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Winshall v. Viacom International Inc.

Superior Court of Delaware

November 6, 2019

WALTER A. WINSHALL, in his capacity as the Stockholders' Representative for former Harmonix Stockholders. Plaintiff,
v.
VIACOM INTERNATIONAL INC., a Delaware Corporation. Defendant.

          Submitted: August 22, 2019

         Upon Defendant Viacom International Inc.'s Motion for Reargument GRANTED.

          Eric M. Davis Eric M. Davis, Judge

         Upon consideration of Defendant Viacom International Inc.'s Motion for Reargument (Viacom's Motion")[1] filed by Defendant Viacom International Inc. ("Viacom") on March 4, 2019; Plaintiff's Answer in Opposition to Defendant Viacom International Inc.'s Motion for Reargument ("Mr. Winshall's Opposition") filed by Mr. Winshall on March 11, 2019; the hearing on August 15, 2019 (the "Hearing"); Plaintiff's Supplemental Brief in Opposition to Viacom International Inc.'s Motion For Reargument ("Mr. Winshall's Letter") filed on August 22, 2019; the letter filed by Viacom ("Viacom's Letter") on August 22, 2019; the Court's February 25, 2019 Memorandum Opinion Denying Plaintiff Walter A. Winshall's Motion for Partial Summary Judgment and Granting in Part Defendant Viacom International Inc.'s Motion for Summary Judgment (the "Summary Judgment Opinion"); Superior Court Civil Rule 59(e); and the entire record of this civil proceeding, Applicable Standards

         Rule 59(e). Superior Court Civil Rule 59(e) ("Rule 59(e)") provides that a party may file a motion for reargument "within 5 days after the filing of the Court's opinion or decision."[2] The standard for a Rule 59(e) motion is well defined under Delaware law.[3] A motion for reargument will be denied unless the Court has overlooked precedent or legal principles that would have controlling effect, or misapprehended the law or the facts such as would affect the outcome of the decision.[4]

         Viacom requests reconsideration because the Court did not address one of Viacom's arguments in partially dismissing Count I in the Complaint. Specifically, Viacom notes that the Court did not address its argument that Mr. Winshall's indemnification claims exceed the contractual cap on indemnification claims in Section 8.6(b) of the Merger Agreement. Viacom contends that this is an independent justification to dismiss the remaining portion of Count I. In response, Mr. Winshall argues that Section 8.6(b) is not a contractual cap and so does not bar Viacom from indemnifying Mr. Winshall for attorneys' fees and costs.

         Upon review of Viacom's Motion, the Court determined that reargument was appropriate under Rule 59(e). As such, the Court held the Hearing and thereafter entertained Mr. Winshall's Letter and Viacom's letter.

         Contract Interpretation. A court generally gives priority to the parties' intentions contained in the four corners of the contract.[5] "In upholding the intentions of the parties, a court must construe the agreement as a whole, giving effect to all provisions therein."[6] "The meaning inferred from a particular provision cannot control the meaning of the entire agreement if such an inference conflicts with the agreement's overall scheme or plan."[7]

         Where the language of the contract is plain and unambiguous, the contract must be enforced as written.[8] "If a writing is plain and clear on its face, i.e., its language conveys an unmistakable meaning, the writing itself is the sole source for gaining an understanding of intent."[9] Moreover, a contract is not rendered ambiguous merely because the parties disagree as to its construction and application.[10]

         The parol evidence rule bars the admission of evidence outside the contract's four corners to vary or contradict the unambiguous language.[11] However, "where reasonable minds could differ as to the contract's meaning, a factual dispute results and the fact-finder must consider admissible extrinsic evidence.[12] "[I]n a dispute over the proper interpretation of a contract, summary judgment may not be awarded if the language is ambiguous and the moving party has failed to offer uncontested evidence as to the proper interpretation."[13]

         Parties' Contentions

         Viacom. Viacom asserts that Viacom is only obligated to pay Mr. Winshall and the other Harmonix Shareholders the amount of the Merger Consideration under the Merger Agreement. According to Viacom, Section 8.6(b) simply clarifies that Viacom may pay part of the amount of the Merger Consideration in the form of indemnification fees. Viacom notes (and the record demonstrates) that Viacom has fully paid the Merger Consideration. Therefore, Viacom contends that the Court should dismiss Mr. Winshall's claim because Viacom has already satisfied its indemnification obligations.

         Viacom further argues that, even if the Court finds that Section 8.6(b) is ambiguous, all extrinsic evidence suggests that the parties intended to limit Viacom's payments to the amount of the Merger Consideration. To support this proposition, Viacom cites the deposition testimony of Gregg Walker, Viacom's primary businessperson in the negotiations of the Merger Agreement, and Michael Fricklas, Viacom's General Counsel at the time the parties negotiated the Merger Agreement. Mr. Walker and Mr. Fricklas testified that the purpose of the indemnification provision was to assure payment of the Merger Consideration. Specifically, Mr. Walker testified that it is unusual for a buyer to indemnify a seller. Mr. Walker also explained that the parties capped Viacom's indemnification obligation at the "unpaid amount of the Merger Consideration then payable" because the Merger Consideration was not fixed in amount or in time. For example, the Merger Consideration at the time the parties executed the Merger Agreement in 2006 was $175 million. The Merger Consideration increased when Viacom made the 2007 and 2008 Earn-Out Payments. Mr. Fricklas testified that the parties' intention in drafting Section 8.6(b) was that "once the [M]erger [C]onsideration was paid, there [would be] no additional amounts that could be subject to payment under indemnification."

         Viacom also claims that Mr. Winshall's interpretation of Section 8.6(b) would lead to an absurd result. For example, each time an Earn-Out amount was determined, Viacom's obligation would double: the amount of the Earn-Out plus another amount equal to the Earn-Out.

         In Viacom's Letter, Viacom avers that Section 8.6 does not contain an explicit fee-shifting provision, so Mr. Winshall is not entitled to attorneys' fees. Finally, in Viacom's Letter, Viacom claims that Viacom's interpretation of Section 8.6(b) does not render the term "Losses" a nullity because "Losses" is used elsewhere in the Merger Agreement.

         Mr. Winshall. Mr. Winshall asserts that Viacom must (1) pay the Merger Consideration, and, in addition, (2) indemnify the Harmonix Shareholders for Losses in the amount of the unpaid Merger Consideration at the time the indemnification claim accrued.

         To support its proposition, Mr. Winshall claims that Viacom's interpretation would render Section 8.6(b) a nullity because Viacom already had an obligation to pay the Merger Consideration. Second, Mr. Winshall asserts that Viacom's interpretation is unreasonable because it ignores the term "Losses" which refers to a category of money that is separate from the Merger Consideration. Third, Mr. Winshall contends that Section 8.6(b) does not create an implied indemnification cap, as Viacom argues it does. Mr. Winshall notes that the parties defined the term "Indemnification Cap Amount" in Section 8.2(c)(ii) to limit the Harmonix Shareholders' obligations and the parties would have defined a similar term if they had intended to create an indemnification cap for Viacom.

         Fourth, Mr. Winshall argues that Viacom's extrinsic evidence is not helpful to the Court because it merely reveals Viacom's unexpressed, unilateral and after-the-fact intentions in negotiating the Merger Agreement. Mr. Winshall also alleges that Mr. Fricklas' testimony does not state that Viacom is only liable for the Merger Consideration. Instead, Mr. Fricklas' testimony suggests that, once Viacom has indemnified the Harmonix Shareholders for Losses in the amount of the unpaid Merger Consideration, Viacom is no longer liable.

         In Mr. Winshall's Letter, Mr. Winshall supplements his argument by, among other things, (i) claiming that Viacom's interpretation of Section 8.6(b) renders the term "Losses" a nullity, (ii) citing White v. Curo Texas Holdings, LLC[14] to argue that Section 8.6(b) does not clearly create an indemnification cap, and (iii) citing Stifel Financial Corp. v. Cochran, [15] for the proposition that indemnification is not complete unless Mr. Winshall receives attorneys' fees.

         Discussion

         The provision at issue is Section 8.6 of the Merger Agreement. Section 8.6 provides as follows:

(a) Indemnification. Subject to the limitations set forth in this Article VIII, from and after the Effective Time, each of Parent [Viacom] and MergerCo, jointly and severally, shall indemnify, defend and hold harmless each Merger Consideration Recipient [Mr. Winshall and the other Harmonix Shareholders] against any and all Losses actually ...

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