Judge Johnston Considers Summary Judgment Motions in Dispute Arising out of Asset Purchase Agreement

October 24, 2017

Publication

In Adchemy, Inc. v. Plateau Data Services, LLC and Zeta Interactive, C.A. No. N15C-03-096 MMJ [CCLD], Judge Johnston considered a number of summary judgment motions in a dispute arising out of an asset purchase agreement (“APA”).

The parties entered into the APA on October 28, 2013. The APA provided that plaintiff Adchemy, Inc. would sell certain assets to the defendants in exchange for $6,000,000. The parties agreed to a payment structure that allowed the defendants to withhold 43% of the purchase price and pay it over a 12-month period. The deferred payment would become due upon the satisfaction of a series of conditions. These conditions ranged from hitting employee and customer retention goals to reaching a successful resolution of a patent infringement claim brought by Lending Tree against Adchemy prior to the sale. It was the deferred payment related to the Lending Tree lawsuit that ultimately led to the Superior Court action.

Specifically, after the APA was executed, Adchemy prevailed in the Lending Tree lawsuit, which was then appealed. Before the appeal was decided, Adchemy settled with Lending Tree. Adchemy claimed that the settlement was a successful resolution of the litigation and entitled Adchemy to $1 million in deferred payments. The purchasers argued that this settlement was not within the terms of a “successful resolution” as described in the APA.

The Court agreed and held that a favorable jury verdict alone was insufficient because the appeal of the verdict meant litigation was not concluded. Further, the settlement brokered by Adchemy was insufficient because it failed to grant the defendants a release from liability. Therefore, Judge Johnston concluded that the settlement did not fall within the contractual meaning of “successful resolution,” nor was it excused by the defendants’ consent to the settlement.

The defendants also retained deferred payments related to a hold-back for indemnification purposes and for failure to provide unencumbered intellectual property provided for in the APA. The Court held that it was proper for the defendants to withhold the hold-back deferred payment because the defendants would likely be sued under the settlement. This was exactly what was contemplated by the hold-back deferred payment. Second, the Court held that the intellectual property Adchemy provided was encumbered. The Court was unpersuaded by Adchemy’s argument that the encumbrance was due to third-party rights, excluded in the APA. Judge Johnston held that this property was encumbered under the APA definition and granted summary judgment in favor of the defendants on both payments.

Analysis: The CCLD is well suited to expeditiously handle complex disputes arising out of acquisition agreements. In fact, Judge Johnston was able to issue her summary judgment decision in approximately two months after submission. This decision also highlights the CCLD’s willingness to hold parties to their agreements through a careful reading of the contractual provisions at issue.