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Hill v. LW Buyer, LLC

Court of Chancery of Delaware

July 31, 2019

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

          Date Submitted: April 8, 2019

          C. Barr Flinn, Emily V. Burton, Elisabeth S. Bradley, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Nicholas M. Oertel, Richard C. Kraus, James B. Jensen, Jr., FOSTER SWIFT COLLINS & SMITH PC, Lansing, Michigan; Attorneys for Plaintiffs Matthew J. Hill and Gregg H. Hill.

          William J. Lafferty, Kevin M. Coen, Jarrett W. Horowitz, MORRIS, NICHOLS, ARSHT & TUNNELL, LLP, Wilmington, Delaware; Craig S. Primis and K. Winn Allen, KIRKLAND & ELLIS LLP, Washington, D.C.; Attorneys for Defendant LW Buyer, LLC.

          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 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 "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]

         Article 3 of the Purchase Agreement lays out the Hills' and Companies' representations and warranties.[12] Several are relevant to this dispute. In Section 3.4, the Hills represented and warranted that they had delivered a series of audited and unaudited financial statements and balance sheets to LW Buyer. The Hills represented that certain annual and quarterly financial statements (the "Financial Statements") were

(i) accurate and complete in all material respects, are consistent with and fairly present[ed] the consolidated and combined financial condition and the results of operations, changes in shareholders' equity, and cash flows of the Acquired Companies as at the respective dates of, and for the periods referred to in, the Financial Statements, and (ii) were prepared in accordance with GAAP, subject, in the case of [certain] compiled financial statements[, ] . . . to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be material) and the absence of notes (that, if presented, would not differ materially from those included in the Audited Financial Statements).[13]

         The Hills also represented that "[t]he Financial Statements reflect the consistent application of GAAP throughout the periods involved, except as disclosed in the notes to the Audited Financial Statements," that "[n]o financial statements of any Person other than the Acquired Companies are required by GAAP to be included or reflected in the Financial Statements," and that "[t]he Financial Statements were prepared from, and are consistent with, the accounting Records[14] of each Acquired Company."[15] In Section 3.5, the Hills gave an additional, more general assurance that "[t]he books of account and other Records of each Acquired Company that have been made available to Buyer, are materially complete and correct, and represent actual and bona fide transactions."[16]

         In Section 3.9, the Hills stated that no Company

ha[d] any liability or obligation, other than liabilities or obligations to the extent shown on the Interim Balance Sheet and current liabilities incurred in the Ordinary Course of Business since the date of the Interim Balance Sheet (none of which is a liability for breach of contract, breach of warranty, tort, infringement, a claim or lawsuit, or an environmental liability) which would not, or would not be reasonably expected to, individually or in the aggregate, cause a Material Adverse Change.[17]

         In Section 3.10, the Hills represented and warranted, among other things, that the Companies had timely filed relevant tax returns, otherwise had their tax affairs in order, and that "no claim has ever been made by any Governmental Body in a jurisdiction where any Acquired Company does not file Tax Returns that it is or could be subject to taxation by that jurisdiction, nor is there any reasonable basis for such a claim."[18] In Section 3.13, the Hills represented and warranted that the Companies were in compliance in all material respects with relevant legal requirements.[19]

         Article 11 contains the parties' agreement on indemnification. In Section 11.2, the Hills agreed to indemnify and hold harmless LW Buyer and the Companies from "any Loss that [LW Buyer or other relevant parties] may suffer, sustain, or become subject to, as a result of, in connection with, or relating to: (a) any Breach of any representation or warranty made by Sellers . . .; [or] (d) any Indemnified Taxes."[20] The Purchase Agreement defines a Loss, in relevant part, to include "any cost, loss, liability (contingent or otherwise), obligation, claim, cause of action, demand, damage, deficiency, expense, fine, penalty, judgment, Tax, award or assessment, whether or not arising out of a third party claim," subject to certain conditions not relevant here.[21] It defines Indemnified Taxes, in relevant part, as "Taxes (or the non-payment thereof) imposed on the Acquired Companies for any taxable period (or portion thereof) ending on or before the Closing Date, . . . and [] any breach by any Seller of the covenants contained in Section 12.1(g) or of the representations contained in Section 3.10."[22] And it defines Taxes, in relevant part, as "any income, . . . sales, use, transfer, value added, . . . and other tax, fee, assessment, levy, tariff, charge, or duty or tax of any kind whatsoever and any interest, penalty, addition, or additional amount imposed, assessed, or collected by or under the authority of any Governmental Body whether disputed or not."[23]

         Section 11.4 builds the procedure for the parties to notice an indemnification claim. Section 11.4(a) deals with indemnification claims related to most alleged breaches of a party's representations and warranties, including those relevant here. The Hills are only liable if "on or before [July 1, 2016 (the "Survival Period Termination Date")] . . . [LW Buyer] notifies [Gregg Hill, as the Sellers' representative, ] of a claim, specifying the factual basis of the claim in reasonable detail to the extent known by [LW Buyer]."[24] Claims for indemnification of an alleged breach of representations and warranties under Section 11.4(a) thus had to be validly noticed by the Survival Period Termination Date. If they were not, they are untimely.

         Section 11.4(c) governs certain other claims for indemnification, including for Indemnified Taxes under Section 11.2(d). The Hills may be liable for those claims "at any time so long as [LW Buyer] notifies [Gregg Hill] of a claim thereunder, specifying the factual basis of the claim in reasonable detail to the extent known by [LW Buyer]."[25] Section 11.4(c) makes clear that, "for the avoidance of doubt, the parties intend[ed] the survival period contemplated by this Section [] to be an indefinite period of time."[26] Thus, the parties carved up potential indemnification claims into different tranches. They locked some into a one-year survival date after the Acquisition to notice a claim, but allowed LW Buyer to submit notices for others "at any time."[27]

          Section 11.6 sets out an additional procedure to govern claim notices for third-party claims ("Third-Party Claims").[28] In Section 11.7, LW Buyer agreed "to seek all payment of all claims under this Article 11," including the indefinitely surviving tax-related claims under Section 11.4(c), "first from the Escrow Funds until and unless the Escrow Funds are fully depleted or the amount of the then-pending claims equals or exceeds the Escrow Funds."[29] But while the Escrow Funds provide the "sole[] and exclusive[]" source of indemnification for claims under Section 11.2(a), [30] the Purchase Agreement does not so limit indemnification for tax-related matters. The parties agree that these provisions, read together, permit LW Buyer to seek indemnification of valid claims for Indemnified Taxes after the Survival Period Termination Date, and ultimately from sources beyond the Escrow Funds.

         B. LW Buyer Evaluates Its Liability And Makes Claims On The Escrow Funds.

         In late 2015, LW Buyer hired Ernst & Young to assess Liquid Web's tax exposure.[31] Ernst & Young determined that Liquid Web owed various amounts of pre-closing value-added taxes ("VAT") and sales and use taxes. For the sales and use taxes, Ernst & Young identified tax liabilities in various states, although none of those jurisdictions had assessed any taxes against the Companies.[32] Ernst & Young did not complete its preliminary assessment of VAT liability before the Survival Period Termination Date.[33]

         On June 30, 2016, one day before the Survival Period Termination Date, LW Buyer sent the Hills a letter (the "First Notice")[34] asserting six claims for indemnification (each a "Claim").[35] LW Buyer estimated its Losses to be "at least $22, 943, 000," and purported to "reserve the right to revise and supplement this claim at any time and from time to time," as well its "ability to give additional notice in respect of the Claims or with respect to any other matters." A one-page chart attached to the First Notice named the six Claims, stated their factual bases, and provided a Loss estimate. The four Claims relevant to this opinion are set forth in the chart below.[36]

Claim

Factual Bases In First Notice

Loss Estimate In First Notice

The Value-Added Taxes claim (the "VAT Claim")

Buyer's investigation is ongoing, but it appears the Acquired Companies have obligations and other types of Loss with respect to value-added taxes and related compliance requirements in several jurisdictions (including Norway, the United Kingdom, Canada, the Netherlands, Estonia, Switzerland, South Africa, Sweden, Spain and other EU member states). The existence of such obligations and other forms of Loss would constitute breaches of several representations in the Purchase Agreement (including Section 3.9 (No Undisclosed Liabilities), Section 3.10 (Taxes) and Section 3.13 (Compliance with Legal Requirements)) and such obligations and other forms of Loss would also constitute Indemnified Taxes.

Definitive amounts not yet known, but Buyer has incurred $224, 000 of related expenses

The sales and use tax claim (the “Sales and Use Claim”)

Buyer's investigation is ongoing, but it appears the Acquired Companies have obligations and other types of Loss with respect to sales and use taxes in various jurisdictions (including Washington, California, Arizona, and Michigan). The existence of such obligations and other forms of Loss would constitute breaches of several representations in the Purchase Agreement (including Section 3.9 (No Undisclosed Liabilities), Section 3.10 (Taxes), and Section 3.13 (Compliance with Legal Requirements)) and such obligations and other forms of Loss would also constitute Indemnified Taxes.

$1, 586, 000

The revenue and revenue growth misstatements claim (the “Revenue Misstatements Claim”)

Inaccuracies in the conversion of the Acquired Companies' cash basis books to accrual basis financial statements led to materially misstated revenue and revenue growth on an intra-period basis, which inaccuracies constitute breaches of several representations in the Purchase Agreement, including Section 3.4 (Financial Statements), Section 3.5 (Books and Records), Section 3.8 (Accounts Receivable) and Section 3.9 (No Undisclosed Liabilities).

$14, 778, 000

The accounts receivable and allowance for doubtful accounts claim (the “Accounts Receivable Claim”)

The Acquired Companies' allowance for doubtful accounts as of Closing and as of several relevant pre-closing periods was materially understated and required adjustments to bad debt expenses, and such matters constitute breaches of several representations in the Purchase Agreement, including Section 3.4 (Financial Statements), Section 3.5 (Books and Records), and Section 3.8 (Accounts Receivable).

$5, 807, 000

         On July 1, 2016, the State of Washington's Department of Revenue assessed Liquid Web $82, 042.59 in taxes (the "Washington Tax").[37] LW Buyer claims that the "Hills were made aware of [the Washington Tax]," and LW Buyer paid that assessment on July 13.[38]

         On July 8, Ernst & Young completed its preliminary analysis of Liquid Web's potential VAT liability in Norway, the United Kingdom, the Netherlands, Estonia, South Africa, Sweden, Spain, and other European Union countries.[39] The Hills sought clarification and further detail on the Claims by letters dated July 15, July 19, July 27, and August 10.[40]

         On August 17, LW Buyer provided a spreadsheet showing its calculations for the various Claim amounts and supplying some predicate financial information to support those calculations (the "Spreadsheet").[41] LW Buyer increased its expected Losses in the Spreadsheet from $22, 943, 000 to $45, 676, 000. Part of that increase was attributed to recurring annual tax exposure (the "Recurring Exposure Claim"). The Hills sought more information in letters dated October 5 and December 15.[42] On January 11, 2017, LW Buyer responded with narrative explanations of its Claims.[43] The parties continued discussions until August 2017.

         C. The Hills Sue, And LW Buyer Mitigates Liquid Web's VAT Liability.

         On August 15, 2017, the Hills brought this action seeking declaratory judgments as to the status of the Claims and a final determination ordering a release of portions of the Escrow Fund (the "Complaint"). On September 28, LW Buyer answered the Complaint, and brought its Counterclaims for breach of contract, indemnification, and declaratory judgments. On October 18, the Hills answered the Counterclaims.

         As these proceedings progressed, LW Buyer negotiated with various jurisdictions to mitigate Liquid Web's potential VAT liability.[44] On December 7, 2017, and March 6, 2018, LW Buyer sought the Hills' consent to settle Liquid Web's VAT liability in certain jurisdictions for a total of approximately $6, 364, 964. The Hills consented to a portion of those settlements. On May 2, LW Buyer informed the Hills that it could settle all the contested and outstanding VAT liability for $312, 350-less than 4% of the original exposure estimates. The Hills consented on May 9, although they disclaimed any underlying liability. Since then, LW Buyer settled the VAT Claim for $312, 350, and spent approximately $300, 000 in advisors' fees to reach that conclusion.[45]

         On August 31, the Hills moved for partial summary judgment (the "Motion") to resolve the Accounts Receivable, VAT, Sales and Use, Revenue Misstatements, and Recurring Exposure Claims.[46] The parties completed briefing on January 9, 2019, and presented argument on March 6, 2019 (the "Hearing").[47]

         LW Buyer's claims crystallized over the course of briefing and at the Hearing. It "determined not to pursue indemnification for [the Accounts Receivable and Recurring Exposure Claims] from the escrow, but reserve[d] the right to pursue them at a later time from the Hills individually."[48] The parties dispute whether that reservation of rights warrants summary judgment in the Hills' favor, or dismissal based on mootness. Because the parties expressed a willingness to meet and confer on a stipulation to resolve those issues, [49] the Court requested that they "lay some manner of baseline stipulation as to the [Accounts Receivable, Recurring Exposure, and VAT Claims]."[50]

         The parties were unable to agree to any stipulation. Instead, they submitted brief position letters on April 5 and 8, cementing a few more undisputed facts relevant to this opinion. First, LW Buyer seeks $620, 558 in indemnification on the VAT Claim, and $330, 000 in indemnification on the Sales and Use Claim.[51] And second, the Hills have withdrawn their Motion in part such that the Court "need not decide now whether the still-contested $620, 558 of [the VAT Claim] is time barred or otherwise invalid."[52]

         The remaining issues are: (i) the Revenue Misstatements Claim, (ii) the contested portion of the Sales and Use Claim, and (iii) whether the uncontested Claims and portions of Claims are moot or merit judgment in the Hills' favor.

         II. ANALYSIS

         "The function of summary judgment is the avoidance of a useless trial where there is no genuine issue as to any material fact."[53] Summary judgment is appropriate where the "pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law."[54] "A fact is material if it 'might affect the outcome of the suit under the governing law.'"[55] A material issue of fact exists if "a rational trier of fact could find any material fact that would favor the non-moving party in a determinative way, drawing all inferences in favor of the nonmoving party."[56] But "[t]here is no 'right' to a summary judgment, "[57] and "[t]he Court maintains the discretion to deny summary judgment if it decides that a more thorough development of the record would clarify the law or its application."[58]

         In interpreting contracts, this Court's "task is to fulfill the parties' shared expectations at the time they contracted."[59] "Delaware adheres to an objective theory of contracts, [and so] the contract's construction should be that which would be understood by an objective, reasonable third party."[60] The Court can consider extrinsic evidence to interpret an ambiguous contract. But "a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings."[61] Put another way, "[a]mbiguity does not exist where the court can determine the meaning of a contract without any other guide than a knowledge of the simple facts on which, from the nature of language in general, its meaning depends."[62]

         A. The Court Denies Summary Judgment On The Revenue Misstatements Claim.

         LW Buyer asserts the Revenue Misstatements Claim based alleged breaches of the representations and warranties. The First Notice listed a series of representations and warranties, but the Counterclaims specify that Liquid Web's monthly financial statements or records[63] for December 2014, January 2015, and February 2015 (the "Monthly Financials")[64] were in breach of Sections 3.4 and 3.5 of the Purchase Agreement.[65] Section 3.4 addresses the accuracy of the Companies' Financial Statements, while Section 3.5 governs "books of account and other Records."[66]

         The Hills challenge the Revenue Misstatements Claim on two fronts: first, that the Hills never represented or warranted the accuracy of the Monthly Financials; and second, that LW Buyer's First Notice failed to provide the "factual basis of the [Claim] in reasonable detail to the extent known by [LW Buyer]" as required by Section 11.4(a).[67] I disagree with the first argument, and find that the second is not amenable to decision on summary judgment. The Hills' Motion on the Revenue Misstatements Claim is denied.

         1. The Revenue Misstatements Claim May Derive From Monthly Financial Records.

         Section 3.4 provides that the Financial Statements must be "accurate and complete in all material respects," and lists specific requirements for gauging that accuracy and completeness. Section 3.5 provides more generally that "[t]he books of account and other Records of each Acquired Company that have been made available to [LW Buyer], are materially complete and correct, and represent actual and bona fide transactions."

         The parties dispute whether any representation or warranty governs the Monthly Financials. The Hills argue that Section 3.4, the far more specific provision, represents the accuracy and completeness of only certain named financial records, and did not name the Monthly Financials. The Hills also argue that they did not represent or warrant the Monthly Financials in Section 3.5, because the Monthly Financials are the same type of record as those enumerated in Section 3.4, which Section 3.5 cannot address without stepping on Section 3.4. The Hills conclude that only Section 3.4 could represent or warrant the accuracy or completeness of any financial statements, and thus that they did not represent or warrant the accuracy of the Monthly Financials.

         LW Buyer argues that Section 3.5 governs the Monthly Financials by its plain and unambiguous language, and that Section 3.5 does not conflict with Section 3.4 or address the Monthly Financials at all. LW Buyer interprets the more specific representations in Section 3.4 as applying stricter standards only to the enumerated Financial Statements. And because the Monthly Financials are not included within the Financial Statements, LW Buyer concludes they fall under the more general Section 3.5.

         "The contract must [] be read as a whole, giving meaning to each term and avoiding an interpretation that would render any term mere surplusage."[68] "Specific language in a contract controls over general language, and where specific and general provisions conflict, the specific provision ordinarily qualifies the meaning of the general one.[69] Here, Section 3.4, as the more specific provision, must limit the overlapping language in Section 3.5. If it did not, Section 3.5 would cover even the Financial Statements and be at least partly redundant of Section 3.4's similar, more stringent demands.[70]

         This Court addressed a similar question in ClubCorp, Inc. v. Pinehurst, LLC.[71] There, the Court considered whether a general contractual loss provision permitted indemnification of tax claims.[72] The general provision did not name tax claims among its covered losses. But another provision "expressly provide[d] for indemnification of taxes," although "on a more limited basis than would" the general provision.[73] The Court concluded that "to whatever extent [the general and specific provisions] might conflict if [the general provision] applied equally to tax matters, [the specific provision] would be the narrower of the two provisions and, therefore, control."[74]

         The interplay between Sections 3.4 and 3.5 does not, as the Hills suggest, require reading out any representation or warranty of the Monthly Financials. Under its plain meaning, Section 3.4 removes only the named Financial Statements, not additional unnamed records, from Section 3.5's more general representation. Although Section 3.5 is qualified by Section 3.4 with regard to Financial Statements, that does not compel a conflict regarding all financial materials. To impose that conflict would require me to re-write the parties' agreement and "upset[] the allocation of risk deliberately established by the" Purchase Agreement.[75] I conclude Section 3.5 covers the Monthly Financials to the extent the Monthly Financials are not included in Section 3.4's more specific representations. "Consistent with foundational principles of contract interpretation, this construction harmonizes and gives meaning to both provisions at issue, obviating any need to prefer one over the other."[76] Accordingly, the Hills' motion for summary judgment based on the premise that they did not represent or warrant the Monthly Financials is denied.

         2. LW Buyer's First Notice Presents Issues Not Amenable To Summary Judgment.

         The Hills also claim that the First Notice failed to satisfy Section 11.4(a)'s requirement to specify the Revenue Misstatements Claim's "factual basis in reasonable detail." The First Notice asserted that "[i]naccuracies in the conversion of the Acquired Companies' cash basis books to accrual basis financial statements led to materially misstated revenue and revenue growth on an intra-period basis," provided an itemized list of allegedly breached provisions, and estimated the Loss.

         Where parties have completely omitted the bases for an indemnification claim in a notice, or attempted to retroactively fit a new claim into a prior notice, this Court has granted summary judgment for failure to give sufficient notice of that claim.[77] But on the limited question of the specificity or detail in a claim, the Court has concluded that the reasonable quantum of detail "depends on the circumstances and the allegations; in other words, it involves questions of fact."[78] On similar facts and contractual language, this Court held that "the [contractual] term 'reasonable particularity' is susceptible to two reasonable interpretations" because it could mean either "to itemize the particular representations and warranties that were breached, such that the other party is on 'notice, '" or to require "significantly more detail."[79] Because of that ambiguity, and because the Court found that interpretation of the claim notice would benefit from development at trial, the Court denied summary judgment.

         The First Notice may very well have fallen short of Section 11.4(a)'s requirements. But the issue raises questions of fact and would benefit from development at trial.[80] Summary judgment on this point is denied.

         B. The Court Grants Summary Judgment On The Sales And Use Claim Without Prejudice To Future Contractual Indemnification Claims.

         LW Buyer's First Notice presented the Sales and Use Claim as follows:

Buyer's investigation is ongoing, but it appears the Acquired Companies have obligations and other types of Loss with respect to sales and use taxes in various jurisdictions (including Washington, California, Arizona, and Michigan). The existence of such obligations and other forms of Loss would constitute breaches of several representations in the Purchase Agreement (including Section 3.9 (No Undisclosed Liabilities), Section 3.10 (Taxes), and Section 3.13 (Compliance with Legal Requirements)) and such obligations and other forms of Loss would also constitute Indemnified Taxes.[81]

         LW Buyer currently seeks $330, 000 in indemnification for its Sales and Use Claim, based on Losses from both Indemnified Taxes and breaches of representations and warranties.[82] The parties' submissions do not clearly explain the source of that number. It appears to represent LW Buyer's current estimate of the amount of sales and use tax the Companies should have paid for the years 2012 through 2014, and the period between January 2015 to June 2015.[83] It also appears to include the Washington Tax.[84]

         The Hills agreed to indemnify and hold harmless LW Buyer and the Companies from "any Loss that [LW Buyer or other relevant parties] may suffer, sustain, or become subject to, as a result of, in connection with, or relating to: (a) any Breach of any representation or warranty made by Sellers . . .; [or] (d) any Indemnified Taxes."[85] A Loss may include, among other things, "any . . . Tax," which the Purchase Agreement requires to be "imposed, assessed, or collected."[86] A Loss relating to Indemnified Taxes similarly must be "Taxes (or the non-payment thereof) imposed on the Companies." [87]

         Other than the Washington Tax, LW Buyer has not suffered the Losses alleged in its Sales and Use Claim.[88] This raises ripeness concerns. "A ripeness determination requires a common sense assessment of whether the interests of the party seeking immediate relief outweigh the concerns of the court in postponing review until the question arises in some more concrete and final form."[89] "Delaware courts 'typically decline to decide issues that may not have to be decided or that create hypothetical harm.'"[90] "Ripeness, the simple question of whether a suit has been brought at the correct time, goes to the very heart of whether a court has subject matter jurisdiction."[91]

         At the time of the First Notice, the Sales and Use Claim was not based on payment, or even an agreement to pay, any tax liability. LW Buyer based the Claim solely on Ernst & Young's ongoing analysis and estimates of its tax exposure. With the exception of the Washington Tax, the Companies have yet to pay or be assessed any taxes that may fall under the Sales and Use Claim. LW Buyer argues that "it [is] not a question of whether the company [will] have to make payments to taxing authorities, but rather, how much it [will] have to pay."[92]

         Both questions must be answered before the Sales and Use Claim is ripe. Otherwise, LW Buyer could seek indemnification-and reap a windfall-for speculative Losses that it never actually suffered. Such a payment would be antithetical to the concept of indemnification: repaying a loss to make the indemnitee whole.[93] Nor does indemnifying LW Buyer's inchoate Loss make practical sense. For instance, if the Hills were to indemnify LW Buyer for an estimated Sales and Use Claim that exceeded the Companies' actual and eventual sales and use tax payments, presumably LW Buyer would have to pay the Hills back the difference. Determining damages presents similar problems of proof. When asked at the Hearing how it would prove the amount of Loss before paying or agreeing to pay that Loss, LW Buyer indicated that the parties could hire ...


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