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ITG Brands, LLC v. Reynolds American, Inc.

Court of Chancery of Delaware

November 1, 2019

ITG BRANDS, LLC, Plaintiff,
v.
REYNOLDS AMERICAN, INC. and R.J. REYNOLDS TOBACCO COMPANY, Defendants. REYNOLDS AMERICAN, INC. and R.J. REYNOLDS TOBACCO COMPANY, Counter-Plaintiffs,
v.
ITG BRANDS, LLC, Counter-Defendant.

          REVISED ORDER DENYING PLAINTIFF'S MOTION FOR ENTRY OF PARTIAL FINAL JUDGMENT OR CERTIFICATION OF INTERLOCUTORY APPEAL

          ANDRE G. BOUCHARD CHANCELLOR

         WHEREAS:

         A. On July 15, 2014, Reynolds American Inc., the parent of R.J. Reynolds Tobacco Company (together, "Reynolds"), entered into an Asset Purchase Agreement (the "APA") with ITG Brands, LLC ("ITG Brands"). In the APA, Reynolds agreed to sell to ITG Brands four cigarette brands (the "Acquired Brands") for approximately $7.1 billion. The sale closed on June 12, 2015 (the "Closing").

         B. Under the APA, ITG Brands is obligated to use its reasonable best efforts to join settlement agreements with four states (Florida, Minnesota, Mississippi, and Texas) to assume Reynolds' existing settlement obligations with those states with respect to post-Closing sales of the Acquired Brands. Reynolds' existing settlement with Florida is referred to hereafter as the "Florida Settlement Agreement."

         C. On January 18, 2017, the State of Florida sued Reynolds in Florida state court and filed a motion to join ITG Brands as a defendant in order to enforce the Florida Settlement Agreement against both Reynolds and ITG Brands. Similar lawsuits were filed later in Minnesota and Texas.

         D. On February 17, 2017, ITG Brands filed this action asserting five claims for injunctive and declaratory relief against Reynolds concerning the sale of the Acquired Brands. In those claims ITG Brands seeks:

• To enjoin Reynolds from suing ITG Brands in relation to the sale in any non-Delaware forum, under the exclusive forum provision in the APA. (Count I)
• A declaratory judgment that ITG Brands satisfied its reasonable best efforts obligation to enter into the Florida Settlement Agreement with respect to the Acquired Brands. (Count II)
• A declaratory judgment that ITG Brands did not assume any liability under the Florida Settlement Agreement. (Count III)
• A declaratory judgment that Reynolds must indemnify ITG Brands for any liability imposed on it under the Florida Settlement Agreement. (Count IV)
• A declaratory judgment that it has no obligation to indemnify Reynolds for any liability with respect to the Florida Settlement Agreement. (Count V)

         E. On November 30, 2017, after the filing of cross-motions for partial judgment on the pleadings, the court ruled in Reynolds' favor, finding that ITG Brands' obligation to use its reasonable best efforts to reach an agreement to join the Florida Settlement Agreement "did not terminate at the Closing and continues until ITG Brands actually has made reasonable best efforts to assume the annual payment obligations for post-Closing sales of the four cigarette brands it acquired from Reynolds."[1] No appellate review of this ruling was sought.

         F. On September 28, 2018, Reynolds filed an amended pleading containing four counterclaims in which Reynolds seeks:

• A declaratory judgment that ITG Brands breached its reasonable best efforts to reach settlement agreements with Florida and Minnesota with respect to the Acquired Brands. (Counterclaim I)
• Specific performance of ITG Brands' obligation to use its reasonable best efforts to reach settlement agreements with Florida and Minnesota. (Counterclaim II)
• A declaratory judgment that ITG Brands assumed any post-Closing liability for Florida or Minnesota settlement payments in connection with the Acquired Brands. (Counterclaim III)
• A declaratory judgment that ITG Brands is responsible for indemnifying Reynolds for any post-Closing settlement payments on the Acquired Brands under the Florida or ...

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