May 8, 2018
Post-Closing Disputes: Mind Your Notice Requirements
This Weil blog discusses notice provisions applicable to potentially indemnification claims under the terms of acquisition agreements. The blog points out that the exact language of indemnity provisions must be reviewed in order to determine the permissibility of “placeholder claims” seeking to preserve the ability to claim indemnity for potential breaches & losses that haven’t yet been realized.
However, this except says that recent case law in Delaware & the U.K. raises another important issue – the language of the notice provision:
Recent cases in both the United States and England highlight still another issue that plagues the assertion of post-closing indemnification claims—the exact words used in the written notice asserting a claim and its compliance with the specific terms of the acquisition agreement.
Frequently, a written notice of claim provided prior to the end of the survival period is specifically required to state the claim in “reasonable detail,” include an estimate of the loss, and specify the specific representations and warranties of the seller that have allegedly been, or will be, breached as a result. And those requirements typically exist whether indemnification extends only to alleged “actual” breaches of the representations and warranties that have already occurred, covers threatened third party claims or only actual litigation, requires defense of claims that do not themselves constitute an actual breach of a representation or warranty, or otherwise permits claims respecting anticipated but not yet realized breaches or losses.
The blog explores recent decisions by the English Court of Appeal & the Delaware Chancery Court – and concludes that it’s essential not only to craft the terms of their written acquisition agreements respecting their desired indemnification procedures carefully, but also to read and abide by those terms in making indemnification claims & asserting objections to those claims.
This Francis Pileggi blog highlights a very recent Delaware decision that further underscores the importance of abiding by contractual notice provisions. In PR Acquisitions, LLC v. Midland Funding LLC, (Del. Ch.; 4/18), the court barred a claim made for escrowed funds because notice was mistakenly sent to the escrow agent, instead of the seller as required by the agreement.
– John Jenkins