Opinion ID: 2773129
Heading Depth: 2
Heading Rank: 4

Heading: Post-Closing Problems

Text: Notwithstanding the high level of sophistication of everyone involved in the deal,26 the Superior Court found that there “was a general misunderstanding between the parties as to the meaning and operation of the Tax Benefit Offset,” starting “not long after the parties signed” the Purchase Agreement.27 As the Superior Court discussed, within a year of the sale, Textron became concerned about the mounting cost of pre-closing liabilities, especially in Brazil. By December 2006, Textron had paid approximately $500,000 in indemnity payments directly to the beneficiaries without requesting an offset from Acument. But on December 26, a Textron tax attorney circulated an email internally, wondering if Textron could request reimbursement for a “hypothetical tax benefit” from Acument under the Purchase Agreement.28 Acument did not agree that it owed Textron any reimbursement payments: because the Brazilian entity which was accumulating liabilities carried amount of the increase in basis from the liability being paid would not be identically offset by a decrease in basis from the indemnification. But there is no dispute that Textron is liable for the full amount of the contingent liabilities, so the liabilities and indemnifications always offset each other. See App. to Opening Br. at 121 (Purchase Agreement § 6.1(b) Indemnification by [Textron]); Opinion at 21-22. Textron seems to dispute that the two payments will always “net out,” but does not explain why on the facts of this case. The only examples it cites in support of a mismatch are those involving partial indemnification. See Reply Br. at 12. At oral argument, Textron conceded that it was not appealing the Superior Court‟s judgment that Acument was entitled to full indemnification. 25 App. to Opening Br. at 65-66 (Acument‟s Pre-Trial Br. at 1-2). 26 See, e.g., Opinion at  (“Both Textron and [Platinum Equity] have vast in-house mergers and acquisitions knowledge and experience, evidenced by the parties‟ own in-house groups.”). 27 Opinion at . 28 Id. 8 substantial net operating losses, Acument could not receive any deductions until those losses were used up.29 And if it could not use the deductions from indemnified loss payments, Acument did not want to pay Textron for them too. On January 25, 2007, Textron‟s senior associate general counsel sent Acument‟s general counsel a letter “for settlement purposes only,” requesting that Acument make payments to Textron to reimburse it for its payments on the contingent liabilities based on the tax benefit offset. The letter reflected Textron‟s position that “Acument is not required to actually save taxes for the reduction to kick in.”30 Textron‟s counsel sent a similar letter to Acument France. Acument initially maintained that it did not owe Textron any reimbursement, but apparently later accepted that it owed Textron offset payments. The Superior Court found that it was not clear from the record what and how much, exactly, Acument agreed to reimburse.31 But it does not appear from the record that the primary concern was with U.S.-related liabilities at that point; the parties were focused mainly on the liabilities in Brazil.32 On October 24, 2007, Textron and Acument executed a Letter Agreement, which the Superior Court determined was designed to clarify the parties‟ respective responsibilities for the contingent liabilities under the original Purchase Agreement. The Letter Agreement referred to another document, entitled “Andrew‟s Open Issues 29 Opinion at . 30 Opinion at . 31 Opinion at . 32 Opinion at . The Superior Court, however, rejected Acument‟s argument that the Letter Agreement was only related to Brazil. Opinion at  n.241. 9 Summary, dated October 9, 2007,” as the “base line” for discussions.33 The “Andrew” referred to was Andrew Spacone, Textron‟s senior associate general counsel. As the Superior Court noted, Spacone drafted both the Letter Agreement and the original Open Issues Summary.34 In the Letter Agreement, Acument “agreed to reimburse Textron for the hypothetical tax benefits associated with the past Loss Payments to Date.”35 The first paragraph of the Letter Agreement refers to hypothetical tax rates in Brazil and France, but does not otherwise specify which country or countries are covered.36 Some U.S.- related liabilities were included in the $720,658 Acument agreed to pay to offset Textron‟s previous indemnification payments.37 After signing the Letter Agreement, Acument began to make reimbursement payments to Textron as claims arose, including three payments on U.S. liabilities.38 But in April 2008, Acument‟s tax director apparently realized for the first time that Acument could not deduct the indemnity payments in the U.S.39 He concluded that because Acument could not realize any actual net tax benefit in the U.S., the tax benefit offset provision of the Purchase Agreement was not triggered. Accordingly, in June 2008, 33 App. to Reply Br. at 1 (Letter Agreement at 1). 34 Opinion at . 35 Id. 36 Id. 37 App. to Opening Br. at 73 (Acument‟s Pre-Trial Br. at 9). Acument did not seek reimbursement for these earlier payments before the Superior Court, characterizing them as “spilt milk.” App. to Opening Br. at 74 (Acument‟s Pre-Trial Br. at 10 n.4). 38 App. to Opening Br. at 95-96 (Pretrial Stipulation and Order at 5-6). 39 Opinion at . According to Textron, “Acument has never seriously disputed that, outside of the U.S., Textron‟s indemnity is subject to the Tax Benefit Reduction.” Opening Br. at 11. Acument concurred in its briefing to the Superior Court. See App. to Opening Br. at 85 (Acument Pre-Trial Br. at 21) (“Acument has been consistently providing Tax Benefit offsets in relevant foreign jurisdictions when requested and applicable.”). 10 Acument refused to continue offsetting Textron‟s payments on U.S.-related claims, asserting in a letter to Textron‟s senior tax attorney that because Acument was not eligible for a tax benefit, the offset did not apply, and any previous U.S.-related offset payments had been made in error.40 Acument sought reimbursement from Textron for those payments in the amount of $251,937. Textron insisted that no net tax benefit was required to trigger reimbursement, in the U.S. or elsewhere. In January 2010, Textron‟s senior associate general counsel sent Acument‟s general counsel a letter demanding that Acument offset Textron‟s payments on the U.S. liabilities.41 Textron reiterated its view that the Purchase Agreement does not require that Acument actually realize any net tax benefit for the reduction of indemnity payments to apply. Instead, the fact that Acument at some time in the future (or in the past) may be entitled (for whatever reason) to a tax deduction attributable to the United States claims that are indemnified by Textron . . . is enough to trigger the reduction in Textron‟s indemnity payments under the Purchase [and Sale] Agreement.42 Acument again refused to pay.43