DealLawyers.com Blog

On Friday, the Chancery Court issued a magistrate’s report in Miller v. Menor (Del. Ch.; 09/25) refusing to find that defendants waived the right to post-closing adjustments because of their failure to timely deliver a closing statement. The statement was due 90 days after closing, and any objections statement was due 30 days after delivery of the closing statement.

The closing statement was delivered late, and communications ensued. But an official objections statement was also ultimately delivered late. The parties were unable to resolve their disagreements, and the issues were submitted to arbitration. Plaintiffs filed suit to vacate the arbitration award partly on the basis of the untimely closing statement, which was not one of the issues raised in the objections statement and addressed in arbitration.

The court distinguished Hallisey v. Artic Intermediate LLC (Del. Ch.; 10/20) and Schillinger Genetics, Inc. v. Benson Hill Seeds, Inc. (Del. Ch.; 02/21), which “stand for the general assertion that failure to timely deliver a closing statement can waive post-closing adjustment procedure.” In both Hallisey and Schillinger, the court said that the failure to timely deliver a Closing Statement meant that the Post Closing Adjustment process could not proceed, which hindered sellers’ ability to respond and have a reasonable opportunity to object.

In this case, the court found that, despite the untimely delivery, plaintiffs had “sufficient time to defend their rights within the Post-Closing Adjustment procedure, and availed themselves of that right by submitting their Objection Statement and engaging in the process to obtain an arbitrator to resolve the objections.” It also noted that “Plaintiffs took an abundance of time, more than the originally allotted 30 days, to submit their objections to the closing statements and proceeded to engage willingly in the Post Closing adjustment procedure with the Arbitrator.” Because of that, it found “there is no underlying reasoning to stop, or in this case retroactively invalidate, the Post-Closing Adjustment procedure.”

Given this reasoning, it seems the outcome would have been different if the plaintiffs had immediately sought relief as soon as the closing statement was untimely or had delivered a timely objections statement that addressed the lateness of the closing statement (which would have then been one of the issues in arbitration). So, this may actually be a good reminder that contractual deadlines DO matter. After working collaboratively to close, it can be easy to just continue asking for support and negotiating when an issue comes up. But, if you’re on the receiving side of a late notice, ignoring it is risky — and it shouldn’t be an indication that you can be late too.

– Meredith Ervine