Mosaic Capital Partners v. Local Bounti Operating Company

• Court: Superior Court of Delaware
• Decided: March 24, 2025
• Docket: N23C-08-292 PRW CCLD
• Status: Published

Opinion

SUPERIOR COURT OF THE STATE OF DELAWARE PAUL R. WALLACE NEW CASTLE COUNTY COURTHOUSE JUDGE 500 N. KING STREET, SUITE 10400 WILMINGTON, DELAWARE 19801 (302) 255-0660

Date Submitted: February 19, 2025 Date Decided: March 24, 2025

Jesse L. Noa, Esquire Elizabeth A. Powers, Esquire Hannah L. Paxton, Esquire Justin C. Barrett, Esquire POTTER ANDERSON & CORROON LLP BAYARD, P.A. 1313 N. Market Street, 6th Floor 600 N. King Street, Suite 400 Wilmington, Delaware 19801 Wilmington, Delaware 19801

Alec Covington, Esquire MCGUIREWOODS LLP 201 North Tryon Street Charlotte, North Carolina 28202

RE: Mosaic Capital Partners v. Local Bounti Operating Company C.A. No. N23C-08-292 PRW CCLD Plaintiff’s Motion for Judgment on the Pleadings

Dear Counsel:

The Court provides this Letter Opinion in lieu of a more formal written

decision resolving Mosaic Capital Partners’ Motion for Judgment on the Pleadings

(D.I. 24). For the reasons explained below, that motion is DENIED.

FACTUAL AND PROCEDURAL BACKGROUND1

Mosaic initiated this suit in September 2023, alleging that Local Bounti’s

1 Mindful that the parties have a complete understanding of and familiarity with the factual background and operative agreement, the Court dispenses with a fuller recounting thereof here. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 2 of 14

claims for indemnification under the Purchase Agreement were untimely and

improper.2 Now, Mosaic moves for judgment on the pleadings on its sole count

which requests declaratory judgment.3 Through it, Mosaic seeks the Court’s

declaration that the Purchase Agreement bars Local Bounti’s indemnification

claims.4

The Purchase Agreement governs Local Bounti’s purchase of Hollandia

Produce Group, Inc.5 The deal closed on April 4, 2022, and the terms of the Purchase

Agreement created two indemnity escrow funds: the “RWI Indemnity Escrow

Funds” and the “Special Indemnity Escrow Funds.”6 Both escrow funds had a

schedule for gradual release of its funds, but release could be paused upon proper

notice of: (1) losses because of a breach of a representation or warranty; or (2) water

right losses.7

Pursuant to that clause, Local Bounti emailed Mosaic two separate

2 Opening Br. for J. on the Pleadings at 1–2 (D.I. 24). 3 Am. Compl. ¶¶ 14–16; Opening Br. for J. on the Pleadings at 1. 4 Opening Br. for J. on the Pleadings at 1. 5 Id. at 2. 6 Opening Br. for J. on the Pleadings Ex. A (the “Purchase Agreement”), at §§ 2.06, 2.08 (D.I. 24). 7 Purchase Agreement § 2.08. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 3 of 14

indemnification notices to pause the release of escrow funds on April 4, 2023.8 The

emails were received by Mosaic at 10:04 p.m. EST.9 In response, Mosaic claimed

that the Notices were untimely because they didn’t comply with the notice provision

in § 11.03 of the Purchase Agreement.10 A year later, Local Bounti provided another

indemnification notice on April 4, 2024, for additional “anticipated” losses.11

Mosaic alleges that this indemnity request is invalid because the losses haven’t fully

accrued yet.12

PARTIES’ CONTENTIONS

In its motion, Mosaic asks the Court to declare that it has no indemnification

obligation because Local Bounti’s 2023 Notices were untimely and the 2024 Notice

was not proper.13 The parties disagree about the applicability of the § 11.03 notice

provision and whether an indemnification notice can be issued for indefinite,

anticipated losses.

8 Opening Br. for J. on the Pleadings Exs. B and C (collectively, the “2023 Notices”) (D.I. 24). 9 Id. Ex. H (D.I. 24). 10 Id. Exs. D and E (collectively, “Replies to the 2023 Notices”) (D.I. 24). 11 Id. Ex. G (the “2024 Notice”) (D.I. 24). 12 Opening Br. for J. on the Pleadings at 12–13. 13 Id. at 1. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 4 of 14

A. The 2023 Notices

For the 2023 Notices, Mosaic relies upon the notice provision at the end of

the Purchase Agreement in § 11.03 under “Article XI MISCELLANEOUS,” which

states:

Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11.03):14 Since the email was sent at 10:04 p.m., Mosaic claims it was sent after normal

business hours and was delivered on April 5, instead of April 4.15 If the Court were

to accept this interpretation, it would mean that the Notice was untimely because

April 4 was the deadline.16

But Local Bounti counters that the Notices are timely because § 8.01(a)

14 Purchase Agreement § 11.03 (emphasis added). 15 Opening Br. for J. on the Pleadings at 11–13. 16 Id. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 5 of 14

(“Survival of Representations, Warranties, and Covenants”) of the Purchase

Agreement, not § 11.03, applies for indemnification notices.17 Section 8.01(a)

Except as set forth below in this Section 8.01, the representations and warranties of the Sellers, the Target, Parent and Purchaser contained in this Agreement or in any certificates or documents delivered hereunder shall survive for a period of time ending at 11:59 p.m. Eastern Time, on that date which is twelve (12) months after the Closing Date.18 In Local Bounti’s view, this is a superseding deadline that requires notice to be sent

before 11:59 p.m. EST because the at-issue indemnification notices were for

breaches of specific representations and warranties and water rights losses.19 It also

points out that there is no “time is of the essence” provision to bar any late

indemnification claims.20

In response, Mosaic insists that § 8.01 does not dictate notice procedures and

Local Bounti was still required to abide by § 11.03’s notice requirements, especially

as the provisions are not in conflict with each other.21 It also says that the Notice

was undisputedly sent “after normal business hours” because the term is

17 Answering Br. for J. on the Pleadings at 16–20 (D.I. 31). 18 Purchase Agreement § 8.01(a) (emphasis added). 19 See generally 2023 Notices. 20 Answering Br. for J. on the Pleadings at 23–25. 21 Reply Br. for J. on the Pleadings at 4–6 (D.I. 33). Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 6 of 14

unambiguous and has a commonly understood plain meaning of 9 a.m. to 5 p.m.22

B. The 2024 Notice Mosaic alleges that the claim noticed in the 2024 Notice does not qualify for

coverage because it represents “inherently speculative” damages.23 That claim is

based on § 8.02(e) which states:

From and after the Closing, each Seller Indemnifying Party shall, severally (but not jointly) up to its Equity Percentage, indemnify, defend and hold harmless the Purchaser Indemnified Parties for, from and against all Water Rights Losses (as defined below) that any Purchaser Indemnified Party may suffer, sustain or incur.24 Mosaic argues that the term “may” does not cover anticipated loss because a loss

must actually occur to trigger an indemnification obligation.25 It then goes on to

argue that the claim is too speculative to permit any finding of indemnity and that

the damages are uncertain.26

Local Bounti disagrees because “may” would include losses that “will occur

in the future.”27 Local Bounti also states that there is nothing speculative about its

22 Id. at 8–11. 23 Opening Br. for J. on the Pleadings at 13. 24 Purchase Agreement § 8.02(e) (emphasis added). 25 Opening Br. for J. on the Pleadings at 12–13. 26 Reply Br. for J. on the Pleadings at 14–16. 27 See Purchase Agreement at Schedule 8.02(e); Mot. for J. on the Pleadings Hr’g Tr. at 32 (D.I. 41) And it’s important to look to the definition in Schedule 8.02(e) of water Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 7 of 14

water rights loss.28 It says that it is “undisputed” that loss will occur over the

upcoming years because it has already begun to incur losses.29 Only the exact

amount in dispute is uncertain because it is contingent upon the then-present value

of water.30

APPLICABLE LEGAL STANDARD

Any party may move for judgment on the pleadings pursuant to Civil Rule

12(c).31 But the Court can’t grant judgment on the pleadings unless, after drawing

all reasonable inferences in favor of the non-moving party, “no material factual

dispute exists and the movant is entitled to judgment as a matter of law.”32 In

resolving a Rule 12(c) motion, the Court accepts the truth of all well-pleaded facts

and draws all reasonable factual inferences in favor of the non-movant.33

rights losses. And it has included losses that may be, quote, weather-related to groundwater extractions that occurred in the past or will occur in the future. It’s more than reasonable to interpret that that means that, if we know there’s an issue here and we’re already needing to have groundwater extractions from here or buy water from somewhere else and we know we’re going to need to keep doing that, that’s covered under water rights losses. 28 Answering Br. for J. on the Pleadings at 27–29. 29 Id. 30 Id. 31 Del. Super. Ct. Civ. R. 12(c). 32 Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund II, L.P., 624 A.2d 1199, 1205 (Del. 1993). 33 Id. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 8 of 14

When dealing with a contractual dispute, “judgment on the pleadings . . . is a

proper framework for enforcing unambiguous contracts because there is no need to

resolve material disputes of fact.”34 The Court must “decide whether the contract at

issue is in any way ambiguous, by determining whether the ‘provisions in

controversy are reasonably or fairly susceptible of different interpretations or may

have two or more different meanings.’”35 “In determining whether a contract has

only one reasonable interpretation, the court must read the agreement ‘in full and

situated in the commercial context between the parties.’”36 At bottom, the Court can

grant judgment on the pleadings in favor of the moving party only if the contract is

unambiguous.37

ANALYSIS A. Declaratory judgment isn’t appropriate because the Court can’t find, as Mosaic suggests it should, that the Purchase Agreement has only one reasonable interpretation. For Mosaic to prevail, its interpretation of the Purchase Agreement must be

34 Lillis v. AT & T Corp., 904 A.2d 325, 329–30 (Del. Ch. 2006) (citing DeLucca v. KKAT Mgmt., L.L.C., 2006 WL 224058, at *22 (Del. Ch. Jan. 23, 2006)). 35 Id. at 330 (quoting Rhone–Poulenc Basic Chemicals v. American Motorists Ins., 616 A.2d 1192, 1196 (1992)). 36 In re Nat’l Collegiate Student Loan Trusts Litig., 251 A.3d 116, 144 (Del. Ch. 2020) (quoting Chi. Bridge & Iron Co. N.V. v. Westinghouse Elec. Co. LLC, 166 A.3d 912, 926–27 (Del. 2017)). 37 Lillis, 904 A.2d 325 at 330. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 9 of 14

the only reasonable one because the agreement is unambiguous.38 Not so here. Both

parties present reasonable interpretations—Mosaic even admits that “there’s not a

clear winner. . . .”39

The parties’ interpretations differ based on which provision is viewed as the

more specific, controlling one; the parties dispute whether § 8.01(a) or § 11.03 is the

specific provision.40 This is significant because, in the norm, “[s]pecific 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.”41

Local Bounti insists that § 8.01(a) is the specific provision and controls the

notice provided.42 There is some support for Local Bounti’s position in the Purchase

Agreement’s waiver provision. It provides that Mosaic is not relieved of its duties

simply because Local Bounti may have been delayed in exercising its rights.43 This

38 See In re Nat’l Collegiate Student Loan Trusts, 251 A.3d 116 at 144; see also Lillis, 904 A.2d at 329–30. 39 Mot. for J. on the Pleadings Hr’g Tr. at 11. 40 Opening Br. for J. on the Pleadings at 11–13; Answering Br. for J. on the Pleadings at 16–17. 41 DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005). 42 Opening Br. for J. on the Pleadings at 11–13. 43 See, e.g., Blue Cube Spinco LLC v. Dow Chem. Co., 2021 WL 4453460, at *11 (Del. Super. Ct. Sept. 29, 2021) (“Under the No Waiver Provision, the parties agreed any ‘delay’ by the Company in exercising its ‘right’ to indemnification would not ‘operate as a waiver’ of its ‘right’ Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 10 of 14

suggests that § 11.03 is a procedural notice provision that should not be read to limit

the substantive right to indemnification. Again, in the norm, the Court shouldn’t

read any agreement in a way that permits a procedural provision to limit a

substantive right, unless such the intention to do so is explicitly stated in the

agreement.44 And there is nothing specifically stated in the Purchase Agreement to

support limiting the indemnification right because Mosaic’s claim relies on a

“miscellaneous” provision that does not clearly state it applies to indemnity

notices.45

On the other hand, in Mosaic’s view, § 11.03 is the more specific and

controlling provision under which Local Bounti’s 2023 indemnification claims

would be deemed untimely. Mosaic treats the notice provision, one that seemingly

dictates the method for all notices within the Purchase Agreement, as a condition

precedent to indemnity coverage.46 Mosaic’s interpretation would reduce—if not

eliminate—the provisions effective timeframe by 7 hours, which directly contradicts

to indemnification should Dow, as it in fact did, later decide a notice is deficient.”). 44 See Aveanna Healthcare, LLC v. Epic/Freedom, LLC, 2021 WL 3235739, at *25 (Del. Super. Ct. July 29, 2021). 45 See generally Purchase Agreement. 46 Mot. for J. on the Pleadings Hr’g Tr. at 34–35. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 11 of 14

the language of the Purchase Agreement that ends the survival period at 11:59 p.m.47

Maybe evidence supporting this interpretation will be revealed during discovery, but

it’s hardly clear on a reading of the complete agreement in context.48 Indeed, a

cursory shortening of the survival period on Mosaic’s say-so and a “miscellaneous”

notice provision would make little sense; it renders the survival period’s expiration

time illusory.49 Even Mosaic admits that post-5 p.m., following the “miscellaneous”

notice provision, there would be practically no way for the indemnity notice to be

delivered prior to the survival period’s lapse.50 Without compelling evidence of a

contrary intent, the Court’s hesitant to endorse an interpretation that would “cause a

total forfeiture of a sophisticated indemnification scheme . . . .”51

There are also material factual disputes about the Purchase Agreement. The

“miscellaneous” notice provision relies upon the “normal business hours of the

47 See Purchase Agreement § 8.01(a) (emphasis added). 48 See Aveanna Healthcare, 2021 WL 3235739, at *25 (acknowledging that a condition precedent, such as a notice provision, may limit a substantive right to indemnity if that intent is “expressed clearly and unambiguously”). 49 See Manti Holdings, LLC v. Authentix Acquisition Co., Inc., 261 A.3d 1199, 1208 (Del. 2021) (quoting Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010)) (“Contracts will be interpreted to ‘give each provision and term effect’ and not render any terms ‘meaningless or illusory.’”). 50 Mot. for J. on the Pleadings Hr’g Tr. at 5–8, 35–38. 51 See, e.g., Blue Cube Spinco, 2021 WL 4453460, at *11. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 12 of 14

recipient.”52 But there are no facts in the record to even hint at Mosaic’s normal

business hours. Mosaic’s counsel claims that the Court should use the term’s plain

meaning and interpret it to mean 9 a.m. to 5 p.m.; it goes as far as to say that, even

with discovery, the Court will never be able to determine Mosaic’s normal business

hours.53 Not necessarily.

The contract’s language eschews the use of any plain or ordinary meaning to

the general public by using the qualifier “of the recipient.”54 It would seem that such

information can certainly be deduced; discovery may well reveal Mosaic’s normal

business hours. Accordingly, such discovery is appropriate. Motion for judgment

on the pleadings is not. Mosaic conceded as much at the hearing on its motion.55

Mosaic’s motion fails here because it hasn’t provided the single reasonable

52 Purchase Agreement § 11.03. 53 Mot. for J. on the Pleadings Hr’g Tr. at 39 And then one final point on the normal business hours discussion. Opposing counsel said that there’s a fact missing in the allegations. We don'’ have normal business hours. But that fact will always be missing. There’s not anything -- we don’t have, you know, like you mentioned earlier, something on the door that says “normal business hours.” So we’re never going to know how to define that any more clearly than we know it right now sitting here today. That’s why we think it’s appropriate for 12(c), Your Honor. 54 Cf. Terrell v. Kiromic Biopharma, Inc., 2024, 2025 WL 249073, at *3 (Del. Jan. 21, 2025) (citing Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354, 360 (Del. 2013)) (“When the contract is clear and unambiguous, we will give effect to the plain-meaning of the contract’s terms and provisions unless it appears the parties intended a special meaning.”). 55 Mot. for J. on the Pleadings Hr’g Tr. at 13 (“And I’m not saying that they don’t have an argument to make here. I just think ours is a stronger argument.”). Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 13 of 14

interpretation of the Purchase Agreement.56

B. The 2024 noticed claim may be indemnifiable and eventually indemnified. Mosaic’s 2024 indemnity claim may be resolved by this Court. No doubt,

before a Court can resolve an indemnification claim, the claimed loss must be

certain.57 In some circumstances, this means the Court won’t entertain an indemnity

claim when an actual suit hasn’t been filed and the prospect of such is just too

remote.58 In turn, the Court has refused to review a dispute when there is only the

threat of litigation with speculative damages.59 But that’s not the case here.

The claim referenced in the 2024 Indemnity Notice has been actively litigated

on an indemnifiable issue, with concrete losses already accruing.60 While the Notice

includes anticipated losses, it also lists actual losses.61 Based on the record, this

litigation “appears to be unavoidable” and the “material facts [sufficiently] static.”62

The Court does not see that “future events may obviate the need for judicial

56 See In re Nat’l Collegiate Student Loan Trusts, 251 A.3d at 144. 57 See XL Specialty Ins. Co. v. WMI Liquidating Tr., 93 A.3d 1208, 1218 (Del. 2014). 58 Lima USA, Inc. v. Mahfouz, 2021 WL 5774394, at *8 (Del. Super. Ct. Aug. 31, 2021). 59 See id. at *8–10. 60 2024 Notice. 61 Id. 62 See XL Specialty, 93 A.3d at 1217. Mosaic Capital Pr’s v. Local Bounti Operating Co. C.A. No. N23C-08-292 PRW CCLD March 21, 2025 Page 14 of 14

intervention” because indemnifiable losses have already begun to accrue—a point

the parties so not dispute.63 Thus, the Court finds that this indemnification request,

along with its request to indemnify its anticipated losses, is valid.

It is important to note that the use of the “or in the future” language within the

Purchase Agreement does not provide blanket coverage of all possible anticipated

losses. Rather, such language should be read to include indemnification for any

known and anticipated losses arising from claims that are already in litigation. It

doesn’t cover any unknown claims or totally speculative losses. In other words, it

is not a placeholder in case a claim later arises.64

CONCLUSION

Mosaic’s Motion for Judgment on the Pleadings is DENIED. The 2023 and

2024 Notices appear sufficient to pause the release of all potentially affected escrow

funds. And at this point, the Court cannot say Local Bounti has no right to

indemnification for losses already incurred, accruing, and noticed.

IT IS SO ORDERED.

_________________________ Paul R. Wallace, Judge Original to Prothonotary

63 See id. at 1217-18; see also 2024 Notice; see also Reply Br. for J. on the Pleadings at 15. 64 Cf. Lima, 2021 WL 5774394, at *8.