Brace Industrial Contracting, Inc. v. Peterson Enterprises, Inc., C.A. No. 11189-VCG (Del. Ch. June 19, 2017) (Glasscock, V.C.)

In this letter opinion, the Court of Chancery determined the ownership of equipment under a purchase agreement and held that agreement permitted a contingent, unliquidated liability could be used as a set-off against a liquidated claim that was due and payable. 

Plaintiffs purchased one of defendants’ business units, which gave rise to several claims and counterclaims.  After the Court issued its post-trial opinion, it requested submissions identifying any remaining legal issues to be decided before it submitted the remaining factual issues to a special master.  The parties identified two:  (i) which party owned certain equipment under the purchase agreement; and (ii) whether defendants could use certain payments it owed to plaintiffs to offset any damages awarded for its counterclaims. 

With regard to the ownership of the equipment, which was in plaintiffs’ possession, defendants argued an oral agreement among the relevant principals negotiated in connection with the purchase agreement entitled defendants to the equipment.  The Court held the alleged oral agreement could not alter the terms of the parties’ written agreement, which made no mention of the equipment, because it had an entireties clause.  Likewise, the Court found that, even if it considered the oral agreement separate from the written agreement, defendants had failed to meet the burden of proof necessary to establish the existence of the oral agreement. 

As to the set-off claim, defendants argued they were entitled to withhold certain payments due plaintiffs to offset any damages awarded for their counterclaims.  Plaintiffs disputed that claim and argued the contract governing the withheld payments did not permit set-off, that such a set-off was impermissible under Delaware law, and that testimony from defendants’ expert regarding set-off should be excluded.  While finding that the contract governing the payments did not allow the parties to set off payments, the Court held that it and the purchase agreement needed to be read collectively to establish the parameters of the parties’ relationship.  And, because the purchase agreement provided for set-off, the Court concluded that defendants could use the withheld payments to set off any damages award resulting from Defendants’ counterclaims.  The Court also recognized that prior Delaware law indicated that a party had no right to set off a possible, unliquidated claim against one that was due and payable, but it found this law inapplicable because the parties had agreed to set-off by contract.  Finally, the Court declined to exclude the testimony of defendants’ expert regarding set-off.  It held first that, although expert testimony regarding the claim was useful, such testimony was not necessary and its exclusion would not preclude the claim.  The Court explained that, even if that were not the case, it would not exclude the expert’s testimony because plaintiffs had not and could not identify any prejudice resulting from the testimony even though certain materials underlying the expert’s opinion had been produced after the date provided for in the applicable scheduling order.

About Potter Anderson

Potter Anderson & Corroon LLP is one of the largest and most highly regarded Delaware law firms, providing legal services to regional, national, and international clients. With more than 90 attorneys, the firm’s practice is centered on corporate law, corporate litigation, intellectual property, commercial litigation, bankruptcy, labor and employment, and real estate.