IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE POST HOLDINGS, INC. and ) MICHAEL FOODS OF DELAWARE, ) INC., ) ) Plaintiffs, ) ) v. ) C.A. No. 2017-0772-AGB ) NPE SELLER REP LLC, SAFE EGG ) LLC, THE MARVIN AND DONNA ) AARDEMA FAMILY ) PARTNERSHIP, LOST CREEK ) RANCH, LLC, BRIAN BOOMSMA, ) HOPEWELL VENTURES, L.P., R.W. ) DUFFY COX, GREGORY M. WEST, ) CHUCK LEIS, MICHAEL SMITH, ) JAY BERGLIND, HECTOR LARA, ) and D. WILLIAM TOONE, ) ) Defendants. ) ) NPE SELLER REP LLC, ) ) Counter-Plaintiff, ) ) v. ) ) POST HOLDINGS, INC. and ) MICHAEL FOODS OF DELAWARE, ) INC., ) Counter-Defendants. MEMORANDUM OPINION Date Submitted: September 12, 2018 Date Decided: October 29, 2018 Rodger D. Smith II, Ryan D. Stottmann, and Alexandra M. Cumings, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Richard B. Walsh, Jr. and Evan Z. Reid, LEWIS RICE LLC, St. Louis, Missouri, Attorneys for Plaintiffs and Counter-Defendants Post Holdings, Inc. and Michael Foods of Delaware, Inc. Kevin R. Shannon, Christopher N. Kelly, and Jay G. Stirling, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; William C. O’Neil, Jeffrey J. Huelskamp, and Michael A. Meneghini, WINSTON & STRAWN LLP, Chicago, Illinois, Attorneys for Defendants Safe Egg, LLC, The Marvin and Donna Aardema Family Limited Partnership, Lost Creek Ranch, LLC, Brian Boomsma, Hopewell Ventures, L.P., R.W. Duffy Cox, Gregory M. West, Chuck Leis, Michael Smith, Jay Berglind, Hector Lara, D. William Toone, and Defendant/Counter- Plaintiff NPE Seller Rep LLC. BOUCHARD, C. In October 2016, Michael Foods of Delaware, Inc. acquired all of the shares of National Pasteurized Eggs, Inc. for approximately $93.5 million pursuant to the terms of a Stock Purchase Agreement. About one year later, Michael Foods and its parent company, Post Holdings, Inc., filed this action against the sellers and their representative asserting claims for fraud and for breach of representations and warranties in the agreement that form the basis of a demand for indemnification they made under the agreement. The sellers’ representative then filed counterclaims to enforce covenants in the agreement requiring the buyers to remit to the sellers’ representative approximately $974,000 in tax refunds and insurance proceeds pertaining to the pre-closing period. The sellers’ representative has moved for judgment on the pleadings on its counterclaims. Michael Foods and Post Holdings oppose the motion on essentially two grounds. They argue that the obligation to remit the tax refunds and insurance proceeds in question should be excused by virtue of the sellers’ prior material breach of representations and warranties in the agreement. Relying on a netting provision in the section of the agreement governing tax refunds, they also argue that the agreement permits them to refuse to remit the tax refunds at issue because the amount of their indemnification claim in this action exceeds the amount of those tax refunds. 1 For the reasons discussed below, the court concludes that both of the buyers’ arguments fail as a matter of law and that the sellers’ representative ...
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