Explore a legal case where a simple typo in an acquisition agreement led to a complex dispute. Learn about the conflict, the legal arguments, and the court’s decision in Heritage Handoff Holdings, LLC v. Fontanella.
July 10, 2020
Introduction:
Acquisition documents can be complex, filled with numerous terms. Even in a relatively simple transaction like a stock purchase agreement, there can be around 20,000 words. Mistakes can happen, including using the wrong terms like “buyer” instead of “seller” and vice versa.
The Situation:
In this case, a business was acquired through purchasing its stocks. As part of the deal, the seller was supposed to receive tax refunds relating to pre-closing operations.
The Legal Conflict:
Following the deal’s closure, the buyer and seller had a dispute that led them to a Delaware federal district court. The seller, who had sold their stocks, filed a lawsuit to reclaim tax refunds related to the period before the deal was sealed.
According to the stock purchase agreement, any tax refunds received by the acquired company, related to the period before the deal’s closure, were meant for the seller. However, there was confusing language that also indicated the acquired company should pay the refund to the buyer.
This contradiction made little sense – the seller was entitled to the pre-closure refund, but the agreement stated that the refund should be paid to the buyer. Despite this inconsistency, the buyer asked the court to dismiss the seller’s claim for the pre-closure tax refund through a motion for summary judgment.
The Outcome:
The court declined to dismiss the seller’s claim, seemingly recognizing the payment discrepancy as a mistake.
This case is referred to as Heritage Handoff Holdings, LLC v. Fontanella, Civil Action No. 16-691-RGA, United States District Court, D. Delaware, (July 25, 2018)
Comment:
As a legal practitioner, there’s always a concern about billing clients for proofreading lengthy documents before closing deals. Yet, errors like these are unfortunately quite common.
By John McCauley: I help manage the tax risks associated with buying or selling a business.
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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