IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
PAUL J. MILLER and ) FRANCIS A. REMICK, ) ) Plaintiffs/Counterclaim ) Defendants, ) ) v. ) C.A. No. 2024-1049-LM ) WILLIAM JOSHUA MELLOR and ) MILLER-REMICK, LLC, ) ) Defendants/Counterclaim ) Plaintiffs. )
Final Report: September 26, 2025 Date Submitted: July 11, 2025
FINAL REPORT
Andrea S. Books, WILKS LAW, LLC, Wilmington, DE; Attorney for Plaintiffs/Counterclaim Defendants.
Richard I.G. Jones, Jr., Periann Doko, Charmi Patel, BERGER MCDERMOTT LLP; Wilmington, DE; Attorneys for Defendants/Counterclaim Plaintiffs.
MITCHELL, M. This final report resolves the parties’ cross motions for judgment on the
pleadings. The plaintiffs request that this Court vacate the arbitration award and find
the defendants to be liable for breach of contract. The defendants ask that the Court
confirms the arbitration award and dismiss the plaintiffs’ additional breach of
contract claims. I find that the arbitration award should be confirmed and that the
defendants are liable for breach of contract. I explain further below.
I. FACTUAL BACKGROUND1
By way of background, Plaintiff, Paul J. Miller, and Plaintiff, Francis A.
Remick, (collectively, “Plaintiffs” or “Sellers”) were co-founders and principals of
Defendant Miller-Remick LLC (hereinafter, the “Company”).2 Defendant, William
J. Mellor (hereinafter, “Purchaser”) is a resident of Pennsylvania, and the Company
is a New Jersey limited liability company (collectively, “Defendants”).3 The
Company is a government engineering contractor that operates in the public and
federal sectors, with an emphasis on servicing veterans and the Department of
Veteran Affairs.4 The Company earned revenue through project management,
1 Citations to the Docket, and if needed, the exhibits attached thereto are cited in the form of “D.I. __, Ex. #”. 2 See D.I. 16 at ¶¶ 9–12. 3 D.I. 17 at ¶¶5–6. 4 D.I. 17 at ¶ 11. engineering, plumbing design, construction management, and further specialty
services.5
A. The Securities Purchase Agreement and Amended Promissory Notes
Plaintiffs agreed to sell the Company to Defendant William J. Mellor,
executing a Securities Purchase Agreement (hereinafter, the “SPA”) on March 22,
2022.6 Under the SPA, Plaintiffs Paul J. Miller and Francis A. Remick agreed to sell
all their interests in the Company to Defendant William J. Mellor.7
Section 1.02 of the SPA specifically details the price for which the Purchaser
would acquire the Company from the Sellers (hereinafter, the “Purchase Price”).8
The Purchase Price would be equal to the Closing Consideration plus any Earn-Out
Payments.9 Under this Section, the Closing Consideration is equal to $5,000,000 that
is payable through:
5 Id. 6 D.I. 16 at ¶12; see D.I. 24, Ex. A. 7 See D.I. 24, Ex. A (“WHEREAS, the Parties hereto desire to enter into this Agreement pursuant to which, upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Sellers shall sell to the Purchaser, and the Purchaser shall purchase from the Sellers, 100% of the Company Interests (the “Purchased Equity”)[.]”). 8 Id. at § 1.02. 9 Id. (“the Purchaser shall pay or cause to be paid to the Sellers an aggregate amount equal to the sum of (a) the Closing Consideration, plus (b) the Earn-Out Payments (when and as payable, if any.)”).
2 (i) [$3,500,000.00] in cash; and (ii) an aggregate of [$1,500,000.00] in the form of Promissory Notes issued to the Sellers in accordance with their Sharing Percentages; plus an amount of cash equal to (a) the amount, if any, by which the Estimated Net Working Capital exceeds the Target Net Working Capital; minus (b) the amount, if any, by which the Estimated Net Working Capital is less than the Target Net Working Capital; plus (c) the amount of Estimated Cash, if any; minus (d) the amount of the Estimated Closing Indebtedness, if any; minus (e) the Holdback Amount; minus (g) the amount of the Estimated Transaction Expenses, if any.10
Section 1.03(a) of the SPA details the process by which the Company must deliver
its estimated Closing statement to the Purchaser ahead of Closing (hereinafter, the
“Estimated Closing Statement”).11 The Company was to deliver the Estimated
Closing Statement no later than 2 business days before the Closing Date, and this
Estimated Closing Statement was to include “a good faith calculation of the
Company’s estimate . . . of: (A) the aggregate amount of Cash . . . ; (B) Net Working
Capital . . . ; (C) the aggregate amount of Closing Indebtedness . . . ; (D) the aggregate
amount of Transaction Expenses . . . ; and (E) the Closing Consideration calculation
based on the foregoing[.]”12
Section 1.04(c) of the SPA provides, that “[t]he Purchaser shall retain from
the cash portion of the Closing Consideration to be paid to the Sellers at Closing
10 Id. 11 See D.I. 24, Ex. A at § 1.03(a). 12 Id.
3 cash in an amount equal to the Holdback Amount, which amount shall be released
in accordance with Section 1.06[d].”13
The Purchase Price was subject to post-closing adjustments under the SPA.14
Section 1.06 generally provides for the post-closing adjustment procedure.15 Section
1.06(a) of the SPA provides, that the Company was required to “prepare and deliver
to the Sellers a [closing statement]” within 90 days after Closing (hereinafter, the
“Closing Statement”).16 This Closing Statement was required to include the
Company’s calculation, in accordance with the rules set forth by the SPA, of: “(i)
the aggregate amount of Cash, (ii) the Net Working Capital, (iii) the aggregate
amount of Closing Indebtedness, (iv) the aggregate amount of Transaction Expenses,
and (v) the Closing Consideration.”17
Section 1.06(b) defines the “Post-Closing Adjustment” as “an amount equal
to the Final Closing Consideration minus the Estimated Closing Consideration.”18
Section 1.06(c) provides obligations for when or if this calculation results in a
13 D.I. 24, Ex. A at § 1.04(c). 14 D.I. 24, Ex. A at §1.06. 15 Id. 16 D.I. 24, Ex. A at § 1.06(a). 17 Id. 18 D.I. 24, Ex. A at § 1.06(b).
4 negative number.19 Meanwhile, Section 1.06(d) provides obligations for when or if
this calculation results in a positive number.20
Section 1.06(f) of the SPA necessitates that any payments required to be made
under Section 1.06 must be made “within five (5) Business Days after the date on
which the Final Closing Consideration is finally determined.”21 Any objections (the
“Objections Statement”) to the Company’s Closing Statement, are required to be
delivered within 30 days after delivery of the Closing Statement.22 The Objections
Statement is limited in that it may only contain objections to mathematical errors
and whether calculations are compliant with the SPA, as well as the Sellers’
proposed resolution for each objection.23
Section 1.09 of the SPA concerns payments (“Earn-Out Payments”) that the
Purchaser agreed to pay to the Sellers as additional consideration for the purchased
interests subject to and upon achievement of certain events.24 Under, Section 1.09(a),
19 See D.I. 24, Ex. A at § 1.06(c) (“If the Post-Closing Adjustment is a positive number, then the Purchaser shall: (i) release the entire Holdback Amount to the Sellers, pro rata in accordance with the Sharing Percentages; and (ii) pay, or cause to be paid, to the Sellers an aggregate amount equal to the amount by which the Final Closing Consideration is greater than the Estimated Closing Consideration.”). 20 See D.I. 24, Ex. A at § 1.06(d). 21 D.I. 24, Ex. A at § 1.06(f). 22 See D.I. 24, Ex. A at § 1.06(g). 23 Id. 24 See D.I. 1, Ex. A at § 1.09.
5 “after each year of the Revenue Performance Period, the Purchaser shall pay Sellers
. . . an aggregate amount . . . calculated as follows[:]” (i) if the Company’s Revenue
for the year is less than or equal to $13,000,000, the Purchaser pays $0; (ii) if the
Company’s Revenue for the year is greater than $13,000,000, the Purchaser pays an
amount equal to 5% of the amount by which the Company’s Revenue exceeds
$13,000,000 provided, however, that the maximum payment cannot exceed
$2,000,000.25 Section 1.09(d) provides for the Purchaser’s Right of set-off,
necessitating that “[t]o the extent any obligation of the Sellers (excluding Sellers’
indemnification obligations pursuant to Article VII) has not been satisfied, the
Purchaser shall have the right to withhold and set-off against any amount otherwise
due to be paid to the Sellers pursuant to this Section 1.09.”26
Section 2 of the SPA concerns the Promissory Notes that the Purchaser would
pay to the Sellers as part of the Purchase Price.27 Section 2.03(b) (hereinafter, the
“Promissory Notes Provision”) provides that, at the Closing, the Purchaser shall
deliver to the Sellers “Promissory Notes, issued by the Purchaser to the Sellers in
accordance with their respective Sharing Percentages, in the aggregate principal
amount of [$1,500,000.]”28 Under Section 2.04, the Purchaser must deliver to the
25 D.I. 24, Ex. A at §§ 1.09(a)(i)–(ii). 26 D.I. 24, Ex. A at § 1.09(d). 27 See D.I. 24, Ex. A at §§ 2.03–2.04. 28 D.I. 24, Ex. A at § 2.03(b).
6 Sellers “evidence that the Promissory Notes have a validly perfect, first priority lien
in all of the Company’s assets and in the Purchased Equity” within 15 business days
following the Closing.29
Under Section 9.17 of the SPA (hereinafter, the “Choice of Law Provision”),
all issues concerning the construction, validity, interpretation, and enforceability of
the SPA are governed by and must be construed in accordance with Delaware law.30
B. The Dispute
The SPA fully closed on March 22, 2022 (hereinafter, the “Closing Date”).31
On the same day promissory notes were executed for each Plaintiff.32 The
promissory notes were amended on January 12, 2023 (the “Amended Promissory
Notes”).33 The Company delivered a Closing Statement to the Sellers on August 2,
2023, which was past the 90-day deadline under the SPA.34 A series of
communications occurred thereafter in which Plaintiffs requested supporting
documentation to the Closing Statement.35 The parties were unable to resolve their
29 D.I. 24, Ex. A at § 2.04. 30 D.I. 24, Ex. A at § 9.17. 31 See D.I. 24, Ex. A. 32 See D.I. 24, Ex. D and Ex. E. 33 D.I. 26 at 3; see also, D.I. 26, Ex. A. 34 D.I. 24, Ex. C at 1; see D.I. 24, Ex. A at § 1.06(a). 35 D.I. 17 at ¶ 20.
7 disputes over the Closing Statement.36 The Plaintiffs delivered their Objections
Statement on April 18, 2024, past the 30-day deadline in the SPA, and after the
parties already decided to involve an arbitrator.37
The parties are not in dispute over the Plaintiffs’ entitlement to the reported
balance of the Amended Promissory Notes, or the Earn-Out Payments.38 Defendants
acknowledged the amount owed to Plaintiffs in two separate letters.39 The Plaintiffs
are owed $233,925.41, each, pursuant to their respective promissory notes.40 The
Parties do dispute which of them is entitled to the $125,000 Holdback payment, with
the Defendants arguing that Plaintiffs are not entitled to the Holdback payment
because of the negative post-closing adjustment.41 To date, none of these payments
have been made.
C. The Arbitration Clause and Proceedings
Section 1.06(h) of the SPA (hereinafter, the “Arbitration Provision”) provides
that, “[i]f an Objections Statement is timely delivered, the Sellers and the Company
shall negotiate in good faith to resolve any objections set forth thereon[.]” 42
36 D.I. 17 at ¶21; D.I.24, Ex. H. 37 D.I. 24, Ex. I. 38 See D.I. 24 at 23. 39 D.I. 24, Ex. F and Ex. G. 40 D.I. 24 at 23; D.I. 24, Ex. D and Ex. E. 41 D.I. 30 at 3. 42 D.I. 24, Ex. A at § 1.06(h).
8 However, if the Sellers and the Company cannot reach a final resolution within 30
days after the delivery of an Objections Statement, the Parties may submit each
unresolved objection to a mutually agreed-upon accounting firm that has no prior
relationship with the Company, with the Sellers, or with the Purchaser (hereinafter,
the “Accounting Firm”).43 Meanwhile, Section 1.06(i) details how the Parties will
bear the fees and expenses of the Accounting Firm should such arbitration be
necessary.44
Under the Arbitration Provision, the Accounting Firm “shall consider only the
unresolved objections” included in the Objections Statement, and the Accounting
Firm’s determination (hereinafter, the “Final Closing Consideration”) shall be
“based solely on written presentations submitted by the Company and the Sellers
which are in accordance with the guidelines and procedures (including the
definitions of each component of the Closing Consideration and the Balance Sheet
Rules) set forth in this Agreement (i.e., not on the basis of an independent review).”45
Under Section 1.06(h), the Accounting Firm’s Final Closing Consideration
43 See D.I. 24, Ex. A at § 1.06(h). 44 See D.I. 24, Ex. A at § 1.06(i) (“The fees and expenses of the Accounting Firm shall be allocated between the Purchaser, on the one hand, and the Sellers, on the other hand, based upon the percentage by which the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party in the written presentation to the Accounting Firm and will be settled solely by the Purchaser and the Sellers within ten (10) days after the dispute has been finally resolved.”). 45 D.I. 24, Ex. A at § 1.06(h).
9 “constitute[s] an arbitral award” that is “final and binding upon all Parties upon
which a judgment may be rendered by a court having proper jurisdiction
thereover.”46
In early February 2024, the Parties discussed how this dispute may need to
proceed through arbitration and discussed selecting an accounting firm to arbitrate.47
On April 11, 2024, the Parties jointly engaged BDO USA, P.C. (hereinafter, “BDO”
or the “Arbitrator”) to resolve their disputes as they related to the Post-Closing
Adjustment.48 Plaintiffs then submitted an Objections Statement outlining objections
to the Closing Statement on April 18, 2024, which did not mention the issue of the
Defendants submitting a Closing Statement after the 90-day deadline.49
On August 20, 2024, BDO issued its final arbitration award and findings,
deciding in favor of the Defendants, ordering the Sellers to pay $1,727,438
(hereinafter, the “Arbitration Award”).50 The Arbitrator did not rule on the issue of
the Company’s failure to timely deliver a Closing Statement, stating that because
“Purchaser and Sellers’ compliance with the provisions of the Agreement regarding
46 D.I. 24, Ex. A at § 1.06(h). 47 See D.I. 24, Ex. H. 48 D.I. 24, Ex. B; D.I. 17 at ¶ 23. 49 See D.I. 24, Ex. I. 50 See D.I. 24, Ex. C at 19 (totaling $1,727,438 that Sellers would have to pay to Purchaser); see also D.I. 24, Ex. C. at 6–18 (discussing each disputed item within the arbitration, and BDO’s finding in favor of Purchaser for each disputed item).
10 delivery of the Closing Statement and the Objections Statement, respectively, was
not raised by Plaintiffs in an Objections Statement, I find consideration of these
allegations outside of the Accounting Firm’s authority for purposes of this
determination.”51
Defendants issued a letter to the Plaintiffs on September 6, 2024, demanding
payment in the amount of $1,132,041.61, which represents the difference in the
amount due from the arbitration award and the amount Defendants are obligated to
pay from the Amended Promissory Notes, the Holdback, and the Earn-Out
Payments.52 On September 19, 2024, after not receiving the requested payment from
the Plaintiffs, the Defendants counsel sent a final demand for payment. 53 To date
Plaintiffs have not paid Defendants the Arbitration Award.54
D. Procedural Posture
Plaintiffs filed the complaint on October 11, 2024, requesting that the Court
vacate the Arbitration Award and modify or correct the Arbitration Award in whole
or in part.55 The Plaintiffs also request that the Court grant declaratory judgment that:
(i) Defendant William J. Mellor is foreclosed from receiving a Post-Closing
51 D.I. 24, Ex. C at 5. 52 D.I. 24, Ex. F at 2. 53 D.I. 24, Ex. G. 54 D.I. 17 at ¶¶28–29. 55 See D.I. 1 at 13–14.
11 Judgment or Final Closing Consideration; and (ii) Defendant William J. Mellor must
pay any money owed to Plaintiffs under the SPA that were offset by this dispute.56
On December 3, 2024, the Defendants, William J. Mellor and the Company,
answered Plaintiffs’ complaint and filed a counterclaim seeking confirmation of the
Award and an order requiring that Plaintiffs perform their obligations under the
SPA.57
On December 23, 2024, the Plaintiffs answered Defendants’ counterclaim by
asserting affirmative defenses including, but not limited to, estoppel, waiver, unclean
hands, and laches.58 The same day, the Plaintiffs filed an amended complaint also
requesting that the Court award damages for Defendants’ contractual breaches of the
SPA and the Amended Promissory Notes, require Defendants to provide Plaintiffs
with the Company’s quarterly financial statements since September 2023, and
require the Purchaser to provide Plaintiffs with his personal annual financial
statements.59
On January 14, 2025, the Defendants filed a motion for judgment on the
pleadings.60 On the same day, the Defendants answered Plaintiffs’ amended
56 See D.I. 1 at 14. 57 See D.I. 6 at 26–27. 58 See D.I. 10 at 20–21. 59 See D.I. 11 at 26–27. 60 D.I. 15.
12 complaint by asserting affirmative defenses including, but not limited to, failure to
state a claim, estoppel, waiver, unclean hands, and laches.61 On January 16, 2025,
the Plaintiffs answered Defendants’ verified counterclaims by asserting affirmative
defenses including, but not limited to, estoppel, waiver, unclean hands, and laches.62
On February 14, 2025, Defendants filed their opening brief in support of their
motion for judgment on the pleadings.63 On March 14, 2025, Plaintiffs filed and
briefed their own motion for judgment on the pleadings.64 Defendants filed the
answering-reply brief in opposition to Plaintiffs’ motion for judgment on the
pleadings and in support of their own motion for judgment on the pleadings on
March 28, 2025.65 Plaintiffs’ reply brief was filed on April 11, 2025.66 A telephonic
oral argument was held on July 11, 2025, after which I took the matter under
advisement.67
II. ANALYSIS
The Court will grant a motion for judgment on the pleadings only where no
material issues of fact exist, and the movant is entitled to judgment as a matter of
61 See D.I. 16 at 33–34. 62 See D.I. 17 at 19–20. 63 D.I. 24. 64 D.I. 26. 65 D.I. 30. 66 D.I. 32. 67 D.I. 37.
13 law.68 “When there are cross-motions for judgment on the pleadings, the court must
accept as true all of the non-moving party’s well-pleaded factual allegations and
draw all reasonable inferences in favor of the non-moving party.”69 Cross motions
for judgment on the pleadings may suggest that no disputes of material fact exist,
but they “do not act per se as a concession that there is an absence of factual issues.”70
“A motion for judgment on the pleadings requires the Court to consider not only the
complaint or counterclaims but also the answer, affirmative defenses, and any
documents integral thereto.”71 Although analytically a question of fact, the
interpretation of language in a contract ‘“is treated as a question of law,’ and
‘judgment on the pleadings is a proper framework for enforcing unambiguous
contracts.’”72
68 Lillis v. AT&T Corp., 896 A.2d 871, 879 (Del. Ch. 2005); Ct. Ch. R. 12(c). 69 OSI Sys. v. Instrumentarium Corp., 892 A.2d 1086, 1091 (Del. Ch. 2006) (citing BAE Systems North America Inc. v. Lockheed Martin Corp., 2004 WL 1739522, at *3 (Del. Ch. Aug. 3, 2004)). 70 In re H.M. Mosher Trust Dated January 14, 1938, 2018 WL 5430631, at *5 (Del. Ch. Oct. 29, 2018) (quoting Anolick v. Holy Trinity Greek Orthodox Church, Inc., 787 A.2d 732, 738 (Del. Ch. (2001)). 71 Brex Inc. v. Su, 2024 WL 2956861, at *1 (Del Ch. June 12, 2024) (citing Jiménez v. Palacios, 250 A.3d 814, 827 (Del. Ch. 2019)). 72 Standard General L.P. v. Charney, 2017 WL 6498063, at *10 (Del. Ch. Dec. 19, 2017) (quoting Pellaton v. Bank of New York, 592 A.2d 473, 478 (Del. 1991); NBC Universal v. Paxson Communications Corp., 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)).
14 A. The Federal Arbitration Act applies.
As a preliminary matter, I must first address the parties dispute over the
applicability of the Federal Arbitration Act (hereinafter, the “FAA”) or the Delaware
Uniform Arbitration Act (hereinafter, the “DUAA”). “[T]he FAA serves as the
default rule and displaces inconsistent provision of state arbitration acts, thereby
relegating the DUAA . . . to ‘the secondary role of governing agreements to arbitrate
in intrastate commerce.’”73 The DUAA “incorporates the terms of the Federal
Arbitration Act unless the agreement at issue explicitly references the Delaware
Uniform Arbitration Act.”74 Here, the SPA does not expressly invoke the DUAA;
therefore, the FAA applies.75
B. I do not find that the Defendants waived their right to post-closing adjustments because of their failure to timely deliver the Closing Statement.
The Plaintiffs cite to two cases in support of an argument that the untimely
delivery of the Closing Statement grants Plaintiffs the right to avail itself of all post-
closing adjustment procedure, arguing further that that right includes the ability to
retroactively invalidate an arbitral award on the Closing Consideration and the
73 Leftkowitz v. HWF Holdings, LLC, 2009 WL 3806299, at *4 (Del.Ch. Nov. 13, 2009) (quoting Personnel Decisions, Inc. v. Business Planning Systems, Inc., 2008 WL 1932404, at *6 (Del. Ch. May 5, 2008)). 74 Meyers v. Quiz-Dia LLC, 2016 WL 7048783, at *2 (Del. Ch. Dec. 2, 2016) (citing 10 Del. C. §§5702 (a), (c)). 75 See D.I. 24, Ex. A.
15 resulting Post-Closing Adjustment. The first is Hallisey v. Arctic Intermediate, LLC,
and the second is Schillinger Genetics, Inc. v. Benson Hill Seeds, Inc..76 Both cases
stand for the general assertion that failure to timely deliver a closing statement can
waive post-closing adjustment procedure, however there are factual distinctions to
these cases that, although are informative to this case, lend to this Court finding for
the Defendants on this issue.
In Hallisey, the Court specifies that because of the “[b]uyer’s failure to timely
file a Closing Date Report, the Post Closing Adjustment process cannot proceed.”77
The court, however, goes on to state that its reasoning for making this determination
was because of its effect on a Closing Date Report that would hinder the seller’s
ability to “respond to or evaluate the calculations contained in the Closing Date
Report” and have a reasonable opportunity to object formally or reconcile any
dispute before arriving at the final closing adjustment.78 Applying the same Hallisey
consideration to this case allows this Court to determine that since 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-
76 Hallisey v. Arctic Intermediate, LLC, 2020 WL 6438990 (Del. Ch. Oct. 29, 2020) (ORDER); Schillinger Genetics, Inc. v. Benson Hill Seeds, Inc., 2021 WL 320723 (Del. Ch. Feb. 1, 2021). 77 Hallisey, 2020 WL 6438990, at *4. 78 Id.
16 Closing adjustment procedure with the Arbitrator, then there is no underlying
reasoning to stop, or in this case retroactively invalidate, the Post-Closing
Adjustment procedure.79
Similarly, in Schillinger, the Court concludes that the buyer waived his right
to the post-closing adjustment process by not completing timely delivery of the
Closing Statement, but justifies its decision by citing to caselaw stating “[b]y failing
to provide a Closing Statement, the Buyer prevented the Final Adjustment Amount
from being determined in a timely fashion in accordance with the procedures set
forth in the Agreement and thereby gave up its opportunity to have a Final
Adjustment Amount that potentially came out in its favor.”80 Again, as stated above,
this is not the case here. The 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.
Accordingly, I cannot find that Defendants waived its ability to the Post
Closing Adjustment procedure. I also do not find it appropriate to retroactively deem
79 D.I. 16 at ¶18 (indicating that the Closing Statement was delivered on August 2, 2023); D.I. 24, Ex. I (indicating that Plaintiffs submitted the Objection Statement on February 12, 2024). 80 Schillinger, 2021 WL 320723, at *17 (quoting J&J Produce Holdings, Inc. v. Benson Hill Fresh, LLC, 2020 WL 1188052, at *3 (Del. Ch. Mar. 11, 2020)).
17 the Arbitrator’s determination to be invalid because of the Defendants’ untimely
delivery.
C. The Arbitrator’s decision is valid, and Plaintiffs will not be entitled to their request for vacatur of the arbitration award.
“[T]here is a presumption that the arbitrat[or] acted within the scope of its
authority and this presumption may not be rebutted by an ambiguity in a written
opinion.”81 “Arbitration awards . . . are not lightly disturbed, and ‘Courts must
accord substantial deference to the decisions of arbitrators.’”82 The FAA allows for
the vacatur of an arbitration award in very limited circumstances, providing that:
In any of the following cases the . . . court . . . may make an order vacating the award upon the application of any party to the arbitration— (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.83
81 Optimis Corp. v. Atkins, 2021 WL 2961482, at *13 (Del. Ch. Jul. 15, 2021) (quoting TD Ameritrade, Inc. v. McLaughlin, 953 A.2d 726, 732 (Del. Ch. 2008). 82 Id. 83 Viacom Intern., Inc. Winshall, 72 A.3d 78, 80 (Del. 2013 (citing 9 U.S.C. § 10(a)(1)– (4))).
18 This Court does “not sit to hear claims of factual or legal error by an arbitrator as an
appellate court does in reviewing decisions of lower courts.”84 Plaintiffs concede
that they are not entitled to vacatur under sections 10(a)(1)–(3) of the FAA, and as
discussed above the DUAA does not apply.85 Accordingly, I will limit my analysis
of Plaintiffs’ request for vacatur of the arbitration award under what remains, section
10(a)(4).
“An arbitrator exceeds her authority when she decides an issue ‘outside of
those contained in the submission or if her actions are in direct contradiction to the
express terms of the agreement of the parties.”86 An arbitrator who decides an issue
beyond what is described in “1) the underlying agreement between the parties in
which they agree to submit their disputes to arbitration and 2) the document
containing the submission to the Arbitrator of the issues to be decided[,]” has
exceeded her authority.87
The other instance for when an arbitrator exceeds her powers is through “a
manifest disregard for the law[,]” however “the scope of the court’s review in such
84 Evolve Growth Initiatives, LLC v. Equilibrium Health Solutions LLC, 2023 WL 4760548, at *10 (Del. Ch. Jul. 26, 2023) (quoting United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 38 (1987)). 85 D.I. 26 at 18 n. 3. 86 Evolve, 2023 WL at *10 (quoting World-Win Mktg., Inc. v. Ganley Mgmt. Co., 2009 WL 2534874, at *2 (Del. Ch. Aug. 18, 2009)). 87 Malekzadeh v. Wyshock, 611 A.2d 18, 21 (Del. Ch. 1992 (citing Fagnani v. Integrity Fin. Corp., 167 A.2d 67, 70 (Del. Super. 1960)).
19 cases is extremely limited.”88 “To demonstrate that an arbitral award was rendered
in disregard of the law such that the award should be vacated, the party seeking to
vacate the award must demonstrate that “the arbitrator (1) knew of the relevant legal
principle, (2) appreciated that this principle controlled the outcome of the disputed
issue, and (3) nonetheless willfully flouted the governing law by refusing to apply
it.”89 The evidence presented in towards these elements “must be ‘something beyond
and different from a mere error in the law or failure on the part of the arbitrators to
understand or apply the law.’”90
The Arbitrator has not decided an issue that exceeds its scope of authority
outlined in the SPA and the arbitration engagement letter.91 The SPA indicates the
arbitrators may only address unresolved objections to the Closing Statement that
were included in the Objection Statement and states that “[t]he Accounting Firm’s
determination of the Closing Consideration and the resulting Post-Closing
Adjustment shall . . . be final and binding upon all Parties upon which the judgment
88 Evolve, 2023 WL at *10 (citing Travelers Ins. Co. v. Nationwide Mut. Ins. Co., 886 A.2d 46, 48 (Del. Ch. 2005)); see also SPX Corp. v. Garda USA, Inc., 94 A.3d 745, 750 (Del. 2014) (“Under the FAA, vacatur is authorized where the arbitrator acts in ‘manifest disregard’ of the law.”). 89 Carl Zeiss Vision, Inc. v. Refac Holdings, Inc., 2017 WL 3635568, at *5 (Del. Ch. Aug 24, 2017) (quoting Paul Green School of Rock Music Franchising, LLC v. Smith, 389 Fed. Appx. 172, 177 (3d Cir. 2010)). 90 Id. at *5 (quoting TD Ameritrade, 953 A.2d at 732). 91 D.I. 24, Ex. B.
20 may be rendered by a court having proper jurisdiction thereover.”92 The engagement
letter shows that the issues within the scope of the Arbitrator’s decision making
power are those relating to “certain disagreements related to the closing balance
sheet of Miller-Remick as of March 22, 2022, and the Closing Consideration and the
resulting Post-Closing Adjustment due to the Buyer, which they have been unable
to resolve.”93
The Arbitrator made a determination, resolving the objections to the Closing
statement in favor of the Defendants, after determining it could not consider the
Plaintiffs’ argument about the untimely delivery of the Closing Statement because
Plaintiffs did not raise the issue within their Objection Statement.94 The BDO’s
inability to consider the timeliness argument is not because it is in itself outside the
scope of issues assigned through the Arbitration Clause and the engagement letter
but because the Plaintiffs failed to raise the issue before the arbitrator in their
Objection Statement. The BDO’s decision is ultimately within the scope of issues
assigned to them in the Arbitration Clause and the engagement agreement.
As for the question of whether the Arbitrator exercised a manifest disregard
for the law, I do not find that the Plaintiffs have met this high burden. The BDO
92 D.I. 24, Ex. A at § 1.06(h). 93 D.I. 24, Ex. B at 1. 94 D.I. 24, Ex. C at 5.
21 acknowledges the timeliness issue presented by the Plaintiffs but then properly
addresses it within the framework of powers it has been granted. They do this by
determining the Plaintiffs failed to bring the argument because they did not raise the
issue within the Objections Statement and therefore “find[ing] consideration of these
allegations outside the Accounting Firm’s authority for purposes of this
determination.”95 The BDO acknowledges the issue, but then rightfully applies the
associating provisions to make a determination that the Plaintiffs have lost their
chance at making this argument by failing to provide it in their Objections Statement.
The Arbitrator took into consideration the late delivery and moved forward
with issuing the award in Defendants’ favor. I find it appropriate to deny Plaintiffs’
request for vacatur of the Arbitration Award, as I do not find that they have met the
high burden of proving that the BDO exceeded its authority or acted in manifest
disregard of the law.
D. Defendants are in breach of the SPA and the Amended Promissory Notes for failing to timely pay certain payments due under those agreements and for failing to provide required financial statements.
A plaintiff pleading breach of contract must prove by a preponderance of the
evidence: “(1) the existence of a contract, (2) the breach of a contractual obligation,
95 D.I. 24, Ex. C at 5.
22 and (3) resulting damages.”96 “The Agreement is the appropriate starting point for
determining the rights and duties of the parties.”97 “When determining the scope of
a contractual obligation and measuring the parties conduct against that obligation to
determine breach, ‘the role of a court is to effectuate the parties’ intent.’”98 “When
interpreting a contract, this Court will give priority to the parties’ intentions as
reflected in the four corners of the agreement, construing the agreement as whole
and giving effect to all its provisions.”99
1. Defendants are in breach of the SPA and Amended Promissory Notes for failure to make certain payments due to Plaintiffs.
In light of section 1.04(c) of the SPA, a Holdback Amount exists representing
“the cash portion of the Closing Consideration” retained by the Defendants “to be
paid to Sellers at Closing[,]” released under Section 1.06.100 Plaintiffs claim to be
entitled to a Holdback in the amount of $125,000, alleging that the Defendants are
96 Anschutz Corp. v. Brown Robin Capital, LLC, 2020 WL 3096744, at *9 (Del. Ch. June 22, 2020) (citing Pharm. Prod. Dev., Inc. v. TVM Life Sci. Ventures VI, L.P., 2011 WL 549163, at *2 (Del. Ch. Feb. 16, 2011)). 97 Georgetown Crossing LLC, v. Ruhl, 2006 WL 3720134, at *6 (Del. Ch. Dec. 5, 2006). 98 In re Anthem-Cigna Merger Litigation, 2020 WL 5106556, at *90 (Del. Ch. Aug. 31, 2020) (quoting Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006)). 99 North American Leasing, Inc. v. NASDI Holdings, LLC, 276 A.3d 463, 467 (Del. 2022); see also Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012) (“Unless there is ambiguity, Delaware courts interpret contract terms according to their plain, ordinary meaning.”). 100 D.I. 24, Ex. A at § 1.04(c).
23 in breach of the SPA for failing to pay the Holdback Amount.101 The Defendants do
not dispute the amount but argue the entire Holdback Amount should be released to
them because the Post-Closing Adjustment is a negative number.102 Section 1.06(d)
of the SPA directs that when the Post-Closing Adjustment is a negative number, then
the Defendants are to release the Holdback Amount to itself.103 Accordingly, I agree
with Defendants that they were entitled to withhold the Holdback Amount due to the
negative Post-Closing Adjustment and therefore do not find this conduct to be a
breach of the SPA.
Plaintiffs argue that the Company is currently in breach of the SPA for failing
to make payments due under the Amended Promissory Notes, under Sections 1.02
and 2.03 of the SPA, alleging each Plaintiff is due $233,925,41 plus interest.104
Plaintiffs claim Defendants have failed to pay the Earn-Out Payments due under the
SPA, alleging they are owed $84,145.26 plus interest.105 Defendants do not dispute
that Plaintiffs are entitled to the Earn-Out Payments or the Payment due under the
Amended Promissory Notes.106 Defendants argue they have the right to withhold
101 D.I. 11 at ¶¶55–59; D.I. 26 at 17–18. 102 D.I. 30 at 12. 103 D.I. 24, Ex. A at 1.06(d). 104 D.I. 11 at ¶¶74–75; D.I. 24, Ex. A at §1.02 and §2.03. 105 D.I. 11 at ¶¶76–77; D.I. 24, Ex. A at §§ 1.09(a)–(b). 106 D.I. 24 at 23.
24 their obligatory payments because of a set-off provision in the SPA which
incorporates the Amended Promissory Notes.107 Plaintiffs argue first that the set-off
provision only applies to the Earn-Out Payments and does not apply to any amount
due under the Holdback Amount or the payments due under the Amended
Promissory Notes.108 I agree with Plaintiffs’ statement about the application of the
set-off provision, as section 1.09 specifically covers terms relating to the Earn-Out
Payments.109 I, accordingly, find Defendants to be in breach for failing to pay what
is due under the Amended Promissory Notes as the set-off provision does not apply
to those obligations.
Finally, Plaintiffs cite to caselaw they claim negates the Defendants’ ability
to invoke the set-off provision because until the Arbitration Award has been
confirmed by the Court it qualifies as a claim and not a judgment and “[t]here is no
right to set-off a possible unliquidated liability against a liquidated claim that is due
and payable.”110 Defendants draw a distinction to these cases cited by Plaintiffs, in
particular Tenet Healthcare Corporation v. Steward Health Care System LLC,
pointing out that the language was limited to “any amounts due and payable” yet
107 D.I. 30 at 12; D.I. 24, Ex. A at § 1.09(d). 108 D.I. 32 at 19 n.2. 109 D.I. 24, Ex. A at §1.09. 110 D.I. 26 at 33 (quoting CanCan Development, LLC v. Manno, 2011 WL 4379064, at *5 (Del. Ch. Sept. 21, 2011)).
25 here the set-off provision specifies that the Defendants have a set-off right “[t]o the
extent any obligation of the Sellers . . . has not been satisfied.”111 I do not find this
distinction compelling. “Set-offs are ‘properly taken only as to judgments, not
claims[,]’” and the set-off provision does not grant Defendants the right to set-off
the due Earn-Out payments against the Arbitration award that has yet to become a
judgment confirmed by this Court.112
I find Defendants to be in breach for not paying the amounts due under the
Amended Promissory Notes and the Earn-Out payments. The Defendants are not in
breach for their failure to pay the Holdback Amounts.
2. Defendants are in breach of the Amended Promissory Notes for failing to provide the required financial documentation.
Plaintiffs assert that Defendants failed to fulfill their obligation under section
5 of the Amended Promissory Notes requiring they issue within 45 days of the end
of each quarter, a “current internal, unaudited quarterly financial statement.”113
Defendants do not address these claims in their briefing and only deny the allegations
111 D.I. 30 at 13; D.I. 32 at 19; Tenet Healthcare Corporation v. Steward Health Care System LLC, 2023 WL 2778295, at *3 (Del. Ch. Apr. 4, 2023); D.I. 24, Ex. A at § 1.09(d). 112 IronRock Energy Corp. v. Point LNG, LLC, 2021 WL 3503807, at *8 (Del. Ch. July 19, 2021) (quoting Seilbold v. Comulos Partners LP, 2012 WL 4076182, at *24 n. 233 (Del. Ch. Sep. 17, 2012)); see Pryor v. IAC/InterActiveCorp, 2012 2046827, at *6 (Del. Ch. June 12, 2012) (“[I]n most cases the confirmation of an arbitration award is a summary proceeding that makes what is already a final arbitration award a judgment of the Court.”). 113 D.I. 11 at ¶88–90.
26 in their answer.114 The Amended Promissory Notes require Defendants to provide,
within 45 days of the end of each fiscal quarter and within 90 days of the end of each
fiscal year, certain financial documents of the Company and its subsidiaries.115
Plaintiffs’ claim to have not been provided the financial documents since July 2023
and Defendants have not put any evidence or claims forward that proves this not to
be a true statement.116 I find that the Defendants’ failure to provide financial
documents after July 2023 to be a breach of the Amended Promissory Notes for
failing to fulfill their obligations to provide quarterly and yearly financial
documentation.
E. Defendants’ request for this Court to Confirm the Arbitration Award is granted.
“[W]ithin one year after the arbitration award is made, any party to arbitration
may apply to the court . . . for an order confirming the award, and thereupon the
court must grant such order unless the award was vacated, modified, or corrected.”117
“The Supreme Court has explained that only the statutorily enumerated
circumstances in the FAA provide grounds for a court to grant vacatur or
114 D.I. 16 at ¶¶ 50–54. 115 D.I. 24, Ex. D at § 5; D.I. 24, Ex. F at § 5. 116 D.I. 26 at 31. 117 9 U.S.C. § 9.
27 modification of an arbitration award.”118 As already described in depth above, the
Plaintiffs are not entitled to vacatur of the Arbitration award and no argument has
been made to support a need for its modification. Defendants are therefore entitled
to their requested relief of confirmation of the arbitration award from the BDO and
I find it appropriate to order the Plaintiffs’ final closing payment is due under the
parties’ agreement.
F. Attorneys’ Fees and Costs
Plaintiffs argue they are entitled to reasonable attorneys’ fees and expenses
pursuant to a term in the Amended Promissory Notes.119 Delaware follows the
American rule which states that “[l]itigants are normally responsible for paying
their own litigation costs.”120 An “exception to the American rule ‘is found in
contract litigation that involves a fee shifting provision.’ When a contract contains
a fee shifting provision, Delaware courts will enforce that provision.”121
Section 6 of the Amended Promissory Notes states that “[w]henever an
attorney is used to obtain payment under, or to otherwise enforce, this Note or to
118 MHP Management, LLC v. DTR MHP Management, LLC, 2022 WL 2208900, at *3 (Del. Ch. June 21, 2022) (citing Hall St. Assocs. V. Mattel, Inc., 552 U.S. 576, 584 (2008)). 119 D.I. 11 at ¶91. 120 Mahani v. Edix Media Gp., Inc., 935 A.2d 242, 245 (Del. 2007). 121 GB-SP Holdings, LLC v. Walker, 2024 WL 4799490, at *24 (Del. Ch. Nov. 15, 2024) (quoting Bako Pathology LP v. Bakotic, 288 A.3d 252, 280 (Del. 2022)) (internal citation omitted).
28 enforce, declare, or adjudicate any rights or obligations under this Note, whether by
suit or by any other means whatsoever, the costs and expenses thereof, including
reasonable attorneys’ fees and expenses, shall be payable by the non-prevailing
party.”122
Given that Plaintiffs did not substantially prevail on its claims before this
Court, and the limited application of the fee shifting provisions to those claims
relating to the Amended Promissory Note, I do not find it appropriate to grant
Plaintiffs request. I also do not find Defendants’ request for fee shifting to be viable,
as they do not plead specifically to the source of their right and limit their request
for attorneys’ fees as permitted by applicable law, and I do not find an exception to
the American rule applicable here.123
III. CONCLUSION
Plaintiffs request for this Court to vacate the arbitration award is denied and
Defendants request to confirm the arbitration award is granted. The Plaintiffs must
therefore perform their obligation of payment of final closing. I find that the
Defendants are liable for breach of contract, but only for their failure to pay the
payments due under the Amended Promissory Notes and Earn-Out Payments, and
for their failure to fulfill their obligation to provide quarterly and annual financial
122 D.I. 24, Ex. D at §6; S.I. 24, Ex. E at §6. 123 D.I. 6.
29 information. This is my final report, and exceptions may be filed under Court of
Chancery Rule 144.124
124 See Ct. Ch. R. 144(d)(1) (In “[a]ctions that are not summary or expedited… [a] party taking exceptions must file a notice of exceptions within 11 days of the date of the Final report or Draft Report.”).