Allegations of Breach in M&A Deal: Lessons from a $100 Million Case

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Explore the intricate post-transaction landscape of M&A through a $100 million case involving an Atlanta-based chemical packaging company. Delve into the details of post-closing commitments, breaches, and legal implications, emphasizing the significance of post-closing covenants.

M&A Stories

November 21, 2018

Navigating the dynamic realm of M&A, post-closing commitments transcend the paperwork. A case featuring an Atlanta-based chemical packaging company, sold for $100 million in 2015, sheds light on the intricate post-transaction landscape.

Under the stock purchase agreement, the seller affirmed the absence of illicit payments and pledged non-competition post-sale. However, disputes arose, leading to a lawsuit in Delaware by the buyer. Allegations included breaches of the kickback payment representation, confidentiality covenant, and claims of the seller initiating a rival business and enticing former employees.

The court declined to dismiss the claims, emphasizing specific actions that, if accurate, indicated breaches. Noteworthy instances include the seller engaging in noncompetition and nonsolicitation breach by exploring potential business names, expressing interest in acquiring companies through email, hinting at equipment purchase, bidding on equipment from another company, selling a former company plant with potential competitor associations, and exhibiting social interactions indicating close ties with a competing business.

Additionally, there were allegations of the seller committing confidentiality covenant breach by requesting confidential documents upon departure, having the wife email confidential company documents to a personal account, and instructing an IT manager for critical confidential documents. The case also raised concerns about kickback payments, alleging the seller’s involvement in a fictitious lease arrangement for personal profit.

This case underscores the significance of post-closing covenants, such as noncompetition and confidentiality clauses, and their enforceability. Sellers, facing potential litigation, must comprehend the implications for their post-closing ventures.

Case Reference:

Plaze, Inc. v. Callas, Civil Action No. 2017-0432-TMR, Court of Chancery of Delaware (Decided: March 29, 2018).

By John McCauley: I help people start, grow, buy and sell their businesses.

Email: jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291

Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles

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Posted in covenant not to compete, hiring seller's employees, no kickback or bribe rep, nondisclosure agreement, trade secret misappropriation Tagged with: , , , , , , , , ,

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