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Telecom Company in Complex Indemnity Dispute

Industry: Technology

Key Facts

  • Post-closing indemnification dispute
  • Buyer refused to release escrow funds due to premature claim for indemnification
  • When Buyer refused overtures to resolve the dispute, we sued in federal court

The Situation

As part of the sale of a subsidiary, our client agreed to set aside part of the purchase price in escrow to pay certain post-closing claims, including claims for breaches of representations and warranties and pre-closing taxes assessed after the closing. The parties agreed that any amounts remaining in the escrow fund after one year would revert to our client. On the eve of the one-year anniversary of the sale, our client received an indemnification demand for the full amount of the escrow fund, attributable to alleged post-closing taxes; however, no tax liability had been assessed against the Buyer or acquired entity. The Buyer refused to release any portion of the escrow funds to our client based upon its premature claim for indemnification. 

The Approach

Pursuant to the parties’ agreements, we attempted to negotiate the release of the escrow funds in good faith. When the Buyer refused all reasonable overtures to resolve the dispute, we sued the Buyer in Federal Court.

The Outcome

After we filed a Complaint against the Buyer, the Buyer self-reported its post-closing tax liability, resulting in a tax assessment that was half its original demand.  The assessment further identified that our client was responsible for a small fraction of the assessed taxes only. The litigation resolved shortly thereafter.

Supporting Professionals

Alec Zadek, a Member in the firm’s Litigation Practice, led our team's efforts on this case.