Opinion ID: 2977211
Heading Depth: 2
Heading Rank: 1

Heading: 2d 1177, 1193 (Del. 1992)).

Text: While it is undisputed that during due diligence Leggett learned that the Division did not accrue IBNR medical claims on its balance sheets, there is no evidence in the record that suggests that Leggett learned or could have learned of the actual existence or the dollar value of the IBNR claims that were incurred prior to but recorded after the Closing Date. In other words, “to the extent” that Leggett knew that the Division did not accrue IBNR medical claims on its balance sheets, it “knew” only that IBNR claims might exist that would impact the NAV. It was no less possible, as far as Leggett knew, that such IBNR claims might not exist at all or might not be large enough to cause the NAV to fall below the $15,500,000 warranted in the Agreement. Thus, Leggett’s knowledge that there might be IBNR claims is not the same as “actual knowledge” of IBNR claims 5 The parties to this appeal have uniformly cited Delaware law, as they did while the matter was pending before the district court. Having reviewed the relevant contract and pleadings, this Court has found no choice of law provision indicating that Delaware rather than Ohio law would apply. Nonetheless, because the parties seem to be in agreement on this issue, the Court has conducted its analysis using the law of Delaware. 8 sufficient to reduce the NAV below the warranted amount of $15,500,000 that would constitute a breach. This reading does not render any provision of § 11.5(c), notably the phrase “to the extent,” illusory or meaningless as TransPro suggests. Rather, it respects the plain meaning of the language of the Agreement where, as the district court wrote, “knowledge of a breach is required, not merely knowledge of a condition that may or may not lead to a breach.” Section 11.5(c) does not bar Leggett’s claim for breach of the NAV representation, and the district court did not err in this regard. B. Section 4.22 of Agreement Does Not Bar Leggett From Using Information Obtained After Closing Date Regarding Pre-Closing Date Transactions When Calculating NAV Nor did the district court err in determining that § 4.22 does not preclude Leggett from including the IBNR accrual, calculated from information received after the Closing Date, in its valuation of the NAV even though that information was not and could not have been contained in the books and records of the Division on the Closing Date. Again, if the relevant language in the Agreement “is clear and unambiguous, courts must give the language its plain meaning.” Phillips Home Builders, 700 A.2d at 129; Pellaton v. Bank of New York, 592 A.2d 473, 478 (Del. 1991) (holding that a court may not consider parol evidence to interpret contract which is clear and unambiguous on its face). The fact that parties offer different interpretations of contractual language is insufficient, by itself, to make the language ambiguous, and for good reason: When the language of a contract is clear and unequivocal, a party will be bound by its plain meaning because creating an ambiguity where none exists could, in effect, create new contract rights, liabilities and duties to which the parties had not assented. By such judicial action, the reliability of written contracts is undermined, thus diminishing the wealth-creating potential of voluntary agreements. 9 Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006) (citing Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006); and Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1048 (2d Cir. 1982)). Ambiguity exists only where the “the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.” Rhone-Poulenc Basic Chem. Co. v. Amer. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992). Before the district court, as here, Leggett and TransPro both offered reasonable interpretations of this provision, which reads, “Book value will be determined from Seller and VMS’ books and records as of the opening of business on the Closing Date . . . as applied by Seller and VMS prior to Closing.” Leggett argues that the “as of” language in § 4.22 establishes the point in time for which the NAV is calculated but does not limit the availability date for the information used to calculate that value. Thus, Leggett contends that § 4.22 unambiguously permits Leggett to use information representing assets and/or liabilities incurred by the Division prior to Closing when calculating the NAV, even if that information was obtained after the Closing Date. Leggett’s theory allows for events that occur before the Closing Date and which affect the book value of the assets and liabilities “as of” the Closing Date even if that information is not obtained or recorded until after the Closing Date. By contrast, TransPro argues that “as of” “relates only to when the NAV calculation is performed – not what is included in that calculation” and that only information available on the Closing Date may be used in the NAV calculation. These opposing theories present a classic instance of ambiguity. Further, there is no merit to TransPro’s assertion that the district court erroneously admitted and considered extrinsic evidence – in the form of Lane’s affidavit – to manufacture ambiguity in § 4.22. In fact, the district court first determined that the contract was, as a matter of law, ambiguous, i.e., susceptible to two reasonable interpretations as presented by the parties. Only after 10 did the district court examine extrinsic evidence in the form of Lane’s affidavit, Leggett’s expert witness, and the testimony of Flynn and Coyne, an officer and former officer of TransPro, respectively. The record demonstrates that the district court performed its duty “to examine solely the language of the contractual provisions in question to determine whether the disputed terms are capable of two or more reasonable interpretations,” “confin[ing itself] to the language of the document and not [looking] to extrinsic evidence to find ambiguity.” O’Brien, 785 A.2d at 289. The testamentary evidence offered from Lane, Flynn, and Coyne was only considered after the district court’s determination that the words “as of” were ambiguous and was not used to manufacture an ambiguity, as TransPro suggests. This was not error by the district court. See Allied Capital Corp., 910 A.2d at 1030 (“Only where the contract’s language is susceptible of more than one reasonable interpretation may a court look to parol evidence; otherwise, only the language of the contract itself is considered in determining the intentions of the parties.”). TransPro’s argument that the district court should not have considered Lane’s affidavits because they had “absolutely no relevance to the proper interpretation of § 4.22” is also meritless. Through his first affidavit, Lane testified regarding the use of estimates known to be inaccurate under GAAP, a term used in § 4.22 and a term of art, and spoke specifically to the propriety of McCoy’s adjustments to the NAV for the IBNR medical claims using GAAP. In his second affidavit, Lane set forth that, in the accounting industry and under GAAP, “as of” is a term of art and that balance sheets are routinely prepared “as of” a closing date using information acquired and learned after that date. Thus, Lane’s affidavits have “a tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence,” and they were properly admitted. Fed. R. Evid. 401 and 402; see also Nucor Corp. v. Neb. Public Power Dist., 891 F.2d 1343, 1350 (8th Cir. 1990) (holding that experts are 11 permitted to testify as to terms of art contained in contracts); Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 611 (5th Cir. 2000) (finding expert testimony properly admitted to interpret contract provisions having a specialized meaning in the railroad industry); see also North Am. Specialty Ins. Co. v. Myers, 111 F.3d 1273, 1281 (6th Cir. 1997) (quoting TCP Indus., Inc., v. Uniroyal, Inc., 661 F.2d 542, 549 (6th Cir. 1981)) (“Absent any need to clarify or define terms of art, science, or trade, expert opinion testimony to interpret contract language is inadmissible.”); WH Smith Hotel Servs., Inc. v. Wendy’s Int’l Inc., 25 F.3d 422, 429 (7th Cir. 1994) (finding no error in admitting expert testimony regarding customary and usual meaning of rent provisions in the commercial real estate industry). Finally, the record contains no evidence rebutting Lane’s opinion testimony or countering Flynn and Coyne’s testimony regarding TransPro’s own post-Closing Date preparation of balance sheets using data available after a closing date but related to the value of assets or liabilities “as of” a closing date. A court may interpret an ambiguous contract as a matter of law where the moving party’s record is not rebutted. See Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232-33 (Del. 1997). Further, a court may rely on extrinsic evidence to interpret the contract as a matter of law where the extrinsic evidence does not create an issue of material fact. Id.; Royal Ins. Co v. Orient Overseas Container Line, Ltd., 514 F.3d 621, 634-35 (6th Cir. 2008). It follows that the district court properly construed and interpreted the contract. In the absence of error, the decision of the district court is AFFIRMED. 12