The HC Companies, Inc. v. Myers Industries, Inc.

• Court: Court of Chancery of Delaware
• Decided: December 5, 2017
• Docket: CA 12671-VCS
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE 417 S. State Street JOSEPH R. SLIGHTS III Dover, Delaware 19901 VICE CHANCELLOR Telephone: (302) 739-4397 Facsimile: (302) 739-6179

Date Submitted: September 8, 2017 Date Decided: December 5, 2017

R. Judson Scaggs, Jr., Esquire Michael J. Barrie, Esquire Ryan D. Stottmann, Esquire Stephen M. Ferguson, Esquire Morris, Nichols, Arsht & Tunnell LLP Benesch, Friedlander, Coplan 1201 North Market Street & Aronoff, LLP Wilmington, DE 19899 222 Delaware Avenue, Suite 801 Wilmington, DE 19801

Re: The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS

Dear Counsel:

This letter opinion addresses The HC Companies, Inc.’s (“HC”) motion for

partial summary judgment. For the reasons that follow, the motion is granted.

HC purchased a lawn and garden business from Myers Industries, Inc. and

MYE Canada Operations Inc. (together, “Myers”) in February 2015. Among the

assets acquired were equipment and machinery to manufacture plastic pots, flats,

trays and other items used to grow and sell plants.1 The condition of that equipment

1 HC also acquired other assets and rights from Myers, including leasehold interests in manufacturing facilities. Def. Myers Indus. Inc.’s Answer to HC’s Compl. ¶ 8; Aff. of The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 2

was material to the transaction. Meyers represented and warranted in the Amended

and Restated Asset Purchase Agreement (the “Purchase Agreement”) that the

equipment was in “good condition.”2 This representation and warranty, in turn, was

captured within Meyers’ indemnification obligation as set forth in the Purchase

Agreement. It was also captured, by extension, within the Escrow Agreement3 that

memorialized the $8.6 million in funds the parties set aside in escrow to address

post-closing indemnification claims (the “Escrow Property”).4

The operative agreements set forth a detailed process by which

indemnification claims were to be asserted and processed. Relevant here, HC was

required to submit its indemnification claims to Myers by written notice. Myers, in

turn, retained the right to object to indemnification claims raised by HC so long as

it provided a written objection to HC within 10 days of receiving HC’s claim notice.

Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 1 (“Purchase Agreement”) § 2. 2 Purchase Agreement § 4.08(c). 3 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 2 (“Escrow Agreement”) § 1.3(c)(i). 4 Purchase Agreement § 4.08(c). The precise amount of the Escrow Property is $8,625,000. Id. at Art. I (definition of “Escrow Amount”); Escrow Agreement at Recitals (same). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 3

If Myers failed to provide a timely objection, Myers would be deemed to have

“irrevocably waived” the right to contest HC’s claim notice.5

The transaction closed on February 17, 2015. Shortly thereafter, HC sent an

indemnification claim notice to Myers asserting that Myers had breached the

Purchase Agreement’s representations and warranties because some of the tangible

assets it acquired, primarily equipment and machinery, were not in good repair.

HC’s claim notice demanded almost $8 million of the Escrow Property. Myers

timely objected on the ground that HC’s claim lacked sufficient detail.

HC sent a second indemnification claim notice in July 2016, this time seeking

more than $10 million. Once again, HC claimed that specified pieces of equipment

and machinery were not in good condition. Myers did not respond to this notice

until several weeks later, outside the 10-day objection period imposed by the

agreements. When HC demanded payment because the response was untimely,

Myers disagreed and refused to authorize the release of the Escrow Property. This

litigation followed.

In its motion for partial summary judgment, HC contends that it is entitled to

the Escrow Property based on the clear terms of the parties’ contracts because

5 Escrow Agreement § 1.3(c)(i). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 4

Myers’ objection to HC’s second claim notice was not timely. Myers counters that

the first and second claim notices contain the same claim, and thus its objection to

HC’s first claim notice suffices under the agreements to preserve its rights to contest

the claim. Myers also raises other defenses based on the terms of the agreements

and equitable estoppel.

The core issue is whether Myers timely objected to HC’s second

indemnification claim notice. In resolving this issue, the Court need only consider

the Purchase Agreement, the Escrow Agreement and the parties’ written

correspondence. Because I find that Myers did not timely object to HC’s second

claim notice, I must conclude that it has waived its right to contest HC’s claim to the

Escrow Property. Accordingly, HC’s motion for partial summary judgment must be

GRANTED.

I. Factual Background

I have drawn the facts from the admissions in the pleadings, uncontested facts

presented in the parties’ submissions and those matters of which the Court may take

judicial notice. Unless otherwise indicated, I have determined that the following

facts are undisputed. The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 5

A. The Purchase Agreement

The relevant representations and warranties provision within the Purchase

Agreement is Section 4.08(c).6 There, Myers represented and warranted that “[a]ll

Tangible Personal Property that has a replacement value in excess of $50,000 is in

good condition and in [a] state of good maintenance and repair in all material

respects.”7 Section 8.02(a) of the Purchase Agreement provides that Myers will

indemnify HC for “any inaccuracy in or breach of any of the representations or

warranties of [Myers] contained in this Agreement . . . .”8

Section 8.05 governs “Indemnification Procedures,” and subsection (c) sets

forth the process for making “Direct Claims” against an “Indemnifying Party.” 9 A

“Direct Claim” is any claim by an “Indemnified Party” (i.e., HC) against an

“Indemnifying Party” (i.e., Myers) “on account of a Loss which does not result from

a Third Party Claim.”10 Section 8.05(c) requires HC to give written notice to Myers

6 Purchase Agreement § 4.08(c). 7 Id. 8 Id. § 8.02(a). 9 Id. § 8.05. Either party, HC or Myers, could make indemnification claims under the Purchase Agreement and Escrow Agreement for reasons specified in those agreements. Because this decision concerns solely HC’s indemnification rights, however, I do not discuss Myers’ indemnification rights. 10 Id. § 8.05(c). “‘Losses’ means any Liabilities, losses, damages, fines, interest, judgments, awards, settlements, fees, claims, suits, actions, causes of actions, assessments, The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 6

within 10 days after HC receives a Direct Claim, but provides that failure to give

prompt notice will not relieve Myers of its indemnification obligations:

Direct Claims. Any claim by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party prompt written notice thereof (but in any event, no later than ten (10) business days after the receipt by such Indemnified Party of such Direct Claim). The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party.11

B. The Escrow Agreement

According to Section 1.3(c)(i) of the Escrow Agreement, once Myers receives

an indemnification claim notice from HC, it has 10 business days to send a written

objection:

If any Buyer Indemnitee desires to make a claim for indemnification pursuant to the Purchase Agreement that is not addressed by a Joint Written Instruction pursuant to Section 1.3(a)(i) (an “Indemnification Claim”), such Buyer Indemnitee [HC] shall provide written notice of

penalties, costs or expenses, including reasonable attorneys’ or other professional fees and expenses, but excluding any exemplary or punitive damages except in the case of a third- party claim.” Id. at Art. I (Definitions). 11 Id. § 8.05(c). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 7

such Indemnification Claim to Sellers [Myers] and the Escrow Agent (“Claim Notice”), specifying in reasonable detail (to the extent known) the nature and dollar amount (estimated, as necessary and to the extent feasible) of the Indemnification Claim. Upon receipt of an Indemnification Claim, any Seller may contest the Indemnification Claim(s) specified in the Claim Notice (or any portion thereof) by giving the Escrow Agent, the applicable Buyer Indemnitee (to the extent necessary contact information for such Buyer Indemnitee is provided in the Claim Notice) and Buyer written notice of such contest (the “Objection Notice”) on or before 5:00 p.m., Dallas, Texas time, on the tenth (10th) Business Day after receipt by the Sellers of such Claim Notice (such period, the “Dispute Period”), which Objection Notice shall include a statement of the reason or basis of such contest and shall state the amount, if any, of any such Claim that is not in dispute (any disputed Claim shall hereinafter be referred to as a “Disputed Claim”).12

Section 1.3(c)(i) goes on to state that if Myers does not object within 10 days, then

Myers is deemed to have “irrevocably waived the right to contest” HC’s claim:

If the Escrow Agent has not received an Objection Notice prior to the expiration of the applicable Dispute Period, the Sellers shall have irrevocably waived the right to contest the distribution of that portion of the Escrow Property specified by the corresponding Claim Notice and the Escrow Agent shall pay to the Buyer Indemnitee specified in the corresponding Claim Notice the amount set forth in the Claim Notice on or before the fifth (5th) Business Day after the expiration of the Dispute Period.13

12 Escrow Agreement § 1.3(c)(i) (emphasis supplied). 13 Id. (emphasis supplied). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 8

C. The Indemnification Claims

On April 13, 2015, just two months after the transaction closed, HC sent a

Claim Notice to Myers (the “First Claim Notice”) asserting that Myers had breached

Section 4.08(c) of the Purchase Agreement because the equipment and other assets

listed in the notice were not in “good condition.”14 The First Claim Notice identified

almost $8 million of losses and expressly invoked the procedures set forth in Section

8.05(c) of the Purchase Agreement.15 Myers sent out its objection on April 24, 2015,

in which it stated its position that HC’s First Claim Notice lacked sufficient detail.16

HC responded by notifying the escrow agent of the dispute on May 28, 2015, and

instructing the agent not to release the Escrow Property to either party until they

resolved their dispute and submitted either a “Joint Written Instruction or Final

Decree.”17

14 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 3 (“First Claim Notice”). 15 Id. at 2 (“In total, Buyer has identified $7,916,539 in Losses for which Sellers have agreed to indemnify Buyer pursuant to Section 8.02(a) of the Purchase Agreement.”). 16 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 4 at 2 (“For each and every purported ‘deficiency’ and ‘additional deficiency’ referred to in your Letter, you failed to describe it in any detail, let alone ‘reasonable detail.’”) (emphasis in original). 17 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 5 at 1 (“Until [HC] and [Myers] are able to resolve the Direct Claims referenced in the Notice, [HC] hereby expressly requests that the Escrow Agent retain the full amount of the Escrow Property . . . until receipt of a Joint Written Instruction or a Final Decree . . . , in each case, directing The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 9

After Myers objected, the parties utilized the indemnification procedure as a

dispute resolution mechanism of sorts. HC hired experts to inspect the equipment

with an eye toward addressing Myers’ objections regarding the lack of specificity in

the First Claim Notice.18 HC then sent Myers a letter in December 2015, in which

it included a settlement demand along with a detailed breakdown of each alleged

defective asset and the experts’ opinions regarding why the asset was not in “good

condition” as warranted.19 The parties were unable to reach an agreement.

HC sent a second claim notice on July 15, 2016, and Myers received it on

July 18, 2016 (the “Second Claim Notice”).20 In the Second Claim Notice, HC

identified a number of assets it alleged were not in “good condition” as warranted in

Section 4.08 of the Purchase Agreement, and provided detailed charts that listed for

each asset the amount of the alleged loss and an explanation of the deficiency.21 This

any disposition thereof. [HC] reserves all of its rights and remedies against [Myers]. Nothing contained in this notice shall preclude [HC] from providing a subsequent notice of any indemnification claim . . . .”). 18 See Def. Myers Indus. Inc.’s Answering Br. in Opp’n to Pl.’s Mot. for Partial Summ. J. (“Myers’ Answering Br.”), Ex. 7. 19 Id. 20 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 6 (“Second Claim Notice”); Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 8 (stating that Myers’ received the Second Claim Notice via FedEx on July 18, 2016). 21 Second Claim Notice, Ex. A–B. The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 10

notice also included the experts’ opinions on defects and damages.22 In total, HC

claimed over $10 million in losses, well in excess of the $8.6 million in escrow. 23

Myers did not deliver its written objection until August 12, 2016.24 On August 17,

2016, HC advised the escrow agent that HC had not received a timely objection from

Myers and stated its position that Myers, therefore, had “irrevocably waived the right

to contest the distribution of the full amount of the Escrow Property . . . .” 25

D. Procedural History

On August 17, 2016, HC filed its Verified Complaint in this Court for breach

of contract seeking, inter alia, the full amount of Escrow Property based on the

claims raised in its Second Claim Notice. On May 25, 2017, HC filed a motion for

partial summary judgment in which it argues that Myers has waived its right to

contest the Second Claim Notice, and the release of the Escrow Property, because

22 Id. 23 Id. at 2 (“[HC] has identified $10,144,445 in Losses related to the Deficiencies for which [Myers] ha[s] agreed to indemnify [HC] pursuant to Section 8.02(a) of the Purchase Agreement.”). 24 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 7. Myers 10-day objection period expired no later than August 1, 2016. Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 8. 25 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 8. The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 11

its objection to the Second Claim Notice was not timely. Myers opposes the motion.

This is the Court’s decision.

II. Analysis

As noted, the core issue raised by the motion is whether Myers timely objected

to HC’s Second Claim Notice. In order to decide that issue, the Court must first

determine whether the claim contained in the Second Claim Notice is the same as

the claim contained in the First Claim Notice. If the claims are different, then the

Escrow Agreement required Myers to send a written objection within 10 days of

receiving the Second Claim Notice, which Myers did not do. If the claims are the

same, then Myers’ original objection to the First Claim Notice, timely provided,

would perfect its objection and require HC to prove its breach of warranty claim on

the merits. For reasons discussed below, I find that the two claim notices clearly and

unambiguously contain different claims. Thus, Myers’ objection to the Second

Claim Notice was untimely, it has waived its objections and HC is entitled to the

Escrow Property.

A. Standard Of Review

Under Court of Chancery Rule 56(c), summary judgment is appropriate where

“there is no issue as to any material fact and . . . the moving party is entitled to The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 12

judgment as a matter of law.”26 This Court has often observed that “[w]hen the issue

before the Court involves the interpretation of a contract, summary judgment is

appropriate only if the contract in question is unambiguous.”27

Delaware “is more contractarian than . . . many other states.”28 With this in

mind, our courts have recognized that “[p]arties have a right to enter into good and

bad contracts, the law enforces both.”29 “The presumption that the parties are bound

by the language of the agreement they negotiated applies with even greater force

when the parties are sophisticated entities that have engaged in arms-length

negotiations.”30

After carefully reviewing the operative provisions of the contracts at issue

here, I am satisfied they are clear and unambiguous.31 Thus, the Court’s task is to

construe and enforce the contracts as written.

26 Ct. Ch. R. 56(c). 27 United Rentals, Inc. v. RAM Hldgs., 937 A.2d 810, 830 (Del. Ch. 2007). 28 GRT, Inc. v. Marathon GTF Tech., Ltd., 2011 WL 2682898, at *12 (Del. Ch. July 11, 2011). 29 Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010). 30 W. Willow-Bay Ct., LLC v. Robino-Bay Ct. Plaza, LLC, 2007 WL 3317551, at *9 (Del. Ch. Nov. 2, 2007). 31 Myers did not argue in its brief on the motion that the contracts are ambiguous. At oral argument, however, Myers’ counsel made an off-handed comment that the contracts might be subject to two reasonable interpretations. Tr. of Oral Argument 43:3–8. It is unclear The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 13

B. Myers Failed To Object On Time

As noted, Myers argues that the First Claim Notice and the Second Claim

Notice cover the same claim, and thus its objection to the First Claim Notice is

sufficient for the Second Claim Notice. I disagree. Although many of the assets

listed in the two notices overlap, the Second Claim Notice identified seventy new

Losses as subjects of the claim.32 It also provided substantially more detail regarding

the deficiencies of all the listed assets, along with supporting expert opinions, as the

bases of HC’s claim that the assets were not in “good condition” as warranted.33 In

many instances, the stated Losses for the individual assets that are listed in both of

HC’s two Claim Notices differ in amount. For example, the Loss claimed for

machine G9 is $27,000 in the First Claim Notice, but is revised to $27,542 for a

from this comment whether Myers intended to argue that the agreements are ambiguous. Assuming Myers does seek to press a belated ambiguity argument, I reject it both as untimely and unsustainable. As explained below, the operative provisions are subject to only one reasonable construction. See Rhone-Poulenc Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992) (“A contract is not rendered ambiguous simply because the parties do not agree upon its proper construction. Rather, a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.”); Comet Sys., Inc. S’holders’ Agent v. MIVA, Inc., 980 A.2d 1024, 1030 (Del. Ch. Oct. 22, 2008) (“The determination of whether a contract is ambiguous is a question for the court to resolve as a matter of law.”) (citations omitted) (internal quotation marks omitted). 32 Second Claim Notice, Ex. A. 33 Compare First Claim Notice at Ex. A–B, with Second Claim Notice at Ex. A–B. The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 14

“software” defect and $17,100 for “clamp end seals/screw” in the Second Claim

Notice.34 The Loss for machine 103 is $8,000 in the First Claim Notice, but is

revised to $10,611 for a “color head” repair.35

No analytical or perceptual paradigm exists where one could read the First

Claim Notice and the Second Claim Notice and then credibly declare that they are

the “same notices.” Myers’ attempt to do just that—to argue that the notices are the

same and, therefore, that its objection to the First Claim Notice carried over to the

Second Claim Notice—is simply not credible. The differences are manifest on the

face of the notices and they are substantive. I am satisfied, therefore, that HC’s

delivery of the Second Claims Notice triggered Myers’ obligation timely to object

to that notice under Section 1.3(c)(i) of the Escrow Agreement.36 It did not do so.

Myers’ construction of the agreements as allowing its first and only timely

objection to HC’s indemnification claim to freeze the Escrow Property as to all

future claims finds no support in the language of the contracts and, indeed, runs

34 Compare First Claim Notice, Ex. A, with Second Claim Notice, Ex. A–B. 35 Compare First Claim Notice, Ex. A, with Second Claim Notice, Ex. A–B. As noted, there are upwards of 70 such examples where the Losses stated in the Second Claim Notice differ from those set forth in the First Claim Notice. 36 While “Direct Claims” are tied to “Losses,” Myers’ response obligation is tied to its receipt of an “Indemnification Claim” from HC. Purchase Agreement § 8.05(c); Escrow Agreement § 1.3(c)(i). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 15

directly contrary to the clear terms of the Escrow Agreement. Section 1.3(c)(i)

provides that Myers was obligated timely to “contest [the] Indemnification

Claim(s)” and further provides that if it did not do so, it lost the right to “contest the

distribution of that portion of the Escrow Property specified in the corresponding

Claim Notice.”37 This language unambiguously requires that Myers object to claims

as made and makes clear that objections raised will be tied to “the corresponding

Claim Notice.” The language also reveals that the parties anticipated HC might

make more than one claim. Thus, Myers’ first objection (the only timely objection)

was tied to the “corresponding” First Claim Notice and did not carry over to the

Second Claim Notice.38

37 Escrow Agreement § 1.3(c)(i) (emphasis supplied). 38 Myers argues that under HC’s construction of the Agreements, HC could serially send the same claim notice and pounce on the Escrow Property the moment Myers failed to respond in time to any one of the repeated notices. But that is not what occurred here. As demonstrated above, the two Indemnification Claims stated in their respective notices are clearly different. According to Myers, HC’s First Claim Notice lacked detail. HC provided that detail and then asserted substantially more Losses in its Second Claim Notice. Myers’ argument, under these circumstances, that it may simply stand on its original objection (that the claim lacked detail) flies in the face of the bargained-for give and take required by the parties’ agreements. Moreover, the extreme scenario that Myers envisions would be addressed (and prevented) either by the express terms of the contract (e.g., the “corresponding” language in Section 1.3(c)(i) of the Escrow Agreement) or the implied covenant of good faith and fair dealing. See, e.g., Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010) (“[The courts] will [] imply contract terms when the party asserting the implied covenant proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected.”). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 16

Section 1.3(c)(i) of the Escrow Agreement requires Myers to object to HC’s

claim notices in writing within 10 days after it receives the notice.39 Myers received

HC’s Second Claim Notice no later than July 18, 2016, but Myers did not object

until August 12, 2016—several days outside of the 10-day window. Thus, the

objection was untimely and, absent some other viable legal defense to HC’s

indemnification claim, Myers has “irrevocably waived the right to contest the

distribution of that portion of the Escrow Property specified by the [Second] Claim

Notice.”40

C. HC’s Claim Is Not Barred By Estoppel

Myers sees that other viable legal defense in the law of estoppel. Specifically,

Myers argues that HC is estopped from arguing that Myers waived any objection to

the Second Claim Notice because HC instructed the escrow agent on two occasions

not to release any of the Escrow Property until the parties’ dispute was resolved by

“Joint Written Instruction or Final Decree.”41 Specifically, HC’s instruction to the

escrow agent appeared in a letter dated May 28, 2015, following Myers’ objection

39 Escrow Agreement § 1.3(c)(i). 40 Id. 41 E.g., Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 5 at 1. The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 17

to the First Claim Notice, and again in the Second Claim Notice.42 According to

Myers, by affirmatively stating to the escrow agent that the indemnification dispute

was “subject to final resolution only through Joint Written Instruction or Final

Decree,” HC acknowledged that the Escrow Property was subject to a “Disputed

Claim” and thereby relieved Myers of its obligation to object.43

Myers bears the burden of proving equitable estoppel by demonstrating that

it: “(i) lacked knowledge or the means of obtaining knowledge of the truth of the

facts in question; (ii) reasonably relied on the conduct of the party against whom

estoppel is claimed; and (iii) suffered a prejudicial change of position as a result of

[its] reliance.”44 Myers estoppel defense fails as a matter of law because the

undisputed evidence in the summary judgment record reveals that Myers cannot

demonstrate reasonable, detrimental reliance.

42 Second Claim Notice at 2. 43 Myers’ Answering Br. at 21. According to the Escrow Agreement, an “Indemnification Claim” is treated as a “Disputed Claim” only when Myers sends a “written notice of [] contest” (i.e., an objection notice) to HC and the escrow agent within the 10-day window following HC’s claim. Escrow Agreement § 1.3(c)(i). 44 Nevins v. Bryan, 885 A.2d 233, 249 (Del. Ch. 2005) (citing Wilson v. Am. Ins. Co., 209 A.2d 902, 904 (Del. 1965); Waggoner v. Laster, 581 A.2d 1127, 1136 (Del. 1990)); see also VonFeldt v. Stifel Fin. Corp., 714 A.2d 79, 87 (Del. 1998) (“To make out a claim of equitable estoppel, plaintiff must show that he was induced to rely detrimentally on defendant’s conduct.”). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 18

The analysis must begin with a complete picture of precisely what HC said in

its directions to the escrow agent. Myers has cherry picked what it likes in the

correspondence but there is more. Following the language Myers relies upon, HC

stated in both the May 28 letter and the Second Claim Notice that it “reserves all of

its rights and remedies against [Myers]. Nothing contained in this notice shall

preclude [HC] from providing a subsequent notice of any additional indemnification

claim under any section of the Purchase Agreement . . . .”45 The Second Claim

Notice does not contain the words “Disputed Claim,” but does state clearly that HC

was seeking in that notice “payment of the full value of the Escrow Property.”46

Myers could not have reasonably relied on HC’s correspondence to the escrow

agent in deciding not to send an objection to the Second Claim Notice because HC

made it clear that it “reserve[d] its right” to raise “additional indemnification

claim[s]” against the Escrow Property in “subsequent notice[s].” When HC

delivered its Second Claim Notice, it did just that. Moreover, Myers’ conduct

reveals that it did not rely on HC’s letters in deciding not to send a written objection;

45 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 5 at 1; Second Claim Notice at 2. 46 Second Claim Notice at 2. The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 19

it sent a written objection to the Second Claim Notice on August 12, 2016—after the

10-day window closed.47 In the absence of reasonable reliance, Myers’ estoppel

argument fails.48

D. Myers’ Untimeliness Argument Is Itself Untimely

Myers disputes that HC’s Second Claim Notice was valid in the first place

because HC sent the notice more than 10 days after it received notice of the alleged

equipment defects that gave rise to its claim. According to Myers, this means the

47 Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 7. Myers also points to HC’s December 2015 settlement overture as yet another statement by HC upon which Myers relied to justify its failure to object to the Second Claim Notice. While HC did provide additional detail in its settlement letter, it said nothing that would lead Myers reasonably to believe that a second indemnification claim would not be forthcoming or that an objection to that claim would not be necessary. See Myers’ Answering Br. at 21, 23; Myers’ Answering Br., Ex. 7. 48 See Nevins, 885 A.2d at 249. Myers’ estoppel argument likely fails on the first prong as well. Myers cannot say that it “lack[ed] knowledge or the means to obtain knowledge of the truth of the facts in question”—the fact in question being that HC may bring a second claim—after it received HC’s May 28 letter and the Second Claim Notice in which (in both instances) HC reserved the right to bring additional claims. Id. Myers was also aware of its obligation to object to HC’s claim notice under the Escrow Agreement, as it was a party to the contract, had timely objected to the First Claim Notice and had belatedly objected to the Second Claim Notice. Aff. of Jason Reed in Support of HC’s Mot. for Partial Summ. J., Ex. 5. The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 20

Second Claim Notice was untimely under Section 8.05(c) of the Purchase

Agreement.49

Myers’ timing defense to the Second Claim Notice may have carried the day

if only Myers had timely raised it.50 Unfortunately for Myers, any delay by HC

under Section 8.05(c) of the Purchase Agreement (assuming there was a delay) did

not relieve Myers of its obligation to send a written objection. Section 8.05(c)

provides that “the failure to give such prompt written notice shall not, however,

relieve the Indemnifying Party [Myers] of its indemnification obligations,

except and only to the extent that the Indemnifying Party forfeits rights or defenses

by reason of such failure.”51 Myers has not shown that it forfeited any rights or

defenses as a result of HC’s delay in submitting the Second Claim Notice, and I can

think of no right or defense that Myers would have lost if it had made a timely

49 Purchase Agreement § 8.05(c) (providing that Direct Claims “shall be asserted by [HC] giving [Myers] prompt written notice thereof (but in no event, no later than (10) business days after the receipt of [HC] of such Direct Claim)”). 50 If HC failed to provide timely notice of an indemnification claim, then Myers could have included that failure as a “reason or basis” for contesting HC’s claim, as envisioned by the Escrow Agreement. Escrow Agreement § 1.3(c)(i) (providing that Myers’ objection notice “shall include a statement of the reason or basis” for Myers objection). 51 Id. (emphasis supplied). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 21

objection. In fact, a timely objection would have preserved Myers’ rights and

defenses, including its defense that HC’s Second Claim Notice was untimely.

Myers does claim that it was prejudiced by HC’s delay because it could not

make a prompt inspection of the allegedly defective assets listed in the Second Claim

Notice.52 Assuming that is true, that does not amount to a “forfeit[ure]” of rights

and defenses captured by the exception in Section 8.05(c).53 The only reasonable

construction of Section 8.05(c) is that HC’s delay in sending a claim notice must be

the cause of Myers forfeiting rights and defenses.54 But Myers forfeited its defenses

only as a result of its delay in objecting to HC’s claim. As stated, Myers could have

used HC’s delay as part of its defense in arguing that HC was not entitled to

indemnification, along with any other arguments it might muster in defense of the

claim on the merits. According to the plain language of the Purchase Agreement

52 As an aside, I note that Myers’ argument that the Second Claims Notice did not provide it with adequate, timely notice of the claimed loss is inconsistent with its argument that the First and Second Claim Notices are the same notices. See Myers’ Answering Br. at 19–20 (defending on the basis that HC was “resubmitting notice of the same claim”); id. at 26–27 (“HC’s delay between alleged discovery and notice to Myers has prevented Myers from defending against HC’s substantive deficiency claims.”). 53 Purchase Agreement § 8.05(c). 54 Id. (“[T]he failure to give such prompt written notice shall not, however, relieve the Indemnifying Party [Myers] of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure.”) (emphasis supplied). The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 22

and the Escrow Agreement, however, Myers is not entitled to raise its defenses

unless it objects on time.55 Myers did not object on time, and thus it cannot challenge

HC’s Second Claim Notice.56

III. Conclusion

For the reasons discussed above, HC is entitled to the Escrow Property. This

may seem like a harsh result, but it is the result dictated by what these two

sophisticated parties bargained for.57 To reiterate, Delaware courts enforce bad deals

the same as good deals.58 The Court cannot rewrite the contracts, and it cannot

ignore the plain terms of the contracts. HC’s motion for partial summary judgment

55 It appears that the parties structured the indemnification claim procedure in a way that resembles a short statute of limitations period. See id.; Escrow Agreement § 1.3(c)(i). The limitations period is the 10-day window following HC’s claim notice. If Myers objects within that window, it can then raise any and all defenses it possesses. But if Myers’ fails to object within the window, it is time-barred from raising any defenses. This scheme reflects an intent to have post-closing indemnification claims addressed promptly and efficiently so that the Escrow Property, a percentage of the funds Myers paid to HC as consideration, will either be paid out to the seller as contemplated to round out the purchase price, or to the buyer, if needed, to cover indemnifiable losses, all within the 18 months post-closing allowed for indemnification claims. See Purchase Agreement § 8.01 (providing that indemnification claims survive for only 18 months after closing). 56 Specifically, the Court’s ruling pertains to HC’s claim for the Escrow Property. The Court expresses no opinion as to whether Myers’ failure to object on time affects its rights to defend HC claims for amounts in excess of the Escrow Property. 57 See W. Willow-Bay Ct., 2007 WL 3317551, at *9. 58 Nemec, 991 A.2d at 1125. The HC Companies, Inc. v. Myers Industries, Inc. C.A. No. 12671-VCS December 5, 2017 Page 23

is GRANTED. HC shall submit an implementing order on notice to Myers within

ten (10) days.

IT IS SO ORDERED.

Very truly yours,

/s/ Joseph R. Slights III