2015 Flashcards
“direct” (or “general”) damages includes
the natural and probable consequence of the breach.” “damages that would follow any breach of similar character in the usual course of events.”
Cost of R&W insurance indemnity for unknown breaches?
3% of policy coverage
Cost of tax insurance indemnity for adverse tax ruling on treatment of transaction or issue?
3-6%
Litigation insurance indemnity for catastrophic loss from an existing or likely litigation?
7-10%
Buy-side benefit of R and W insurance in auction?
Shut down auction early and either (i) accept RWs as is or (ii) offer safety in accepting RW edits.
How long to get R and W policy?
12 days
Can’t make an indemnity claims for what four things (other than types of damages)? – Need to draft these in.
- losses covered by insurance,
- losses that could have been mitigated,
- losses recoverable from a third party,
- losses for which there is a corresponding tax benefit
Are consequential and special damages the same thing?
Yes.
Definition of special or consequential damages?
“damages that result naturally, but not necessarily, from the defendant’s wrongful acts,” and “damages which arise from special circumstances that make them probable, although they would be unusual apart from such circumstances.”
What are the three categories of contract damages?
- direct (or general) damages – “naturally and necessarily flow from a wrongful act”
- incidental damages – “incurred in an attempt to avoid or mitigate damages after a breach”
- consequential (or special) damages
Keystone case for special/consequential damages?
Hadley v. Baxendale (lost profit from broken crankshaft for mill)
Hadley Rule is the plaintiff may recover only those losses… (2 things)
- DIRECT losses that would arise normally and naturally as the result a breach of any similar contract; and
- SPECIAL losses arising from SPECIAL CIRCUMSTANCES that were “within the contemplation” AT THE TIME OF CONTRACT
Pro-seller drafting on consequential damages (Sidley)
“consequential damages (however plead)”
Seller-acceptable version of indemnity for consequential damages, lost profits, and diminution in value?
Carve them out from damages/recovery “other than those that are the natural, probable and reasonably foreseeable result of the event that gave rise thereto”
% of deals that exclude consequential damages from recovery?
over 50%, but not supermajority
Damages to exclude from “losses” as seller?
punitive, incidental, consequential, special or indirect damages (including loss of revenue, lost future profits, lost business, diminution in value and any damages based on any type of multiple)
_____ includes only the narrowest category of losses?
out-of-pocket
How does post-closing PP adjustment affect indemnity rights?
PP adjustment should affect indemnity. Seller should insist buyers not double dip.
Holding of Hexion Specialty Chemicals, Inc. v. Huntsman Corp. (Del. Ch. 2008)?
MAC must be “measured in years rather than months.”
Has a DE court ever found a MAC?
No.
Holding of In re IBP Shareholders Litigation v. Tyson Foods (Del. Ch. 2001)
MAC must “substantially threaten the overall earnings potential of the target” and must impair future earnings in a manner that is “durationally-significant”
Holding of Frontier Oil Corp. v. Holly Corp. (Del. Ch. 2005) (ELR litigation arose post-signing)
A MAC must be CERTAIN. While potential exposure in the litigation was high, the probability of an adverse outcome in litigation was unknown and could not provide the basis for a MAC.
Holding of Genesco, Inc. v. Finish Line, Inc. (Tenn. Ch. 2007) (Tenn law)
The court found that while the decline could constitute a MAC if there were no exceptions in the definition of MAC, the exception for general economic conditions meant that underperformance did not qualify as a MAC given the macroeconomic context.
Who bears burden of demonstrating MAC/absence of MAC?
Buyer, unless you shift burden to seller.
