Background
Castle Tire Disposal sold substantially all its assets to Liberty Tire Services of Ohio under a 2024 asset purchase agreement. In addition to $40 million paid at closing, Castle obtained a right to a contingent value payment upon the earlier of a specified time-based trigger or a defined “Change of Control.” The agreement required both a qualifying “Merger”—an acquisition of Liberty Ohio or a sale of substantially all the acquired assets—and a reduction below 50% in the voting power held by Liberty Ohio’s equityholders of record.
In 2025, I Squared Capital acquired Liberty Recycling Parent, Liberty Ohio’s indirect parent, from Energy Capital Partners. Castle sued for a declaration that this upstream stock transaction triggered the Change of Control provision and sought specific performance of the contingent payment obligation. Liberty Ohio moved for judgment on the pleadings under Court of Chancery Rule 12(c).
The Court’s Holding
The Court of Chancery granted Liberty Ohio’s motion and entered judgment in its favor. The unambiguous agreement limited a qualifying Merger to an acquisition of Liberty Ohio itself or a sale of substantially all the assets Castle had sold to Liberty Ohio. I Squared’s purchase of Liberty Ohio’s indirect parent satisfied neither alternative. Respecting the separate legal existence of each entity, the court declined to treat a parent-company stock sale as either an acquisition of its downstream subsidiary or a transfer of that subsidiary’s assets.
The court also held that “equityholders of record” meant the record owners of Liberty Ohio’s membership interests, not the private-equity firm that beneficially owned the broader corporate enterprise through upstream entities. Castle did not plead nonconclusory facts showing that those record equityholders held less than 50% of the relevant voting power after the transaction. The I Squared transaction agreement and further discovery were unnecessary because the pleadings and the APA established that the Change of Control definition was not met under any reasonable reading of the pleaded transaction structure.
Key Takeaways
- A contractual change-of-control provision covering the named buyer does not automatically reach a sale of that buyer’s indirect parent.
- Delaware courts distinguish record ownership from beneficial ownership and generally respect the separate legal existence and assets of parents and subsidiaries.
- Courts will enforce the unambiguous language negotiated by sophisticated parties even when its narrow drafting prevents a requested contingent payment.
Why It Matters
The decision underscores that transaction parties must draft change-of-control provisions expressly to cover upstream acquisitions, indirect ownership changes, affiliates, and beneficial owners if those events are intended to trigger payment rights. Courts will not broaden a narrowly written trigger by collapsing a corporate ownership structure.
It also shows that judgment on the pleadings may resolve a post-closing payment dispute without discovery when the contract is unambiguous and the complaint lacks specific factual allegations satisfying its conditions.