Pegasus Partners II LP et al vs G A F Holdings LLC, 3393, No. 24089639-24089647 (Del. Ch. May. 21, 2008) (2024)

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`Not Reported in A.2d
`Not Reported in A.2d, 2007 WL 763303 (Del.Ch.)
`{Cite as: Not Reported in A.2d, 2007 WL 763303 (Del.Ch.))
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`Page 1
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`Hi
`Matria Healthcare, Inc. v. Coral SR LLC
`DelL.Ch, 2007.
`Only the Westlaw citation is currently available.
`
`UNPUBLISHED OPINION. CHECK COURT
`RULES BEFORE CITING,
`
`Court of Chancery of Delaware,New Castle
`County.
`MATRIA HEALTHCARE, INC., Plaintiff,
`v.
`
`CORAL SR LLC, individually and as Attorney-
`in-Fact for the Stakeholders of CorSolutions Med-
`
`ical, Inc., Defendant.
`C.A, No. 2513-N.
`
`Submitted: Jan. 10, 2007.
`Decided: March 1, 2007.
`
`‘Adam Balick, Esquire of Bifferato, Gentilotti &
`Balick, LLC, Wilmington, Delaware, and William
`WN. Withrow, Jr., Esquire, A. William Loeffler, Es-
`quire, and Charles R. Burnett, Esquire of Troutman
`Sanders LLP, Atlanta, Georgia, Attorneys
`for
`Plaintiff,
`Richard D, Heins, Esquire and Richard L. Renck,
`Esquire
`of Ashby & Geddes, Wilmington,
`Delaware,
`and Michael M. Conway, Esquire,
`Dewey B. Crawford, Esquire, and Joanne Lee, Es-
`quire of Foley & Lardner LLP, Chicago, Illinois,
`Attomeys for Defendant.
`
`MEMORANDUM OPINION
`
`NOBLE,Vice Chancellor.
`*1 In construing contracts, the function of the Court
`is to ascertain the shared intentions of the contract-
`ing parties when they entered into their agreement.
`The first
`level of analysis is deceptively simple:
`give the words chosen by the parties their ordinary
`meaning. Disputes over a contract negotiated by
`sophisticated parties typically fall into three broad
`categories. First, the parties did not anticipate and
`provide for future events. Thus, the contract fails to
`
`address (or to address fully) the responsibilities of
`the parties in a particular factual setting. Second,
`the parties (or their lawyers) understand that there
`are drafting imperfections, perhaps because the
`parties cannot devise a mutually acceptable resolu-
`tion to certain issues. The parties do not want what
`(at that time) are viewed as minor impediments to
`derail the transaction. They hope that the identified
`risks will not materialize and trust that, if the un-
`likely events occur, some judge will fill in the gaps
`in a way that substantiaily preserves the benefits of
`the bargain for each side. Finally, there are disputes
`like the one now pending. The words, when fairly
`read and given their ordinary meaning,
`lead to a
`result that the Court cannot believe is what reason-
`able parties would have intended. In a sense, one
`party's argument boils down to a plea of! “We
`couldn't have been that obtuse (or warse).” The res-
`ult reached here is, in large part, unpalatabie; it is
`the product, however, of words chosen by sophist-
`icated parties who drafted a complex and compre-
`hensive agreement. More importantly, it is not for
`some judge to substitute his subjective view of
`what makes sense for the terms accepted by the
`parties.
`
`I, BACKGROUND
`
`A. The Merger
`
`A subsidiary of Plaintiff Matria Healthcare, Inc.
`(“Matria”) merged with CorSolutions Medical, Inc.
`(“CorSolutions”) on January 19, 2006"N'The
`Agreement and Plan of Merger (the “Merger Agree-
`ment”), entered into on December 14, 2005, estab-
`lished the Escrow Fundto satisfy certain potential
`pestclosing adjustments contemplated by the Mer-
`ger Agreement,
`“Defendant Coral SR LLC
`(“Coral”), as representative of the stakeholders in
`CorSolutions, was authorized to address claims
`against the Escrow Fund.
`
`FN!. The term “Matria” may include its
`
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`
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`Not Reported in A.2d
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`related entities, post-closing.
`
`FN2., The Initial Merger Consideration was
`$445 million. Of that, $20.3 million was
`set aside at Closing to fund the Escrow
`Fund. Capitalized terms, not otherwise
`defined here, follow the usage of the Mer-
`ger Agreement.
`
`FN3. Merger Agmt. § 2.4(b)(iii). The term
`“Stakeholders,” defined by Section 1.1 of
`the Merger Agreement, refers collectively
`to those holders of CorSolutions common
`and preferred stock,
`its options, and its
`warrants who are entitled to receive any
`portion of the aggregate merger considera-
`tion under the Merger Agreement, The bal-
`ance, if any,
`in the Escrow Fund will be
`paid to the Stakeholders.
`
`B. The Merger Agreement
`
`' The Merger Agreement provides broadly for arbit-
`ration of disputes, involving Matria's claims to the
`Escrow Fund. Four specialized arbitration forums
`are prescribed to allow for claims to be heard be-
`fore arbitrators with expertise in the area of dispute.
`For one category of arbitration, the Settlement Ac-
`countant, a major accounting firm,
`is empowered
`by Section 2.9 of the Merger Agreementto resolve
`post-closing disputes regarding balance sheet ad-
`justments and the related computation of working
`capital, cash on hand, and indebtedness.
`For
`example, the Agreement establishes a Target Work-
`ing Capital Amount of $8,281,000. If the Final
`Working Capital Amount tums out to be less than
`the target, the deficiency will be funded by the Es-
`crow Fund. The process is relatively straightfor-
`ward. Matria submits its determination of working
`capital to Coral; Coral may then review the determ-
`ination and present its objections. If the parties are
`unable to resolve their differences within a spe-
`cified period, “then the matter shall be submitted as
`promptly as practicable to [the Settlement Account-
`ant],” which is entitled to all of the “privileges and
`immunities of arbitrators.”
`
`¥FN4. The Closing Date Balance Sheetis to
`be prepared in accordance with United
`States generally accepted accounting prin-
`ciples (“GAAP”) consistently applied. The
`Working Capital Amount is also subject to
`the procedures and definitions prescribed
`by Exhibit D to the Merger Agreement,
`
`FN5. Merger Agmt. § 2.9(b) & (k).
`
`*2 In contrast, disputes between Matria and Coral
`“relating to any Claim other than a Third Party
`Claim that
`is the subject of litigation (“Escrow
`Fund Dispute”) or ary claim subject to Section 5.12
`or Section 7.5 .., shall be exclusively and finally
`settled by arbitration in accordance with the Com-
`mercial Arbitration Rules of the [American Arbitra-
`tion Association (“AAA”) ] then in effect ...”
`A
`“Claim” may be a Third-Party Claim or a Direct
`Claim (i.¢., one which Matria could bring for its be-
`nefit and which does not
`involve a Third-Party
`Claim), A “Third-Party Claim” is “any Action ...
`asserted or instituted by any Person (other than the
`parties to [the Merger Agreement] } which could
`give tise to Damages for which [Matria] may have
`a claim against the Escrow Fund under [the Merger
`Agreement] ...”
`“Action” is defined as “any lit-
`igation, suit, arbitration, proceeding or investiga-
`tion
`by
`or
`before
`any
`Governmental
`Authority."FN8
`
`FN6. Merger Agmt. § 7.4. The other two
`areas for specialized arbitration, neither of
`which is implicated here, ave (1) tax-re-
`lated matters (Merger Agmt. § 5.12) and
`(2) claims arising out of a demonstration
`agreement with the Centers for Medicare
`& Medicaid Services (“BIPA Claims”)
`(Merger Agmt. § 7.5).
`
`FN7. Merger Agmt, § 7.2(a).
`
`FN&. Merger Agmt. § 1.1.
`
`for any
`that except
`The parties also “agree[d]
`claims seeking injunctive specific performance or
`
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`Not Reported in A.2d
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`other equitable relief ... and except for claims in-
`volving fraud, from and after the Closing, the right
`to make a claim on the Escrow Fund provided for in
`this Article VII [of the Merger Agreement] pursu-
`ant to the provisions of this Article VIE... shall be
`the exclusive remedy of [Matria] ... for any breach
`of or inaccuracy in any representation or warranty,
`ot any noncompliance with or breach of or default
`in the performance of any of the covenants or
`agreements
`contained in
`[the Merger Agree-
`ment]....”
`
`FN9. Merger Agmt. § 7.3(d)(iv).
`
`Apparently recognizing that disputes involving, for
`example, misrepresentations could, at least in the-
`ory, fit within both the arbitration provision for
`Claims and the arbitration provision for adjust-
`ments to be made by the Settlement Accountant, the
`parties included the following in the Merger Agrec-
`ment:
`
`‘The items set forth on or reflected in the Company's
`Statement, the Closing Balance Sheet, the Determ-
`ination, the Final Closing Balance Sheet or the Pre-
`liminary Working Capital Amount, the Final Work-
`ing Capital Amount,
`... and any matters relating
`thereto that could have been subject to adjustment
`or dispute (other than matters not knownpriorto fi-
`nal
`resolution of
`the Final Working Capital
`Amount, the Final Closing Date Balance Sheet... ),
`in each case pursuant to Article II ... and any other
`amounts or items that were adjusted or disputed in
`the course of the Article [1 ... process (such items so
`set forth or reflected, such matters relating thereto
`and such other amounts and items, collectively, the
`“Article H/Section 7.5 Items ”), are subject solely
`to the adjustments set forth in Article IT [.e. by the
`Settlement Accountant] ... and accordingly shall not
`be subject to any claim by [Matria] ... on the Es-
`crow Fund pursuant to this Article VII [ie by
`AAA arbitrators]./a no event shall any matter, facts
`or circ*mstances pertaining to any Article H/
`Section 7.5 Item, which would also constitute a
`breach of a representation, warranty, covenant or
`agreement relating to the Financial Statements or
`
`any other pravision hereof, give rise to any claim
`by [Matria] on the Escrow Fund under this Article
`VIE FNIO
`
`FN1O. Merger Agmt.
`(emphasis added).
`
`§
`
`7,3(c)(ili)
`
`*3 Finally, the parties reiterated their commitment
`to arbitration as the means of dispute resolution:
`
`For the avoidance of doubt, except for claims for
`specific performance arising after the date hereof
`and prior to the Closing, any claims arising out of
`this Agreement, or the breach, termination or valid-
`ity thereof, shall be finally and exclusively determ-
`ined by arbitration in accordance with Sections 2.9
`(Post-Closing Adjustmentof Initial Merger Consid-
`eration), 5.12(h) (Tax Disputes), 7.4 (Escrow Fund
`Disputes) or 7.5 (BIPA Claims). NU
`
`FN11i, Merger Agmt. § 9.7.
`
`C. The Dispute Evolves
`
`Before the Merger, both Matria and CorSotutions
`engaged in the disease management and wellness
`enhancement business. The day after the closing of
`the Merger, one of CorSolutions' largest customers
`(the “Customer”)} informed Matria that it would un-
`dertake a clinical and financial audit of one of the
`disease management programs provided by Cor-
`Solutions. Although CorSolutions was aware ofthe
`Customer's concerns well before the Merger, it nev-
`er divulged that
`information to Matria. For ex-
`ample, in August 2005, CorSolutions concludedits
`own internal audit of the disease management pro-
`gram for the Customer and ascertained that it was
`failing to satisfy its obligations in more than one-
`half of the cases. Another internal audit revealed in
`December 2005 that, out of 246 participants
`audited, CorSolutions had met its obligations with
`respect to only 26 participants. Finally, a few days
`before execution of the Merger Agreement, a mem-
`ber of ColSolutions' senior management received
`an e-mail in which the Customer questioned Cor-
`
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`Not Reported in A.2d
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`Solutions’ ability to satisfy its contractual duties.
`That email read in part, “[I]f we don't feel more
`comfortable and have questions that have been
`raised answered by the end of December, we will
`opt all clients cut of the program until we are satis-
`fied with what is taking place.”
`Not only did
`CorSolutions not disclose any of these concerns to
`Matria, but
`its senior management also directed
`CorSolutions' employees not
`to share them with
`Mattia.
`
`FN12. Verified Compl. 7 26.
`
`CorSolutions' decision not to transmit the Custom-
`er's complaints to Matria raises several misrepres-
`entation issues. CorSolutions represented in the
`Merger Agreement (and as brought forward to clos-
`ing): no Material Adverse Effect had occurred (or
`was occutring); that it had incurred no liabilities
`(other than those disclosed on its balance sheet) that
`should have been disclosed on the balance sheet or
`in a note accompanying it; and that CorSclutions
`was not in default under any Material Contract ex-
`cept for breaches that either individually or in the
`aggregate would not reasonably be likely of causing
`a Material Adverse Effect.
`
`In response to these complaints, Matria, without no-
`tifying Coral, negotiated with the Customerfor ap-
`proximately the next seven months. The Customer
`and Matria reached an agreement in October 2006.
`Matria agreed to pay the Customer $4 million. For
`that payment, Matria not only obtained a release of
`claims arising on CorSolutions' watch, but it also
`received a release of all claims that could have been
`asserted from the date of the Merger through the
`end of 2006; a two-year extension of its contract
`with the Customer, estimated to produce revenues
`of $20 million annually; a revision of the termina-
`tion provision that now allows the Customerto ter-
`minate only “for cause”; and a cash payment of
`$1.5 million for a public relations campaign about
`services to the Customer's clientele. Thus, Matria
`resolved the Customer's concerns about CorSolu-
`tions' performance, and it obtained substantial addi-
`tional benefits from the Customerat the same time.
`
`*4 While it was negotiating with the Customer,
`Matria was also carrying out
`its post-closing ac-
`counting work and preparing its claim against the
`Escrow Fund. On April 4, 2006, Matria submitted,
`in accordance with Section 2.9 of the Merger
`Agreement,
`its Closing Date Balance Sheet and
`Preliminary Working Capital Amount to Coral; this
`set forth its estimate of liability to the Customer of
`$1.5 million, an amount reflected on the ‘Accrued
`Miscellaneous” line. The parties exchanged inform-
`ation requests and information until May 30, 2006,
`when Coral submitted its statement of opposition
`which rejected the adjustments proposed (or claims
`asserted} by Matria, Following the ensuing thirty-
`day period for negotiations, the parties (either with
`Coral's participation or at its insistence) began pre-
`paration to submit the dispute to the Settlement Ac-
`countant. By July 31, 2006, Matria had concluded
`that
`its post-closing adjustment had increased to
`$3.5 million. On September 28, 2006, Matria noti-
`fied Coral and advised that it was close to settling
`the Customer's claim for $4 million and that its
`Closing Date Balance Sheet and Preliminary Work-
`ing Capital Amount would be revised again to re-
`flect that increase. On September 30, 2006, Coral
`responded and advanced the position that Matria
`was not secking an accounting adjustment; instead,
`it argued that Matria was asserting a “Claim” under
`Section 7.2(b) of the Merger Agreement and thatit
`had the right to investigate and defend the claim.
`Matria went forward with efforts to engage the Set-
`tlement Accountant. Coral, instead, filed a demand
`for arbitration with the AAA on October 13, 2006,
`under the dispute provisions of Section 7.4 of the
`Merger Agreement. Coral, on October 25, 2006,
`submitted, in response to Matria's proposal, a mark-
`up of the Settlement Accountant's engagementlet-
`ter, but excluded those proposed adjustments for
`the Customer from the scope of the Settlement Ac-
`countant's authority, The Customer and Matria
`reached their agreement on October 11, 2006, and
`on October 30, 2006, Matria revised its demand for
`adjustment before the Settlement Accountant to $4
`million.
`
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`Not Reported in A.2d
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`Page 5
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`is prepared to arbitrate the con-
`Thus, Coral
`sequences of Matria's resolution of the Customer's
`concerns before the AAA; by contrast, Matria seeks
`to have that adjustment arbitrated by the Settlement
`Accountant. Neither, of course, is willing to move
`forward in the arbitration foram proposed by the
`other.
`
`IL. CONTENTIONS
`
`Matria filed a five-count Verified Complaint. First,
`it seeks a declaration that its post-closing dispute
`{and, thus, its claim to the Escrow Fund) is gov-
`erned by Section 2.9(b) of the Merger Agreement,
`which would require arbitration before the Settle-
`ment Accountant. Second, it asks the Court to en-
`join the arbitration brought by Coral before the
`AAA. Third, Matria wants an order compelling ar-
`bitration of the dispute before the Settlement Ac-
`countant. Fourth,
`it tenders a damages claim based
`,on fraud. Fifth, it refines its damages claim to one
`for equitable fraud. Pending is Matria’s motion to
`compel arbitration before the Settlement Account-
`ant.
`
`*5 Coral hag responded by moving to dismiss this
`action under Court of Chancery Rule 12(b)(6). Ac-
`cording to Coral, Matria is seeking to assert a claim
`(including its fraud allegations) that must be arbit-
`tated before the AAA. It also contends that the Cus-
`tomer’s claim simply is not a proper accrual for the
`Closing Date Balance Sheet. In addition, it asserts
`that the Verified Complaint fails to allege fraud
`with the particularity required by Court of Chan-
`cery Rule 9(b),
`
`TH. ANALYSIS
`
`A. Applicable Standards
`
`Motions to dismiss and to compel arbitration are
`pending, Each, of course, is governed by a different
`standard. A motion to dismiss under Court of Chan-
`cery Rule [2(b}(6) may be granted if the Court,
`
`after accepting all of the well-pleaded factual alleg-
`ations of the complaint and drawing all reasonable
`inferences in favor of the non-moving party, con-
`cludes, nonetheless, that the “plaintiff would not be
`entitled to recover under any reasonably conceiv-
`able
`set
`of
`circ*mstances
`susceptible
`of
`proof."FN1i3{n contrast, a motion to compel arbitra-
`tion may be reviewed under the standards of Court
`of Chancery Rule 56, which allows the Court to
`grant relief if the moving party is able to demon-
`strate that there are no material facts in dispute and
`that
`it
`is entitled to judgment as a matter of
`law,FN14
`
`(Hughes)
`FNIi3un re General Motors
`162,
`168
`Stholder Litig,
`897 A2d
`(Del.2006)
`(quoting Saver,
`inc, v. FMR
`Corp., 812 A.2d 894, 896-97 (Del.2002)).
`
`v. Amkor
`Inc.
`FN14.5ee, ¢.2., Motorola,
`Tech., Inc., 849 A.2d 931, 935 (Del.2004),
`The background section of this Memor-
`andum Opinion is drawn largely, but not
`exclusively, from the Verified Complaint,
`The Court may also consider the provi-
`sions of the Merger Agreement because
`that documentis referenced extensively in
`the Verified Complaint. See Vanderbilt In-
`come & Growth Assocs., L.L.C. v. Arvida/
`JMB Managers,
`Inc,
`691 A.2d 609,
`612-13 (Del.1996). Some facts are taken
`from the affidavit submitted by Coral and
`from the declaration and the deposition of
`Matria'’s chief executive officer. Those
`facts are primarily for context and are not
`essential to the Court's decision on the mo-
`tion to dismiss. With respect to the motion
`to compel arbitration, there are no facts in
`dispute that are material to the Court's de-
`cision, But see note 25, infra, for a factual
`dispute that might have been material if the
`Court had construed the Merger Agree-
`ment differently.
`
`B.A Few Words About Arbitration
`
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`Not Reported in A.2d
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`
`basic
`the
`‘on
`agree
`Coral
`and
`Matria
`principles.FN1SArbitration is a matter of contract.
`Public policy favors arbitration, A party may not be
`required to arbitrate a dispute if it did not agree to
`arbitrate the matter, As @ genera] matter, questions
`of arbitrability are for the Court.
`
`FN15, This action is governed by the Fed-
`eral Arbitration Act, 9 U.S.C. § 1, ef seq.
`Because “Delaware arbitration law mirrors
`federal law,’James & Jackson, LLC v. Wil-
`lie Gary,
`LEC,
`996 A2d 76,
`79
`(Del.2006), and because the parties have
`not suggested otherwise, the Court will be
`guided by both federal and Delaware de-
`cisional law on arbitration.
`
`the Merger
`should be noted that
`It
`Agreementis to be construed under con-
`tract law principles found in the law of
`Delaware. Merger Agmt. § 9.6.
`
`FN16.See, e.g. Howsam v. Dean Witter
`Reynolds, fac, 537 U.S. 79, 83 (2002);
`Parfi Holding AB v. Mirror Image Inter-
`net,
`dine,
`817 AQd
`149,
`155-56
`(Del.2002); DMS Properties-First,
`Inc. v.
`PUP, Scott Assocs.,
`Inc. 748 A2d 389,
`391-92 (Del.2000).
`
`Parties may, however, agree to submit questions of
`arbitrability to the arbitrator. There must first be
`“clear and unmistakable” evidence that
`they did
`agree to arbitrate arbitrability. Qne way to demon-
`strate a clear and unmistakable intentis to incorpor-
`ate the rules of the AAA. Even if incorporated, the
`tules of the AAA will not assure that arbitrability
`will be arbitrable. Incorporation of the AAA rules
`will result in arbitration of the arbitrability question
`“in those cases where the arbitration clause gener-
`ally provides for arbitration of all disputes and also
`incorporates a set of arbitration rules that empower
`arbitrators to decide arbitrability.”
`Although
`Matria and Coral agreed to submit all disputes
`atising under the Merger Agreement to arbitration,
`they did not agree to submit all of the arbitration
`
`disputes to the AAA. Instead, the Merger Agree-
`ment establishes four separate arbitration processes,
`there is no “arbitration clause generally provid[ing]
`for arbitration of all disputes and also incorpor-
`ate[ing] a set of arbitration rules."In the “catchall”
`arbitration provision (Section 9.7 of the Merger
`Agreement), there is no reference to a set of arbitra-
`tion rules. Conversely, the arbitration provision ref-
`erencing the Commercial Arbitration Rules of the
`AAA (Merger Agreement § 7.4) is not a clause
`providing for arbitration generally because of the
`matters which are expressly excepted from its
`scope. In addition, there was no express agreement
`to arbitrate arbitrability. Thus, because there is no
`“clear and unmistakable” evidence of intent to ar-
`bitrate arbitrability,
`the task of ascertaining the
`parties’ intent as to where to arbitrate a particular
`issue
`should be
`arbitrated remains with the
`Court.FN18
`
`FN17 James & Jackson, LLC, 906 A.2d at
`30,
`
`FNI&. The parties (putting aside for the
`moment the fraud claims asserted by Mat-
`ria in Counts IV and V of its Verified
`Complaint) agree that arbitration is
`the
`proper dispute mechanism;
`they just dis-
`agreeoverwhich forum. Thatagreement-lim-
`ited as it is-should be viewed, according to
`Coral, as the end of the Court's involve-
`ment, with the question of which arbitra-
`tion forum left for the arbitrators. Coral, in
`substance, argues that, with the parties’
`agreement
`to arbitrate, only “procedural”
`questions remain, and they typically are for
`the arbitrator. See, e.g, SBC Interactive,
`Ine.
`v. Corporate Media Partners, 714
`A.2d 758, 761-62 (Del.1998); see alse
`Green Tree Fin. Corp. v. Bazzle, 539 U.S.
`444, 452-53 (2003) (noting that arbitrators
`are well-suited to answer the question of
`what kind of arbitration was agreed to by
`the parties). The Settlement Accountant,
`however, has no rules ot guidance for de-
`
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`termining its jurisdiction, as contrasted
`with the Commercial Arbitration Rules of
`the AAA. Cf. Country Life Homes, Inc. v.
`Shaffer, 2007 WL 333075, at *4 . 21
`(Del. Ch. Jan. 31, 2007).
`
`C. A Few Words About Contract Construction
`
`*§ When interpreting a contract, the Court's fune-
`tion is to “attempt to fulfill, to the extent possible,
`the reasonable shared expectations of the parties at
`the time they contracted.”
`The Court does this
`by initially looking to the contract's express terms.
`If the terms are clear on their face and reasonably
`susceptible to only one meaning,
`then the Court
`gives
`those terms the meaning that would be
`ascribed
`to
`them by
`a
`reasonable
`third
`party.
`If, however, a contract's language is am-
`biguous, then the Court will look beyond the “four
`comers”
`of
`the
`agreement
`to
`extrinsic
`evidence.FN21A contract is not ambiguous merely
`,because the parties disagree as to its proper con-
`struction. Instead, ambiguity exists when the terms
`of a contract are reasonably susceptible to different
`interpretations or have two or more different mean-
`ings.
`Also, when possible, the Court should at-
`tempt to give effect to each term of the agreement
`and to avoid rendering a provision redundant or il-
`lusory. .
`
`FN19.Comrie v. Enterasys Networks, dne.,
`837 A.2d 1, 13 (Del. Ch.2003).
`
`FN20.See, eg., BAE Sys. N. Adm. v. Lack-
`heed Martin Corp., 2004 WL 1739322, at
`*4 (Del. Ch. Aug. 3, 2004); Trve N. Com-
`me'ns, Inc. v. Publicis, S.A., 711 A.2d 34,
`38 (Del. Ch.1997), affd, 705 A2d 244
`(Del.1997)
`(TABLE);
`see also Rhone-
`Poulenc Basie Chems. Co. v. Am. Motor-
`
`1195
`616 A2d £192,
`Ins, Co,
`ists
`(Del.1992). Accordingly, a finding that a
`contract's disputed language is unambigu-
`ous compels the Court to rely solely on the
`clear, literal meaning of the words of the
`contract.nergy Pariners, Lid. v. Stone En-
`
`ergy Corp., 2006 WL 2947483, at *13
`(Del. Ch. Oct. 11, 2006);
`
`FN21.See, e.g., Eagle Indus., Inc. v. DeVil-
`hiss Health Care,
`Ine., 702 A.2d 1228,
`1232 (Dei.1997}.
`
`FN22.See, e.g., Energy Partners, 2006 WL
`2947483, at * 13.8AE Systems, 2004 WL
`1739522, at *4;Comrie, 837 A.2d at 13.
`
`FN23.0'Brien v. Progressive N.
`785 A.2d 281, 287 (Del .2001).
`
`ins. Co.,
`
`D. The Parties' Choice afArbitration Forum
`
`The dispute before the Court grows out of the con-
`cems of the Customer over CorSoalutions' perform-
`ance and whether those concerns should have been
`disclosed to Matria in advance of the Merger. At
`one time or another,
`this matter arguably could
`have been viewed as (1) a potential claim, serious
`enough to be reflected on CorSolutions’ balance
`sheet; (2) a misrepresentation (i.e, based on Cor-
`Solutions’ failure to disclose} and,
`thus, a Direct
`Claim to be made by Matria as the alleged victim of
`the misrepresentation; and (3) a Third-Party Claim
`pursued by the Customer for relief from CorSolu-
`tions' malfeasance (or non-feasance).
`
`The Merger Agreement provides that, at least in the
`absence of fraud, Matria'’s “exclusive remedy” for
`any misrepresentation would be a claim against the
`Escrow Fund, a claim to be arbitrated before the
`AAAFN ‘There is no doubt that Matria’s claim
`can fairly be characterized as one alleging misrep-
`resentation, Coral disputes that any misrepresenta-
`tion occurred. It suggests that unhappy customers-
`even those with legitimate concerns-are part of the
`ordinary course of business and that the Customer's
`complaint, even if it had some substance, could not
`fairly be characterized as material, The question of
`whether a misrepresentation occurred and whether
`that mistepresentation was material are questions
`typically submitted to arbitration before the AAA,
`They are not generally viewed as the kind of dis-
`
`© 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works.
`
`

`

`Not Reported in A.2d
`Not Reported in A.2d, 2007 WL 763303 (Del.Ch.)
`(Cite as: Not Reported in A.2d, 2007 WL 763303 (Del.Ch.))
`
`Page 8
`
`putes that would be resolved by the person charged
`with “truing up” the books. In addition, the dam-
`ages (if any) caused by the misrepresentation (if
`any) would typically be determined in arbitration's
`litigation analog; in this instance, before the AAA.
`In short, the language of Article VII of the Merger
`Agreement predicts the result that one would anti-
`cipate the parties intended: commercial matters
`generally or otherwise usually resolved through lit-
`igation (except for certain specifically excepted is-
`sues) would fall within the scope of AAA arbitra-
`tion, just as Coral argues .
`
`FN24, Merger Agmt. § 7.3(d}{iv).
`
`FN25, Coral argues that the problems with
`the Customer constituted a Third-Party
`Claim. One cannot be confident of that
`based on the current state of the record.
`For there to be a Third-Party Claim, an
`“Action” must be “asserted or instituted”
`by a third person. No “Action” was insti-
`tuted. Although in regular English usage
`one does not “assert” an “Action,” the
`most (and perhaps only} plausible reading
`of the phrase is substantially “threatened
`an Action.” “Action” here requires litiga-
`tion or arbitration-some sort of adversary
`proceeding,
`It
`is debatable whether the
`Customer ever threatened an Action. The
`Customer apparently had economic power
`by which it could withhold payment and
`withhold the
`assignment of additional
`work. Thus, if the dispute with the Cus-
`tomer had not been resolved without resort
`to adversary proceedings, it is more likely
`that it would have fallen on Matria to have
`commenced any Action. An Action com-
`menced by Matria would not havesatisfied
`the definition of a Third-Party Claim (at
`least in the absence of a counterclaim). On
`the other hand, the Customer raised serious
`concerns and demonstrated a willingness
`to pursue those concerns. Ordinarily, one
`could anticipate that such concerns would,
`
`if not resolved, lead to adversary proceed-
`ings. Because the record does not contain
`the full exchange between the Customer
`and Mattia,
`the question of whether the
`Customer “asserted” an “Action” cannot be
`resolved on this record under a summary
`judgment standard. In light of the Court's
`conclusions with respect to the transcend-
`ency of Section 2.9(b)
`over Section
`7,3(d)(iii) of the Merger Agreement, It is
`not necessary to do se.
`
`*7 Matria, however, invokes Section 7.3(c)(iii) of
`the Merger Agreement. For an item that could ap-
`pear on the Final Closing Balance Sheet and, thus,
`would affect
`the Preliminary Working Capital
`Amount,
`the parties agreed to “adjust” the item
`through the process of Article H, that is, before the
`Settlement Accountant .
`The claim of the Cus-
`tomer could have been-if fully disclosed before or
`at Closing-addressed as a balance sheet entry. An
`accountant might look at the “facts” and determine
`that no entry was necessary; that accountant might
`also come to a different conclusion and attempt to
`define and to quantify the appropriate entry on the
`balance sheet, Thus, there is a matter here which
`the Settlement Accountant could, in a manner con-
`sistent with the terms of the Merger Agreement, ad-
`dress.
`
`concerns were
`FN26, The Customer's
`known te CorSolutions before closing and
`known to Matria before “final resolution of
`the Final Working Capital Ameunt....”
`Merger Agmt. § 7.3(c)(iit).
`
`FN27. Coral argues (Def.'s Br. in Supp. of
`its Mot, to Dismiss Pl.'s Verified Compl. at
`14) that the facts simply do not provide
`sufficient grounds for an accountant to es-
`tablish a reserve under GAAP and, there-
`fore,
`that the Customer's concerns could
`not give rise to an accrual belonging on the
`Closing Date Balance Sheet. Coral may be
`correct in its argument, and,if so, it should
`prevail before the Settlement Accountant.
`
`© 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works.
`
`

`

`Not Reported in A.2d
`Not Reported in A.2d, 2007 WL 763303 (Del.Ch.)
`(Cite as: Not Reported in A.2d, 2007 WL 763303 (Del.Ch.))
`
`Page 9
`
`Indeed, that may be one ‘of the prices that
`Mattia pays for its choice of arbitration be-
`fore the Settlement Accountant instead of
`before the AAA. It is perhaps not too cyn-
`ical to suggest that the true motivation be-
`hind Matria's choice of forum is avoiding
`the
`“liability
`basket?
`or minimum
`threshold for misrepresentation claims to
`be asserted against the Escrow Fund under
`Article VII. See note 28, infra.
`
`The question, accordingly, becomes: which arbitrat-
`or did the parties intend to resolve the dispute based
`on the Customer's concems?
`The Merger
`Agreement, unequivocally, and some might argue
`inexplicably,
`resolves
`the conflict.
`It expressly
`provides that no matter pertaining to an Article Il
`item (which the dispute is under the terms of the
`Merger Agreement) which would also constitute a
`breach of representation (relating either to the Fin-
`ancial Statements or other provisions of the Merger
`:Agreement) (which the dispute does) shall “give
`tise to any claim by (Matrial on the Escrow Fund
`under this Article vu2 Coral, however, secks
`to arbitrate Matria's claim against the Escrow Fund
`under Article VII which grants j