The HC Companies, Inc. v. Myers Industries, Inc.
CA 12671-VCS
| Del. Ch. | Dec 29, 2017Background
- HC sought a court declaration that it was entitled to escrow funds under an Asset Purchase Agreement and an Escrow Agreement after serving indemnification claim notices.
- The Escrow Agreement required Myers to object in writing within 10 days of each claim notice, stating the bases for objection tied to the corresponding Claim Notice.
- HC served a first claim notice; Myers objected on grounds of insufficient detail. HC later served a second claim notice providing additional detail.
- Myers did not object to the second claim notice within the 10-day window. The Court held that failure to object timely to the second notice constituted an irrevocable waiver to contest distribution of the escrow portion identified in that notice.
- Myers moved for reargument, asserting (1) its initial objection should apply to overlapping items in the second notice, (2) a prior objection created a Disputed Claim that HC could not override, and (3) even if waiver occurred it retained defenses to prevent full escrow distribution.
- The Court denied reargument: Myers either rehashed rejected arguments, raised new untimely arguments, or misapprehended the Court’s prior ruling and the Escrow Agreement’s plain terms.
Issues
| Issue | Plaintiff's Argument (HC) | Defendant's Argument (Myers) | Held |
|---|---|---|---|
| Whether Myers timely objected to the second claim notice | HC: Myers failed to object within the 10‑day window as required | Myers: Its prior objection applied; second notice objection was timely or redundant | Held: Myers did not timely object to the second notice; waiver of right to contest distribution tied to the second notice |
| Whether an objection to first notice carries over to overlapping items in a later notice | HC: Objections are tied to the corresponding Claim Notice; later detailed notice requires a new timely objection | Myers: First objection should cover overlapping items in the second notice | Held: Objections are claim‑specific; the first objection (insufficient detail) did not carry over once HC supplied more detail |
| Whether HC could make multiple claim notices and whether a prior Disputed Claim blocks new claims | HC: The Escrow Agreement allows multiple claims; Myers must contest each claim as made | Myers: Once it created a Disputed Claim, HC could not ‘‘override’’ that objection by issuing another claim | Held: Agreement contemplates multiple claims; Myers had to object to each within the 10 days and failed to do so for the second notice |
| Whether waiver of the right to contest distribution still permits Myers to assert defenses to block distribution | HC: Waiver under the Escrow Agreement prevents contesting distribution tied to the claim notice | Myers: Even if waiver occurred, it can still raise defenses to prevent distribution of the entire escrow amount | Held: Court found no meaningful distinction between ‘‘contesting’’ distribution and ‘‘raising defenses’’; waiver bars raising defenses to distribution of the escrow amount specified by the claim notice |
Key Cases Cited
- Miles, Inc. v. Cookson Am., Inc., 677 A.2d 505 (Del. Ch.) (motion for reargument is improper when it merely rehashes prior arguments)