Judge LeGrow Analyzes Asset Purchase Agreement in Connection with Environmental Dispute and Concludes Buyer Was Permitted to Offset Losses Regardless of the Parties’ Indemnification Obligations

November 7, 2019

Publication

V&M Aerospace LLC v. V&M Company, C.A. No. N18C-09-189-AML-CCLD stemmed from the plaintiff’s purchase of the defendant’s entire chrome plating business except for its environmentally contaminated land. The asset purchase agreement provided specific indemnification provisions governing liability for the contamination. The agreement also included a provision allowing the plaintiff to offset its incurred environmental losses against payments due under the contract. Later, when a dispute arose in California regarding liability for the contaminated land, the plaintiff began to offset its litigation costs. The plaintiff claimed that it had a right to offset the costs pending the indemnity suit. The defendant argued that such a right would punish the defendant for pursuing indemnity rights. Each side filed a motion seeking judgment in its favor.

In considering the motions, the dispositive issue was whether the terms of the asset purchase agreement allowed the buyer to offset payments due under the contract, even if those losses were not ultimately subject to indemnification. Judge LeGrow found that the offset right was not indemnification, but rather preliminary relief while the parties resolved their indemnification obligations. Judge LeGrow also determined that variation in the contract language supported the argument that the environmental offset provision was less restrictive than a similar provision in another section of the contract. Further, Judge LeGrow found that the plaintiff’s use of the offset right would not punish the defendant because the defendant could recoup any improper offset payments in future litigation.

Analysis: The CCLD has become a favored venue for handling indemnification disputes involving assert purchase agreements—particularly indemnification disputes involving environmental liabilities. See, e.g., Alcoa World Alumina LLC v. Glencore Ltd., C.A. No. N15C-08-032 EMD CCLD. Here, Judge LeGrow differentiated actual indemnification with preliminary rights of offset and noted, consistent with other cases, that indemnification does not ripen until final adjudication of an underlying dispute. See LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 198 (Del. 2009); Mine Safety Appliances Co. v. AIU Ins. Co., 2015 WL 5829461, at *5 (Del. Super. Aug. 10, 2015).