Background
SRS obtained a $130 million award after the court found that Alexion breached the merger agreement by failing to pay Milestone 1, which became due on October 6, 2022. The agreement required interest on an earn-out payment not timely made.
Alexion separately prevailed on an indemnification claim arising from Syntimmune’s breach of a representation concerning manufacturing standards for acquired drug substance and product. The court determined Alexion’s indemnification award was $11,996,157.33. The parties disputed whether that amount should be offset before or after prejudgment interest was calculated on the Milestone 1 award.
The Court’s Holding
Vice Chancellor Zurn adopted a hybrid approach. SRS is entitled to prejudgment interest on the full Milestone 1 principal from October 6, 2022, through September 5, 2024, the date of the court’s first post-trial opinion and the earliest date the court could have adjudicated the breach underlying Alexion’s indemnification claim.
Beginning September 6, 2024, Alexion may offset indemnification amounts exceeding the remaining Escrow Fund, and SRS will receive prejudgment interest only on the resulting balance. Although the milestone and indemnification claims arose from the same merger agreement and were not collateral, the economic realities and the agreement’s offset provisions did not support applying the Interest on Balance Rule from the original milestone due date.
Key Takeaways
- A Delaware court may combine interest-calculation rules when fairness and the contract’s structure warrant a tailored result.
- An unliquidated indemnification claim does not automatically reduce interest on a liquidated, overdue payment obligation.
- Alexion did not use the merger agreement’s prescribed mechanism for escrowing an offset against an unresolved indemnification claim when Milestone 1 became due.
Why It Matters
The decision shows that related claims arising from a single transaction do not necessarily require interest to be calculated only on the net balance. Courts will also examine whether the party seeking an offset had a presently enforceable claim, whether the claimant had use of the alleged setoff funds, and whether the parties’ contract supplied—and the party used—a specific offset procedure.