Chancery Court Cites Inelegant Drafting When Allowing an Indemnification Claim to Proceed
By Whitney Smith and Dean Brazier
In EMSI Acquisition, Inc. v. Contrarian Funds, LLC, et al., C.A. No. 12648-VCS (Del. Ch. May 3, 2017) the Delaware Chancery Court denied a motion to dismiss brought by defendants who were sellers (“Sellers”) in the acquisition of EMSI Holding Company (“EMSI”) by an affiliate of private equity firm Beecken Petty O’Keefe & Company where “inelegant drafting” created an ambiguity that may make the Sellers liable for EMSI’s fraudulent representations and warranties. To reach this conclusion, the Court considered whether the provisions of the Stock Purchase Agreement (“SPA”) permitted the plaintiff (“Buyer”) to seek indemnification beyond the cap on liability and, if so, whether the Sellers could be liable for the allegedly fraudulent representations and warranties from EMSI. The Court concluded that the SPA contained conflicting provisions with interpretations that could reasonably support either party’s claims and the conflicts could not be resolved on a motion to dismiss.