John Halinski v. ADS Group Acquisition LLC & ADS Group OPCO LLC
2024-1237-PRW
| Del. Ch. | Jul 28, 2025Background
- ADS Group Acquisition, LLC purchased Raloid Corporation through a Stock Purchase Agreement (SPA), which included a $22 million purchase price with certain holdbacks, notably a Tax Holdback of $4,439,000 to secure post-closing tax liabilities.
- The SPA required ADS to release the Tax Holdback to Raloid’s sellers in stages, with the Second Intermediate Tax Holdback ($2,735,000) due on October 30, 2024; ADS admits it did not pay this amount.
- ADS’s parent company guaranteed the Tax Holdback’s payment and initially paid the first tranche but failed to make the second payment, triggering the dispute.
- Halinski, on behalf of the sellers, sued ADS to recover the unpaid Tax Holdback, and moved for judgment on the pleadings.
- ADS admitted non-payment but argued it was entitled to withhold payment due to alleged breaches by sellers of the SPA’s representations and warranties (Sections 3.08 and 3.10).
- The court considered whether ADS's affirmative defense was valid given SPA’s dispute resolution and indemnification procedures.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ADS’s failure to pay the Second Intermediate Tax Holdback breached the SPA | Halinski: ADS breached the SPA by withholding the payment; there is no dispute on this fact. | ADS: Concedes non-payment, but says sellers’ own breaches justify withholding under an indemnity theory. | For Halinski: ADS’s breach is undisputed; mere allegations of seller breach do not excuse payment. |
| Whether ADS's failure to comply with the SPA’s indemnification procedures invalidates its affirmative defense | Halinski: ADS’s defense is barred because it didn’t follow required dispute resolution steps (Section 7.07). | ADS: Compliance with dispute resolution was futile due to seller's firm opposition and timing issues. | For Halinski: Futility exception does not apply; ADS’s claim is unripe due to non-compliance with SPA procedure. |
| Whether ADS can withhold the Tax Holdback for claims based on representations/warranties breach | Halinski: The SPA limits remedies for such alleged breaches to the Indemnity Holdback and insurance, not the Tax Holdback. | ADS: Believes it can recoup the Indemnity Holdback by withholding the Tax Holdback as set-off/recoupment. | For Halinski: SPA’s text unambiguously bars use of Tax Holdback as remedy for indemnity claims unrelated to taxes. |
| Effect of ADS’s affirmative defense on judgment on the pleadings | Halinski: ADS’s defense creates no material factual dispute; judgment as a matter of law is appropriate. | ADS: Defense creates a factual dispute precluding judgment. | For Halinski: Defense fails both procedurally and substantively; judgment for sellers. |
Key Cases Cited
- Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199 (Del. 1993) (sets standards for granting judgment on the pleadings)
- Examen, Inc. v. VantagePoint Venture Partners 1996, 873 A.2d 318 (Del. Ch. 2005) (explains procedural standards for 12(c) motions)
- McMillan v. Intercargo Corp., 768 A.2d 492 (Del. Ch. 2000) (irrelevant or conclusory allegations do not preclude judgment on the pleadings)
- CitiSteel USA, Inc. v. Connell Ltd. P’ship, 758 A.2d 928 (Del. 2000) (discusses standards for repudiation in contract disputes)
- Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027 (Del. Ch. 2005) (clarifies what constitutes repudiation; no bluebook cite, omit if no official reporter)