Chicago Bridge & Iron Company N v. v. Westinghouse Electric Company LLC
CA 12585-VCL
| Del. Ch. | Dec 5, 2016Background
- CB&I (Seller) sold its subsidiary (the Company) to an acquisition vehicle controlled by Westinghouse (Buyer) under a Purchase Agreement dated Oct. 27, 2015; closing price was $0 subject to a post‑closing Closing Date Adjustment and potential earnouts.
- The Purchase Agreement required both parties to submit GAAP‑compliant Closing Payment Statement (Seller) and Closing Statement (Buyer) and set a procedure in §1.4(c) for negotiating objections and (if unresolved) submitting disputes to an Independent Auditor whose determinations are final except for manifest error or fraud.
- Seller delivered an Estimated Closing Date Purchase Price showing a Net Working Capital above the $1.174B target (implying a ~$428M payment from Buyer); Buyer’s Closing Statement calculated a dramatically lower Net Working Capital (implying a ~$2.15B payment from Seller) by making four substantive GAAP‑related adjustments.
- Seller objected and then sued (filed July 21, 2016), seeking declaratory relief that Buyer breached the Purchase Agreement and the implied covenant by making those adjustments and by raising GAAP issues after the survival period for representations expired.
- Buyer moved for judgment on the pleadings, arguing the Purchase Agreement unambiguously requires that disputes about the Closing Date Adjustment, including GAAP compliance questions, be resolved by the Independent Auditor; §10.3 expressly preserves §1.4(c).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether disputes over the Closing Date Adjustment (including GAAP compliance) must be resolved by the Independent Auditor | Seller: Buyer cannot use the Closing Date Adjustment to evade the non‑survival of financial statement representations and must pursue breach/indemnity remedies; GAAP challenges are for post‑closing reps (now expired) | Buyer: §1.4(f) requires GAAP for the statements and §1.4(c) / §10.3 preserve the Independent Auditor process; disputes about calculations and GAAP belong to the Independent Auditor | Court: Granted judgment for Buyer — the Agreement unambiguously assigns these disputes to the Independent Auditor (Alliant‑type carve‑out governs) |
| Whether Seller's implied covenant claim can fill any gap and prevent referral to the Independent Auditor | Seller: Implied covenant required to prevent Buyer from using adjustment procedure to circumvent rep survival limits | Buyer: Contract governs the matter; implied covenant cannot contradict express contractual allocation | Court: Denied — implied covenant cannot override clear, express contractual mechanism; no contractual gap exists |
Key Cases Cited
- OSI Sys., Inc. v. Instrumentarium Corp., 892 A.2d 1086 (Del. Ch. 2006) (narrow reading of independent accountant’s authority where contract limited that role and GAAP challenge was a rep claim)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (implied covenant cannot contradict explicit contractual language)
- Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199 (Del. 1993) (standard for judgment on the pleadings)
- Lillis v. AT&T Corp., 904 A.2d 325 (Del. Ch. 2006) (judgment on the pleadings appropriate for unambiguous contracts)
- Rhone‑Poulenc Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192 (Del. 1992) (contract ambiguity standard)