United BioSource LLC v. Bracket Holding Corp.
CA 12886-CB
| Del. Ch. | May 23, 2017Background
- UBC (buyer/Parent under the SPA) sold three subsidiaries to Bracket (Buyer) in a July 2013 SPA; P‑Star was one Company Subsidiary transferred in the Transaction.
- SPA §2.6(e) required Buyer to pay to Parent, within 15 days, any cash tax refunds received by any Company Subsidiary that relate to pre‑closing periods, subject to limited deductions and indemnity for later disallowance.
- On August 5, 2016, P‑Star received a $4,566,646.88 Pennsylvania tax refund (the Tax Refund) relating to pre‑closing periods; Bracket notified UBC but withheld the funds in a segregated interest‑bearing account pending separate Superior Court litigation.
- UBC demanded payment; Bracket refused. UBC filed this action in Chancery seeking specific performance (Nov. 2016). Bracket moved to dismiss; UBC moved for summary judgment.
- The central factual points are undisputed: P‑Star received the Tax Refund, it relates to pre‑closing periods, it was not included on the final statement, and Bracket/its subsidiary has not paid it to UBC.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Court of Chancery has equitable jurisdiction to order specific performance | UBC: legal remedy (money judgment) is inadequate because P‑Star (a non‑party) holds the funds; specific performance is more certain and efficient | Bracket: UBC really seeks monetary relief so an adequate legal remedy exists; SPA limits equitable relief | Held: Court has equitable jurisdiction — specific performance appropriate because funds are held by non‑party and a money judgment may not enable prompt recovery |
| Whether UBC’s specific performance claim should be dismissed under Rule 12(b)(6) for having an adequate remedy at law | UBC: equitable relief is proper and pleaded; SPA contains an irreparable‑harm stipulation consenting to injunction/specific performance | Bracket: complaint fails because an adequate legal remedy exists; also argues lack of pleaded harm | Held: Dismissal denied — legal remedy inadequate under the circumstances and UBC sufficiently alleged harm |
| Whether UBC is entitled to specific performance as a matter of law on summary judgment | UBC: undisputed breach of §2.6(e); specific performance is appropriate and SPA terms are clear | Bracket: disputes remedy and asserts affirmative defenses (recoupment, unclean hands) | Held: Summary judgment for UBC — clear and convincing proof of breach; specific performance ordered |
| Validity of Bracket’s affirmative defenses (recoupment; unclean hands) | Bracket: asserts recoupment based on related fraud claims in Superior Court; invokes unclean hands | Bracket: contends its Superior Court fraud claims justify offset/denial of equitable relief | Held: Defenses fail — Superior Court fraud claims lack transactional nexus to the tax refund dispute and are not immediately or necessarily related, so recoupment and unclean hands are inapplicable |
Key Cases Cited
- Candlewood Timber Group, LLC v. Pan American Energy, LLC, 859 A.2d 989 (Del. 2004) (standards for Chancery Court jurisdictional inquiry)
- International Business Machines Corp. v. Comdisco, Inc., 602 A.2d 74 (Del. Ch. 1991) (treating factual allegations as true for jurisdictional analysis)
- El Paso Natural Gas Co. v. TransAmerican Natural Gas Corp., 669 A.2d 36 (Del. 1995) (parties cannot confer subject‑matter jurisdiction by agreement)
- Clark v. Teeven Holding Co., Inc., 625 A.2d 869 (Del. Ch. 1992) (definition of adequate legal remedy for equity jurisdiction)
- TIFD III‑X LLC v. Fruehauf Prod. Co., L.L.C., 883 A.2d 854 (Del. Ch. 2004) (recoupment transactional‑nexus requirement)
- Finger Lakes Capital Partners, LLC v. Honeoye Lake Acquisition, LLC, 151 A.3d 450 (Del. 2016) (recoupment transactional nexus should be tightly constrained)
- FdG Logistics LLC v. A&R Logistics Holdings, Inc., 131 A.3d 842 (Del. Ch. 2016) (equitable relief ordering prompt payment of tax refund)