Source: https://caselaw.findlaw.com/de-supreme-court/1866014.html
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CHICAGO BRIDGE IRON COMPANY v. WESTINGHOUSE ELECTRIC COMPANY LLC WSW LLC | FindLaw
CHICAGO BRIDGE IRON COMPANY v. WESTINGHOUSE ELECTRIC COMPANY LLC WSW LLC
Before STRINE, Chief Justice; VALIHURA and SEITZ, Justices. David E. Ross, Esquire, Garrett B. Moritz, Esquire, Ross Aronstam & Moritz LLP, Wilmington, Delaware; Theodore N. Mirvis, Esquire (argued ), Jonathan M. Moses, Esquire, Kevin S. Schwartz, Esquire, Andrew J.H. Cheung, Esquire, Cecilia A. Glass, Esquire, Bita Assad, Esquire, Wachtell, Lipton, Rosen & Katz, New York, New York, for Plaintiff Below, Appellant, Chicago Bridge & Iron Company N.V. Kevin G. Abrams, Esquire, John M. Seaman, Esquire, Abrams & Bayliss LLP, Wilmington, Delaware; Peter N. Wang, Esquire (argued ), Susan J. Schwartz, Esquire, Yonaton Aronoff, Esquire, Douglas S. Heffer, Esquire, for Defendants Below, Appellees, Westinghouse Electric Company LLC and WSW Acquisition Co., LLC.
As part of the documents prepared for signing, the parties prepared an example of the calculations they would exchange as part of the True Up: Schedule 1.4(f) of the Purchase Agreement. The Purchase Agreement defined the actual net working capital at closing (the “Net Working Capital Amount”) as Stone's current assets less current liabilities “solely to the extent such assets and liabilities are described and set forth on Schedule 1.4( [f] ).”17 The calculation for the Target included accounts encompassing accounts receivable, the net Construction in Progress asset account which was comprised of completed but unbilled work and the “claim cost” asset, and accounts payable for the two nuclear projects. That Schedule uses the June 30, 2015 balance sheet Chicago Bridge represented was GAAP compliant.18 The Schedule is fairly simple:
[Editor's Note: The preceding image contains the reference for footnote 19 ].
Chicago Bridge argues that the bulk of Westinghouse's changes to the Net Working Capital Amount fall outside the scope of matters that the Independent Auditor may resolve under the True Up because they implicate Stone's historical accounting practices. According to Chicago Bridge, the vast majority of Westinghouse's claims—or around $1.3 billion 57 —really constitute alleged breaches of the Purchase Agreement's representations. The calculations of the Net Working Capital Amount included in Chicago Bridge's Closing Statement were based on Stone's earlier financial statements, which Chicago Bridge represented were GAAP compliant.58 And, under the Purchase Agreement's Liability Bar, Westinghouse gave up its post-closing rights to challenge the representations and warranties. Thus, Chicago Bridge argues that Westinghouse is trying to get around the Liability Bar through the True Up. Unlike Westinghouse, Chicago Bridge conceives of the True Up as a limited procedure for Chicago Bridge and Westinghouse to account for changes in Stone's business during the period from signing to closing and maintain the benefit of the deal they struck.
Although Westinghouse argues 91 that the True Up was structured after the analogous provision at issue in Alliant Techsystems, Inc. v. MidOcean Bushnell Holdings, L.P.,92 the True Up differs in a material fashion. Indeed, the True Up here is more similar to that at issue in OSI Systems, Inc. v. Instrumentarium Corp.93 and in a New York case, Westmoreland Coal Co. v. Entech, Inc.94 In OSI, the Court of Chancery addressed a merger agreement containing one form of dispute resolution for disputes about the amount of working capital, without a cap on the amount of the dispute, and another form of dispute resolution for claims for breaches of representations and warranties, with a capped potential liability amount.95 There, the initial exchange of estimates was essentially the same as what was required here: the seller created one before closing and the buyer did the same after closing. But, the buyer's calculation had to be “prepared in accordance with the Transaction Accounting Principles applied consistently with their application in connection with the preparation of the Reference Statement of Working Capital and the Statement of Estimated Closing Modified Working Capital ․”96 The term “Transaction Accounting Principles” meant “U.S. GAAP; provided, however, that: (i) with respect to any matter as to which there is more than one principle of U.S. GAAP, Transaction Accounting Principles means the principles of U.S. GAAP applied in the preparation of the Financial Statements ․”97
1. App. to Appellant's Opening Br. at A64 (Verified Complaint, dated July 21, 2016 Ex. A, Purchase Agreement by and Among Chicago Bridge & Iron Company N.V., as Seller Parent, CB&I Stone & Webster, Inc., as the Company, WSW Acquisition Co., LLC, as Purchaser, and Westinghouse Electric Company LLC, as Purchaser Parent § 1.2(a)(i)) [hereinafter Purchase Agreement].
2. Id. at A130 (§ 11.1) (defining Target Net Working Capital Amount).
3. Id. at A65 (§ 1.3); id. at A149 (Sch. 1.3(c)).
4. The Purchase Agreement uses both “Final Purchase Price” and “Closing Date Purchase Price.” It defines “Closing Date Purchase Price” as the zero dollar starting point adjusted by the True Up's delta and transaction expenses. Id. at A64 (Purchase Agreement § 1.2(a)(i)). And, the “Final Purchase Price” is defined as the Closing Date Purchase Price “as finally determined pursuant” to § 1.4's dispute resolution procedures. Id. at A67 (§ 1.4(d)). For most humans, the term Final Purchase Price is clearer and we use it to refer to whatever the ultimate purchase price turned out to be.
5. Id. at A112, A115 (§§ 10.4, 11.1).
6. Id. at A110 (§ 8.3(c)).
7. Id. at A11 (Verified Compl., dated July 21, 2016 ¶ 2).
8. Id. at A67 (Purchase Agreement § 1.4(c)).
12. Id. at A67 (§ 1.4(c)).
14. Stone and Westinghouse also collaborated on AP1000 plants in China, but those projects, although part of the transaction, do not appear to have been material drivers of the present dispute. App. to Appellant's Opening Br. at A24 (Verified Compl., dated July 21, 2016 ¶ 27).
15. Id. at A25–26 (¶ 29).
16. Id. at A28 (¶ 32).
17. Id. at A126 (Purchase Agreement § 11.1) (emphasis added) (defining Net Working Capital Amount). The actual text of the definition refers to a Schedule 1.4(b), but that appears to be a typographical error. For one thing, the Purchase Agreement's table of contents does not list a Schedule 1.4(b), only a Schedule 1.4(f). Id. at A62 (Table of Contents). For another, Section 1.4(b) describes the procedure for Westinghouse to deliver its Closing Statement; in contrast, Section 1.4(f) covers the form of both the Closing Statement and Closing Payment Statement, which are the full set of places where the Net Working Capital Amount is relevant. So, it is reasonable to conclude that the Purchase Agreement definition of Net Working Capital was meant to refer to Schedule 1.4(f) and the fact that it refers to a nonexistent Schedule should be treated similarly to a scrivener's error. Deutsche Bank Nat'l Trust Co. v. Roslewicz, 2014 WL 4559101, at *3 (Del. Ch. Sept. 2, 2014) (“Like a mutual mistake, a scrivener's error fails to reflect the intentions of the parties in the written instrument. An example of a scrivener's error is a ‘minor typographical mistake, such as an incorrect address.’ ” (quoting Envo, Inc. v. Walters, 2009 WL 5173807, at *5 (Del. Ch. Dec. 30, 2009))).
18. App. to Appellant's Opening Br. at A71 (Purchase Agreement § 2.6(a)).
20. Id. at A64, A65 (§§ 1.2, 1.3).
21. Id. at A64 (§ 1.2(a)).
22. Id. at A111 (§ 10.1).
23. Id. at A112 (§ 10.4).
24. Id. at A110 (§ 8.3(c)).
25. Id. at A71 (§ 2.6(a)).
26. Id. at A71–72 (§§ 2.6(a), (e)); id. at A162 (Sch. 2.6(a)).
27. The Seller Fundamental Representations and the Purchaser Fundamental Representations survive. Id. at A111 (§ 10.1); id. at A120 (§ 11.1) (defining “Fundamental Representations”). Those representations largely dealt with the authority of Chicago Bridge and Westinghouse to enter into the transaction. Id. at A128 (§ 11.1) (defining “Purchaser Fundamental Representations” and “Seller Fundamental Representations”); id. at A69, A70, A72, A84, A85, A86–87 (§§ 2.2, 2.3, 2.7, 2.23, 3.2, 3.5, 3.6, 4.2, 4.6).
28. Id. at A111 (§ 10.1).
31. App. to Appellant's Opening Br. at A112 (Purchase Agreement § 10.3).
32. Id. at A112 (§ 10.4); id. at A115 (§ 11.1) (defining Assumed Liabilities).
34. Kling & Nugent, supra note 30, at § 15.01.
35. Id.; see also id. at § 15.02[1][b] (“Except in transactions where the purchase price is paid completely or partially in securities where Buyer indemnification (and representations) tends to be coextensive with that granted by the Seller to the Buyer, it is less typical for the Buyer to indemnify the Seller with respect to breaches of its representations or other matters.”).
36. App. to Appellant's Opening Br. at A110 (Purchase Agreement § 8.3(c)).
37. Id. at A89–90 (§ 5.3(a)).
38. Id. at A40 (Verified Compl., dated July 21, 2016 ¶ 54).
40. Id. at A68 (Purchase Agreement § 1.4(f)) (emphasis added).
42. Id. at A68 (§ 1.4(f)).
45. App. to Appellant's Opening Br. at A25–26 (Verified Compl., dated July 21, 2016 ¶ 29).
46. Id. at A43 (¶ 60) (citing Westinghouse's calculation).
47. Id. at A16 (¶ 10).
49. App. to Appellant's Opening Br. at A25–26 (Verified Compl., dated July 21, 2016 ¶ 67); id. at A167 (Purchase Agreement Sch. 1.4(f)).
50. Id. at A66–67 (Purchase Agreement § 1.4(c)).
51. Id. at A67 (§ 1.4(c)).
58. App. to Appellant's Opening Br. at A71 (Purchase Agreement § 2.6(a)).
60. Cf. Rhone–Poulenc Basic Chemicals Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992) (“A contract is not rendered ambiguous simply because the parties do not agree upon its proper construction. Rather, a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.”); Nw. Nat. Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996) (“Although the parties disagree as to the proper interpretation of the contract, their disagreement does not create an ambiguity.”).
61. “[Delaware] courts interpreting a contract ‘will give priority to the parties' intentions as reflected in the four corners of the agreement, construing the agreement as a whole and giving effect to all its provisions.’ ” In re Viking Pump, Inc., 148 A.3d 633, 648 (Del. 2016) (quoting Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014)); see also Kuhn Const., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396–97 (Del. 2010) (“We will read a contract as a whole and we will give each provision and term effect, so as not to render any part of the contract mere surplusage.”); Eugene A. Delle Donne & Son, L.P. v. Applied Card Sys., Inc., 821 A.2d 885, 887 (Del. 2003) (“In construing a contract, the document must be considered as a whole ․”); Nw. Nat. Ins. Co., 672 A.2d at 43; Restatement (Second) of Contracts § 202 (1981) (“A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.”); 11 Williston on Contracts § 32:5 (4th ed.) (“[A] contract will be read as a whole and every part will be read with reference to the whole.”).
65. Kling & Nugent, supra note 30, at § 17.01[2] (2016). “In this situation, the parties have agreed that the price the buyer should pay is related to the target's financial position on the closing date as compared to its financial position as of a reference date.” Id.
66. Id. at § 17.02. Alternatively, the “generally less relevant interpretation is that the Buyer is guaranteed an amount of working capital equal to such fixed amount.” Id.
69. App. to Appellant's Opening Br. at A68 (Purchase Agreement § 1.4(f)) (emphasis added).
72. Id. at A71 (§ 2.6(a)).
76. App. to Appellant's Opening Br. at A66 (Purchase Agreement § 1.4(b)).
77. Id. at A69 (§ 1.6).
79. Id. at A66–67 (§ 1.4(c)).
80. Id. at A66 (§ 1.4(b)); A157–58 (Sch. 1.3(d)).
82. App. to Appellant's Opening Br. at A67 (Purchase Agreement § 1.4(c)).
83. Indeed, the Independent Auditor's role as to the True Up is far different from broad arbitration provisions that empower an arbitrator to decide any disputes arising under or related in any way to a claim under a contract. E.g., Riley v. Brocade Commc'ns Sys., Inc., 2014 WL 1813285, at *2 (Del. Ch. May 6, 2014) (“[T]he parties agree that any and all claims, disputes or controversies of any nature whatsoever arising out of, or relating to, this Agreement, the COC [Change of Control] Plan and/or the Participation Agreement, or their interpretation, enforcement, breach, performance or execution, Employee's employment with the Company, or the termination of such employment, shall be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration” (quoting agreement at issue in the case)). The Purchase Agreement's specific delineation of areas the Independent Auditor may review stands in sharp contrast to broad arbitration provisions. Even where the Purchase Agreement's language seems broad, stating that Westinghouse and Chicago Bridge may submit “any and all matters that remain in dispute with respect to the Objections Statement, the Closing Statement and the calculations set forth therein,” the remainder of the sentence “with respect to the Objections Statement, the Closing Statement and the calculations set forth therein” qualifies the universe of disputes to those embodied in those statements and calculations and thus only disputes properly part of the True Up. App. to Appellant's Opening Br. at A67 (Purchase Agreement § 1.4(c)).Such broad arbitration provisions can even be used to empower the arbitrator to determine disputes like this about arbitrability itself. E.g., Pryor v. IAC/InterActiveCorp, 2012 WL 2046827, at *5–*6 (Del. Ch. June 7, 2012) (applying a stockholder's agreement that stated “[a]ny controversy concerning whether a matter is an arbitrable matter ․ shall be determined by the [a]rbitrator,” and concluding that the determination of what claims could be heard by the arbitrator was the arbitrator's decision to make (quoting the stockholder's agreement at issue in the case)); see also James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 80 (Del. 2006) (determining that arbitrators are empowered to decide arbitrability in circumstance where the “arbitration clause generally provides for arbitration of all disputes and also incorporates a set of arbitration rules that empower arbitrators to decide arbitrability”). By contrast, the agreement to arbitrate disputes from the True Up embodied in the Purchase Agreement addresses a narrow set of disputes, disclaims that the expert is an arbitrator, and thus the parties both agreed that any dispute over what claims may be asserted in the True Up proceeding and what claims are barred by the Liability Bar must be addressed by a court.
89. App. to Appellant's Opening Br. at A108 (Purchase Agreement § 8.1(a)).
90. Id. at A112 (§ 10.3(a)).
94. 100 N.Y.2d 352, 763 N.Y.S.2d 525, 794 N.E.2d 667 (2003).
105. 763 N.Y.S.2d 525, 794 N.E.2d at 670.
106. Id., 763 N.Y.S.2d 525, 794 N.E.2d at 671.
107. Id., 763 N.Y.S.2d 525, 794 N.E.2d at 671–72.