IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
WALTER A. WINSHALL, in his capacity )
as the Stockholders’ Representative for )
former Harmonix Stockholders. )
)
Plaintiff, ) C.A. No.: N15C-06-137 EMD CCLD
)
v. )
)
VIACOM INTERNATIONAL INC., a )
Delaware Corporation. )
)
Defendant. )
)
Submitted: August 22, 2019
Decided: November 6, 2019
Upon Defendant Viacom International Inc.’s
Motion for Reargument
GRANTED
Upon consideration of Defendant Viacom International Inc.’s Motion for Reargument
(Viacom’s Motion”)1 filed by Defendant Viacom International Inc. (“Viacom”) on March 4,
2019; Plaintiff’s Answer in Opposition to Defendant Viacom International Inc.’s Motion for
Reargument (“Mr. Winshall’s Opposition”) filed by Mr. Winshall on March 11, 2019; the
hearing on August 15, 2019 (the “Hearing”); Plaintiff’s Supplemental Brief in Opposition to
Viacom International Inc.’s Motion For Reargument (“Mr. Winshall’s Letter”) filed on August
22, 2019; the letter filed by Viacom (“Viacom’s Letter”) on August 22, 2019; the Court’s
February 25, 2019 Memorandum Opinion Denying Plaintiff Walter A. Winshall’s Motion for
Partial Summary Judgment and Granting in Part Defendant Viacom International Inc.’s Motion
1
Capitalized term not defined herein shall have the meaning ascribed to it in the Court’s Memorandum Opinion
dated February 25, 2019.
for Summary Judgment (the “Summary Judgment Opinion”); Superior Court Civil Rule 59(e);
and the entire record of this civil proceeding,
APPLICABLE STANDARDS
Rule 59(e). Superior Court Civil Rule 59(e) (“Rule 59(e)”) provides that a party may file
a motion for reargument “within 5 days after the filing of the Court’s opinion or decision.”2 The
standard for a Rule 59(e) motion is well defined under Delaware law.3 A motion for reargument
will be denied unless the Court has overlooked precedent or legal principles that would have
controlling effect, or misapprehended the law or the facts such as would affect the outcome of
the decision.4
Viacom requests reconsideration because the Court did not address one of Viacom’s
arguments in partially dismissing Count I in the Complaint. Specifically, Viacom notes that the
Court did not address its argument that Mr. Winshall’s indemnification claims exceed the
contractual cap on indemnification claims in Section 8.6(b) of the Merger Agreement. Viacom
contends that this is an independent justification to dismiss the remaining portion of Count I. In
response, Mr. Winshall argues that Section 8.6(b) is not a contractual cap and so does not bar
Viacom from indemnifying Mr. Winshall for attorneys’ fees and costs.
Upon review of Viacom’s Motion, the Court determined that reargument was appropriate
under Rule 59(e). As such, the Court held the Hearing and thereafter entertained Mr. Winshall’s
Letter and Viacom’s letter.
Contract Interpretation. A court generally gives priority to the parties’ intentions
contained in the four corners of the contract.5 “In upholding the intentions of the parties, a court
2
Super. Ct. Civ. R. 59(e).
3
Kennedy v. Invacare Corp., 2006 WL 488590, at *1 (Del. Super. Jan. 31, 2006).
4
Woodward v. Farm Family Cas. Ins. Co., 2001 WL 1456865, at *1 (Del. Super. Aug. 24, 2001).
5
Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 145 (Del. 2009).
2
must construe the agreement as a whole, giving effect to all provisions therein.”6 “The meaning
inferred from a particular provision cannot control the meaning of the entire agreement if such an
inference conflicts with the agreement’s overall scheme or plan.”7
Where the language of the contract is plain and unambiguous, the contract must be
enforced as written.8 “If a writing is plain and clear on its face, i.e., its language conveys an
unmistakable meaning, the writing itself is the sole source for gaining an understanding of
intent.”9 Moreover, a contract is not rendered ambiguous merely because the parties disagree as
to its construction and application.10
The parol evidence rule bars the admission of evidence outside the contract’s four corners
to vary or contradict the unambiguous language.11 However, “where reasonable minds could
differ as to the contract’s meaning, a factual dispute results and the fact-finder must consider
admissible extrinsic evidence.12 “[I]n a dispute over the proper interpretation of a
contract, summary judgment may not be awarded if the language is ambiguous and the moving
party has failed to offer uncontested evidence as to the proper interpretation.”13
PARTIES’ CONTENTIONS
Viacom. Viacom asserts that Viacom is only obligated to pay Mr. Winshall and the other
Harmonix Shareholders the amount of the Merger Consideration under the Merger Agreement.
According to Viacom, Section 8.6(b) simply clarifies that Viacom may pay part of the amount of
6
E.I. du Pont de Nemours and Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (1985).
7
Riverbend Cmty., LLC v. Green Stone Engr., LLC, 55 A.3d 330, 334 (Del. 2012) (citing GMG Capital Invs., LLC v.
Athenian Venture Partners I, L.P., 36 A.3d 776, 779 (Del. 2012)).
8
Lorillard Tobacco Co. v. Am. Legacy Found, 903 A.2d 728, 740 (Del. 2006).
9
City Investing Co. Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993).
10
See, e.g., In re Verizon Ins. Coverage Appeals, __ A.3d __, 2019 WL 5616263, at *3 (Del. Oct. 31, 2019)(citing to
Rhone-Poulenc Basic Chem. Co. v. Am. Motorists Ins., 616 A.2d 1192, 1196 (Del. 1992)).
11
GMG Capital, 36 A.3d 776 at 783.
12
Id.
13
Id.
3
the Merger Consideration in the form of indemnification fees. Viacom notes (and the record
demonstrates) that Viacom has fully paid the Merger Consideration. Therefore, Viacom
contends that the Court should dismiss Mr. Winshall’s claim because Viacom has already
satisfied its indemnification obligations.
Viacom further argues that, even if the Court finds that Section 8.6(b) is ambiguous, all
extrinsic evidence suggests that the parties intended to limit Viacom’s payments to the amount of
the Merger Consideration. To support this proposition, Viacom cites the deposition testimony of
Gregg Walker, Viacom’s primary businessperson in the negotiations of the Merger Agreement,
and Michael Fricklas, Viacom’s General Counsel at the time the parties negotiated the Merger
Agreement. Mr. Walker and Mr. Fricklas testified that the purpose of the indemnification
provision was to assure payment of the Merger Consideration. Specifically, Mr. Walker testified
that it is unusual for a buyer to indemnify a seller. Mr. Walker also explained that the parties
capped Viacom’s indemnification obligation at the “unpaid amount of the Merger Consideration
then payable” because the Merger Consideration was not fixed in amount or in time. For
example, the Merger Consideration at the time the parties executed the Merger Agreement in
2006 was $175 million. The Merger Consideration increased when Viacom made the 2007 and
2008 Earn-Out Payments. Mr. Fricklas testified that the parties’ intention in drafting Section
8.6(b) was that “once the [M]erger [C]onsideration was paid, there [would be] no additional
amounts that could be subject to payment under indemnification.”
Viacom also claims that Mr. Winshall’s interpretation of Section 8.6(b) would lead to an
absurd result. For example, each time an Earn-Out amount was determined, Viacom’s obligation
would double: the amount of the Earn-Out plus another amount equal to the Earn-Out.
4
In Viacom’s Letter, Viacom avers that Section 8.6 does not contain an explicit fee-
shifting provision, so Mr. Winshall is not entitled to attorneys’ fees. Finally, in Viacom’s Letter,
Viacom claims that Viacom’s interpretation of Section 8.6(b) does not render the term “Losses”
a nullity because “Losses” is used elsewhere in the Merger Agreement.
Mr. Winshall. Mr. Winshall asserts that Viacom must (1) pay the Merger Consideration,
and, in addition, (2) indemnify the Harmonix Shareholders for Losses in the amount of the
unpaid Merger Consideration at the time the indemnification claim accrued.
To support its proposition, Mr. Winshall claims that Viacom’s interpretation would
render Section 8.6(b) a nullity because Viacom already had an obligation to pay the Merger
Consideration. Second, Mr. Winshall asserts that Viacom’s interpretation is unreasonable
because it ignores the term “Losses” which refers to a category of money that is separate from
the Merger Consideration. Third, Mr. Winshall contends that Section 8.6(b) does not create an
implied indemnification cap, as Viacom argues it does. Mr. Winshall notes that the parties
defined the term “Indemnification Cap Amount” in Section 8.2(c)(ii) to limit the Harmonix
Shareholders’ obligations and the parties would have defined a similar term if they had intended
to create an indemnification cap for Viacom.
Fourth, Mr. Winshall argues that Viacom’s extrinsic evidence is not helpful to the Court
because it merely reveals Viacom’s unexpressed, unilateral and after-the-fact intentions in
negotiating the Merger Agreement. Mr. Winshall also alleges that Mr. Fricklas’ testimony does
not state that Viacom is only liable for the Merger Consideration. Instead, Mr. Fricklas’
testimony suggests that, once Viacom has indemnified the Harmonix Shareholders for Losses in
the amount of the unpaid Merger Consideration, Viacom is no longer liable.
5
In Mr. Winshall’s Letter, Mr. Winshall supplements his argument by, among other
things, (i) claiming that Viacom’s interpretation of Section 8.6(b) renders the term “Losses” a
nullity, (ii) citing White v. Curo Texas Holdings, LLC14 to argue that Section 8.6(b) does not
clearly create an indemnification cap, and (iii) citing Stifel Financial Corp. v. Cochran,15 for the
proposition that indemnification is not complete unless Mr. Winshall receives attorneys’ fees.
DISCUSSION
The provision at issue is Section 8.6 of the Merger Agreement. Section 8.6 provides as
follows:
(a) Indemnification. Subject to the limitations set forth in this Article VIII,
from and after the Effective Time, each of Parent [Viacom] and MergerCo,
jointly and severally, shall indemnify, defend and hold harmless each
Merger Consideration Recipient [Mr. Winshall and the other Harmonix
Shareholders] against any and all Losses actually incurred or suffered by
any such Merger Consideration Recipient as a result of:
(i) the breach of any representation or warranty of Parent or MergerCo set
forth in this Agreement or in any Ancillary Document; and
(ii) the breach of any covenant or agreement of Parent or MergerCo
contained in this Agreement or in any Ancillary Document.
(b) Certain Limitations. Parent and MergerCo shall not be obligated to
indemnify any Merger Consideration Recipient pursuant to Section 8.6(a)
to the extent the aggregate amount of all indemnifiable Losses exceeds the
aggregate unpaid amount of the Merger Consideration then payable.16
“Losses” are defined in the Merger Agreement as:
any and all losses, liabilities, damages, claims, awards, judgments, diminution in
value, Taxes, fees, costs and expenses (including reasonable attorneys’ fees and
expenses, expenses of investigation, defense, prosecution and settlement of claims
(including any claims under Article VIII hereof), court costs or enforcement of the
provisions of this Agreement) suffered or incurred by such Person, plus any interest
that may accrue on the foregoing.17
14
2017 WL 1369332, at *12 (Del. Ch. Feb. 21, 2017).
15
809 A.2d 555, 561 (Del. 2002).
16
Merger Agreement, § 8.6.
17
Ex. 5, Section 10.7.
6
The Court finds that Section 8.6(b) is unambiguous. As such, the Court will apply
Section 8.6(b) as drafted and not consider extrinsic evidence to determine the meaning of Section
8.6(a).18 The Court, however, does not find that Section 8.6(b) is a fee shifting provision that
awards a party its attorneys’ fees and expenses on first-party claims.
Reading Section 8.6(b) to mean that Viacom’s obligations were capped on all claims
when Viacom paid the Merger Consideration would be to construe Section 8.6 too broadly as it
relates to the issues here. This is clear because Viacom was obligated to pay the Merger
Consideration under other provisions of the Merger Agreement. Section 8.6 only applies to
indemnifiable “Losses.”
In White v. Curo Texas Holdings, LLC,19 the Delaware Court of Chancery found that an
indemnification provision, which the defendant alleged was an indemnification cap, did not bar
the plaintiffs’ claims for advancement. Specifically, the Court of Chancery held that the
indemnification provision did not limit the plaintiffs’ recovery because when the provision was
“read within the structure of the [ ] Agreement as a whole, the obvious purpose of [the provision]
is to provide a monetary remedy for commitments under the [ ] Agreement other than
commitments to pay sums of money set forth in other sections of the [ ] Agreement.”20
In addition, in the White case, the Court of Chancery rejected the defendant’s argument
that the indemnification provision was a cap on advancement claims because:
[I]f [the defendant] were correct and the parties wanted to place a ceiling on the
amount of advancements that [the plaintiffs] could obtain from [the defendant],
then the drafters of the [ ] Agreement chose an implausibly circuitous and tortured
means of implementing that agreement. The most straightforward way to
accomplish that result would be to say [ ] that there is a cap on the amount of money
that [the defendant] was obligated to advance.21
18
See generally, In re Verizon Ins. Coverage Appeals, 2019 WL 5616263, at *3.
19
2017 WL 1369332, at *12.
20
Id. at *14.
21
Id. at *15.
7
Here, as in White, the purpose of Section 8.6 is for Viacom to indemnify the Harmonix
Shareholders for Losses arising from Viacom’s breach of representations, warranties or
covenants in the Merger Agreement. The purpose of Section 8.6 is not to cap claims otherwise
payable under the Merger Agreement or to reiterate that Viacom is obligated to pay the Merger
Consideration.
The Court agrees with the reasoning set out in White. Reading Section 8.6 to mean that
the parties intended to cap Viacom’s liability at the Merger Consideration is implausibly
circuitous. The parties could have stated that Viacom’s liability is capped at the Merger
Consideration, if the parties intended to impose such a cap. Instead, the parties chose to include
an indemnification provision and then to place limitations on the indemnification provision.
These limitations show that the parties intended for Viacom to pay (1) the Merger Consideration,
and, in addition, (2) indemnify the Harmonix Shareholders for Losses in the amount of the
unpaid Merger Consideration at the time the indemnification claim accrued.
However, the Court finds that Mr. Winshall is not entitled to attorneys’ fees under
Section 8.6. Admittedly, the Court struggled with the Viacom’s argument that Section 8.6—
which allows for attorneys’ fees and expenses—would be unavailable to Mr. Winchell when it
became necessary for him hire attorneys to compel Viacom to pay the Merger Consideration.
Section 8.6, at first blush, reads that there is a limitation on the aggregate amount of
indemnifiable losses and, because that limitation is the Merger Consideration, any fees and
expenses occurred by Mr. Winchell in recovering the Merger Consideration from Viacom would
not be recoverable as those amounts would always be in excess of the Merger Consideration.
The Court found this interpretation, at the very least, twisted. Oral argument at the Hearing did
8
not necessarily help the Court on this point. Both parties’ arguments were plausible and
implausible.
This internal inconsistency or conundrum would be true, though, only if Section 8.6 were
a fee shifting provision as to first-party claims. But, Section 8.6 is not a fee-shifting provision as
to first-party claims. As drafted, Section 8.6 applies to third-party claims. It is for this reason
that reargument is appropriate—the Court overlooked legal principles that would have a
controlling effect.
Delaware courts follow the “American Rule” that parties are responsible for their own
attorneys’ fees.22 An exception to the American Rule is that parties may shift fees to another
party through a contractual provision.23 “The fee-shifting provision must be a clear and
unequivocal agreement in connection with a dispute between parties involving a failure to fulfill
obligations under the contract.”24
In TranSched Systems Ltd. v. Versyss Transit Solutions, LLC,25 the Court held that there is
a presumption that the term “indemnify” in standard indemnity provisions applies to third-party
claims, rather than to first-party claims. Otherwise, the Court found, standard indemnification
provisions would “swallow the [American] Rule.”26 The indemnification provision must
unequivocally state that it applies to suits between the parties to apply to first-party claims.27 In
the TranSched Systems Ltd. case, the Court held that a very similar indemnification provision
applied only to third-party claims. That indemnity provision stated:
“In the event [defendant] breaches (or in the event any third party alleges facts that,
if true, would mean [defendant] has breached) any of its representations, warranties,
22
TranSched Sys. Ltd. v. Versyss Transit Sols., LLC, 2012 WL 1415466, at *1 (Del. Super. Mar. 29, 2012).
23
Id.
24
Deere & Co. v. Exelon Generation Acquisitions, LLC, 2016 WL 6879525, at *1 (Del. Super. Nov. 22, 2016).
25
2012 WL 1415466, at *1.
26
Id. at *2.
27
Id.
9
and covenants contained in this Agreement, and provided that [plaintiff] makes a
written claim for indemnification against [defendant] within such survival period,
then [defendant] shall jointly and severally indemnify and hold harmless [plaintiff]
from and against the entirety of any Adverse Consequences [plaintiff] may suffer
through and after the date of the claim for indemnification (including any Adverse
Consequences [plaintiff] may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).28
“Adverse Consequences” included attorneys’ fees.
Here, there is no explicit language that Section 8.6(b) applies to the reimbursement of
attorneys’ fees and expenses on first-party claims between the parties. Instead, Section 8.6(b)
applies to third-party claims brought against the parties relating to indemnifiable Losses. Both
Viacom and Mr. Winshall were represented by sophisticated counsel that know how to draft a
general indemnification and, most likely, a fee shifting provision under Delaware law.
Accordingly, the Court will follow the reasoning in TranSched Systems Ltd. and find that Mr.
Winshall is not entitled to attorneys’ fees.
CONCLUSION
For the reasons set forth above, Defendant Viacom International Inc.’s Motion for
Reargument is GRANTED. The Court will not allow Count I to proceed as to attorneys’ fees
and costs, and enters Judgment in full in favor of Viacom on Count I.
Dated: November 6, 2019
Wilmington, Delaware
/s/ Eric M. Davis
Eric M. Davis, Judge
CC: File&ServeXpress
28
Id. at *1.
10