Statement to Chicago Bridge in which it calculated that the Net Working Capital Amount was negative $976.5 million, more than $2 billion less than the Target. Based on this calculation, and absent other changes, Chicago Bridge owed Westinghouse over $2 billion. As Westinghouse concedes, "the majority" of its claims do not arise from changes in Stone's business between signing on October 27 and closing December 31.[43] Similarly, Chicago Bridge admits that, of the roughly $2 billion at issue, about $70 million are issues that involve a change in fact or circumstance that arose between signing and closing and are properly before the Independent Auditor.[44]

         The large discrepancy between Chicago Bridge's estimate and Westinghouse's calculation was mostly the result of three changes that Westinghouse made in its calculation. None of these large changes were based on events between signing and closing. First, Westinghouse recalculated the $1.16 billion "claim cost" asset on Stone's balance sheet. The "claim cost" asset represented "the costs incurred and paid for by [Stone] for items that would be presented for recovery from either the project owners or Westinghouse as a matter of contractual entitlement or as claims for overruns for which [Stone] was not responsible."[45] In other words, these represent some of the very cost overruns that triggered Chicago Bridge's desire to walk away from Stone and its projects.

         Chicago Bridge had historically estimated 100% collectability of the "claim cost" asset, including in calculating the Target and example calculation found in Schedule 1.4(f) because they were based on the GAAP-warranted June 2015 financials. Westinghouse now asserted that historical approach violated GAAP. Instead, Westinghouse argued that the "claim cost" asset should be reduced by 30%-to reflect that 30% of these costs would likely not be recoverable-and also that Chicago Bridge should have recorded a reserve liability of hundreds of millions of dollars for related losses Stone would have taken as a result of design changes going forward. In essence, Westinghouse argued that it would not have honored all of its obligations under the consortium agreements and would have avoided liability for some of Stone's claims for recovery. Thus, Westinghouse's argument could be summarized as "although our initial deal was you get a release from the spiraling costs of these projects going forward and we get the bulk of the potential upside, now we want to stick you with close to $1 billion more of those costs that you thought you were getting rid of when you gave us Stone." These changes resulted in a $903.9 million decrease in the Net Working Capital Amount.[46]

         Second, Westinghouse asserted that the projects would cost approximately $3.2 billion more to complete than Chicago Bridge had originally predicted and, therefore, that Chicago Bridge should have recorded an additional liability of $956.6 million, again based on Westinghouse's assertion that 30% of the additional costs would not be recoverable from Westinghouse or the project owners. Much like the first item, Chicago Bridge had accounted for these costs in a consistent way in the past and the increase represented the precise reason Chicago Bridge was willing to hand Stone over for zero dollars in the first place. And, Westinghouse did not point to changes after signing that are driving the increased costs.

         Third, Westinghouse asserted that Chicago Bridge omitted a margin fair value liability of $432 million from Stone's balance sheet that Chicago Bridge had recorded in connection with its acquisition of Stone in 2013.[47] The margin fair value liability is a non-cash account established by a purchaser to reflect a reduction of the net purchase price driven by the purchaser's assumption of an unfavorable contract.[48] This liability was included in Chicago Bridge's financial statements, but it had never been included in Stone's financial statements or the Target.[49]

         * * *

         The sum total of the logic of Westinghouse's claims is worth stating. Based on challenges to large items included in the financials that Chicago Bridge represented were GAAP compliant, which Westinghouse knew about before closing, and which it did not use as a basis not to close, Westinghouse now says that it should keep Stone, which it got for zero dollars, and be paid by Chicago Bridge over $2 billion for taking it! iii.

         In the True Up's third stage, Chicago Bridge had sixty days to review the Closing Statement and dispute elements of the Closing Statement in writing (the "Objections Statement"). If Chicago Bridge delivered an Objections Statement, Westinghouse and Chicago Bridge had to negotiate in good faith for thirty days to resolve its contents. Unsurprisingly, Chicago Bridge raised several objections to Westinghouse's calculations, which the parties attempted to resolve through negotiation.

         When, as was the case, Chicago Bridge and Westinghouse could not reach an agreement by the end of this thirty-day period, either party was permitted to submit the dispute to the Independent Auditor, identified in the Purchase Agreement as KPMG. The Independent Auditor was to function "solely as an expert and not an arbitrator" and was not permitted to assign a value to any item greater than the highest value for the item claimed by Chicago Bridge or Westinghouse or less than the lowest value claimed for the item by Chicago Bridge or Westinghouse.[50] The Independent Auditor was limited in several other ways. The Independent Auditor was to base its conclusions solely on written submissions from Chicago Bridge and Westinghouse, had thirty days to make its conclusion, and that conclusion was to come in the form of "a brief written statement."[51] Any determination made by the Independent Auditor was to be "final, conclusive, binding, non-appealable and incontestable by the parties."[52]

         iv.

         Chicago Bridge filed this action against Westinghouse and alleged that Westinghouse's calculation of the closing date adjustment breached the express terms of the Purchase Agreement and the implied covenant of good faith and fair dealing. At that time, Westinghouse had not invoked the Independent Auditor, but, it seemed certain Westinghouse intended to do so.[53] Chicago Bridge, therefore, sought an order declaring that Westinghouse's claims over the Net Working Capital Amount were actually claims for breaches of the representations, which had been extinguished under the Liability Bar, and further declaring that Westinghouse could not circumvent the Liability Bar by submitting its claims to the Independent Auditor under the True Up. Westinghouse moved for judgment on the pleadings, arguing that the True Up establishes a mandatory process for resolving the parties' disagreements. The Court of Chancery granted Westinghouse's motion, finding that the unambiguous language of the Purchase Agreement required the Closing Payment Statement and Closing Statement to be GAAP compliant, and that the Independent Auditor's authority extends to all disputes related to the Objections Statement and Closing Statement. This appeal followed.

         II.

         This Court reviews de novo the Court of Chancery's grant of a motion for judgment on the pleadings.[54] A motion for judgment on the pleadings may be granted only when no material issue of fact exists and the movant is entitled to judgment as a matter of law.[55] "[J]udgment on the pleadings . . . is a proper framework for enforcing ...


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