Opinion
C.A. No. N15C-03-096 MMJ CCLD
12-19-2017
ADCHEMY, INC., Plaintiff, v. PLATEAU DATA SERVICES, LLC, and ZETA INTERACTIVE, formerly known as XL MARKETING CORP., Defendants.
Kalama M. Lui-Kwan, Esq., Mark I. Wraight, Esq., Gregory L. Huber, Esq., Severson & Werson P.C., Michael F. Bonkowski, Esq., Nicholas J. Brannick, Esq., Cole Schotz P.C., Attorneys for Adchemy, Inc. Patricia A. Winston, Esq., Morris James LLP, Attorneys for Plateau Data Services LLC, and Zeta Interactive, formerly known as XL Marketing Corp.
On Plaintiff Adchemy, Inc.'s Motion in Limine to Preclude Evidence Relating to Damages Excluded by Contract
GRANTED MEMORANDUM OPINION Kalama M. Lui-Kwan, Esq., Mark I. Wraight, Esq., Gregory L. Huber, Esq., Severson & Werson P.C., Michael F. Bonkowski, Esq., Nicholas J. Brannick, Esq., Cole Schotz P.C., Attorneys for Adchemy, Inc. Patricia A. Winston, Esq., Morris James LLP, Attorneys for Plateau Data Services LLC, and Zeta Interactive, formerly known as XL Marketing Corp. JOHNSTON, J.
PROCEDURAL CONTEXT
Plaintiff Adchemy, Inc. ("Adchemy") has moved, in limine, to exclude any evidence relating to consequential or opportunity cost damages, or the loss of anticipated or future business or profits. Upon review, the Special Master found that the motion is an untimely partial summary judgment motion. However, the Special Master recommended that the Court resolve the issue prior to trial.
The Court concurs. This Motion asks that the Court find, as a matter of law, that the contract at issue precludes Defendants' counterclaims for damages in the form of lost profits. The Motion is partially dispositive, and is untimely. Nevertheless, in the interest of judicial economy, the Court will exercise its discretion to address the Motion at this time.
Defendants Plateau Data Services, LLC and Zeta Interactive ("Defendants") asserted four counterclaims. By Opinion dated June 28, 2017, the Court granted summary judgment in favor of Adchemy: on the Third Counterclaim (Fraud); and as to failure to provide required Business Financial Statements. Portions of three counterclaims remain.
First Counterclaim (Breach of Contract) Defendants allege Adchemy breached the Asset Purchase Agreement ("APA") by failing: to provide Defendants a meaningful opportunity to review and approve the Lending Tree settlement agreement; to disclose and transfer permits; and to sell all value associated with Intellectual Property Rights.
Second Counterclaim (Contractual Indemnification) Defendants seek indemnification for damages suffered as a result of breaches in representations and warranties.
Fourth Counterclaim (Declaratory Relief) Defendants request declarations regarding transferable permits, and potential infringement of third-party trademark rights. Because this Counterclaim does not seek damages, it is not at issue in the instant Motion.
Additionally, the Court held in the June 28, 2017 Opinion that Adchemy transferred encumbered Subject Domain Names in violation of the APA. The issue of damages, however, is a question of fact. The Court further clarified its ruling during a hearing on August 10, 2017: "I did intend to leave for trial the question of damages. And what I found was there are no genuine issues of material fact as to whether Adchemy transferred encumbered subject domain names to purchasers in violation of the APA....The Court is not, at this point, deciding whether or not, ultimately, those amounts will be due and owing because the issue of damages is an issue for trial. So who owes what at the end of the day still remains at issue."
Adchemy, Inc. v. Plateau Data Services, LLC, 2017 WL 3412159, at *4 (Del. Super.).
August 10, 2017 Transcript at pp. 4 and 21.
ASSET PURCHASE AGREEMENT
The APA establishes a procedure for resolving certain disputes between the contracting parties.
ARTICLE VII (Indemnification)
7.1 Indemnification by Seller Adchemy shall indemnify Defendants for all "Damages...whether or not such Damages relate to any Third-Party Claim...which arise...out of (i) any inaccuracy in or breach of any representation or warranty...; or (ii) any breach of any covenant, agreement or obligation to be performed under this Agreement by [Adchemy]...."
7.1(b) and (c) These sections define Direct and Third Party Claims. Both types of claims are subject to indemnification under Article VII.
When indemnification is a contractually-mandated remedy, indemnification is applicable to direct as well as to third-party claims.
See Certainteed Corp. v. Celotex Corp., 2005 WL 217032, at *7 (Del. Ch.)
7.7 Exclusive Remedy All parties "acknowledge that...their sole and exclusive remedy with respect to any and all breaches of representations and warranties contained in this Agreement shall be pursuant to the indemnification provisions set forth in this Article VII. Notwithstanding the foregoing, the Parties shall be entitled to equitable remedies in connection with the breach of any covenant contained in this Agreement."
Absent actual fraud, a contractual exclusive remedy provision is enforceable.
See Abry Partners V, L.P v. F&W Acquisition LLC, 891 A.2d 1032, 1064 (Del. Ch. 2006). --------
"Damages (Definition) "'Damages' shall mean any of the following to the extent actually paid or incurred: loss, damage, injury, liability,...claim, judgment...(including reasonable attorneys' fees)...; provided, however, that Damages shall not include punitive, special, or consequential or opportunity cost damages of any kind or the loss of anticipated or future business or profits."
ARTICLE III (Representations and Warranties of Seller)
3.8 Intellectual Property Rights "Intellectual Property Rights will be conveyed by [Adchemy] to [Defendants] free and clear of all Encumbrances" with certain enumerated exceptions.
3.13 Permits "There are no transferrable Permits issued to or held by [Adchemy] that are required to conduct the Business as presently conducted."
ANALYSIS
Pursuant to the APA provisions, all claims, including counterclaims, for breaches of representations or warranties fall within the parameters of Article VII. Thus, "Damages shall not include punitive, special, or consequential or opportunity cost damages of any kind or the loss of anticipated or future business or profits."
Defendants argue that the remaining counterclaims (regarding the Subject Domain names and the Lending Tree patent) arise under Article II of the APA. Defendants assert that these are breach of contract claims for failure to meet performance obligations. Defendants urge that contract claims are not impacted by either the definition of Damages or limited by the exclusive indemnification remedy in Article VII.
The salient issue is the nature of Defendants' counterclaims. Section 7.1(a)(i) mandates than any claims which are in essence breaches of any representation or warranty, are subject to the indemnification remedy with its limitation on damages. Section 7.1(a)(i) requires the indemnification procedure for any breach of "any covenant, agreement or obligation to be performed under this Agreement" by Adchemy.
Clearly, the Second Counterclaim is governed by the indemnification provisions.
Defendants argue that the First Counterclaim purports to assert breach of performance obligations under Article II. In order to succeed in this distinction, the Article II obligations must be separate from Article VII.
The Court finds that failure to disclose and transfer unencumbered permits is the equivalent of Adchemy's alleged failure to comply with the representations and warranties that the permits are not encumbered. Failure to sell all value associated with the Intellectual Property Rights is the same as failure to sell the Rights in a manner consistent with representations and warranties. Therefore, the Court finds that the allegations in the First Counterclaim are in substance breaches of representations and warranties.
Further, Section 7.1(a)(ii) establishes that "any breach of any covenant, agreement or obligation to be performed" under the APA is governed by indemnification. Performance obligations are neither exempted nor segregated.
The remaining claim in the First Counterclaim is failure to provide a meaningful opportunity to review and approve the Lending Tree settlement agreement. It does not appear that Defendants have specified a stand-alone Article II obligation (not subsumed within Section 7.1(a)(ii)) that was violated by this allegation, or what damages may arise from this alleged failure.
CONCLUSION
The Court finds that all remaining counterclaims are in essence claims for breaches of representations and warranties. Thus, Article VII Indemnification controls as the defined Exclusive Remedy. Damages in the form of consequential, opportunity cost, loss of anticipated or future business, and profits, are specifically excluded.
THEREFORE, Plaintiff Adchemy, Inc.'s Motion in Limine to Preclude Evidence Relating to Damages Excluded by Contract is hereby GRANTED.
IT IS SO ORDERED.
/s/_________
The Honorable Mary M. Johnston