Background
WSP USA Services Inc. sold a facility management company, Louis Berger Services, Inc., to Versar, Inc. pursuant to a Stock Purchase Agreement dated August 4, 2023. The agreement provided for purchase price adjustments based on net working capital (defined as current assets minus current liabilities). Any disputes over net working capital were to be resolved through a 30-day negotiation period, followed by submission to a neutral auditor—KPMG or another nationally recognized accounting firm—if unresolved.
The agreement also required Buyer to obtain representations-and-warranties insurance covering post-closing breaches of representations. Except for fraud, this insurance was Buyer’s sole remedy. Critically, the policy included an anti-double-counting provision: Buyer could not recover for any loss that had been “specifically taken into account dollar for dollar” in the purchase price adjustment calculation.
When Buyer submitted its closing statement, it claimed a $9.7 million purchase price adjustment, with approximately $5.3 million attributed to alleged underperformance on contracts with the Florida Department of Transportation. Buyer treated this as a net working capital adjustment by recording the liability as a current liability. Seller objected, arguing the dispute concerned Seller’s breach of its representation that it had materially complied with all government contracts, and therefore should be resolved through insurance. When the parties could not resolve the dispute within 30 days, Buyer initiated proceedings with KPMG. Seller then sued for declaratory relief, breach of contract, and injunctive relief.
The Court’s Holding
The Court of Chancery granted Buyer’s motion to dismiss all three counts. The court held that the Purchase Agreement unambiguously permits Buyer to pursue either a working capital adjustment or insurance recovery when a post-closing dispute could implicate both remedies. The presence of the anti-double-counting provision itself evidences that the parties contemplated scenarios where losses might qualify for recovery under both mechanisms, making the provision necessary only if Buyer had discretion to choose.
The court distinguished OSI Systems, Inc. v. Instrumentarium Corp., Seller’s primary authority, which held that a dispute must be treated as a representation-and-warranty claim when asserting the purchase price adjustment necessarily requires claiming a representation breach. Here, by contrast, Buyer need not assert that Seller breached its representation regarding government contract compliance; conceivable scenarios exist where Seller did not breach representations yet still created a liability under the Florida Contracts that qualifies as a current liability. Because the alleged underperformance was not necessarily coextensive with a representation breach, Buyer was not forced into one legal pathway.
The court also noted that the Purchase Agreement contained no “hierarchy proviso” (as existed in Alliant Techsystems, Inc. v. MidOcean Bushnell Holdings, L.P.) that would prefer one remedy over another. The plain language of the agreement thus allows Buyer to choose its remedy, and doing so does not constitute a breach. Accordingly, Counts I (declaratory relief) and III (injunctive relief), which were predicated on Count II, were also dismissed.
Key Takeaways
- When a post-closing dispute could implicate both working capital adjustments and representation-and-warranty claims, and the agreement permits overlapping remedies, a buyer may choose which remedy to pursue without breaching the agreement.
- An anti-double-counting provision in a representations-and-warranties insurance policy evidences that parties contemplated overlapping remedies and did not intend to foreclose buyer discretion.
- A buyer is not forced to assert a representation breach merely because a post-closing issue could theoretically implicate a representation; the buyer must assert a breach only when defending the adjustment would necessarily require doing so.
- Absent explicit hierarchy language in the purchase agreement, courts will respect buyer discretion to pursue the remedy of its choice when the plain language permits both paths.
Why It Matters
This decision resolves a recurring dispute in post-closing M&A litigation: whether sellers can compel buyers to pursue representation claims through insurance rather than working capital adjustments. Sellers often prefer insurance disputes because they may have stricter notice provisions, shorter tails, or lower recovery thresholds. This ruling establishes that, absent explicit remedy hierarchy language, sellers cannot force buyers into a particular forum.
The practical significance is substantial. Parties drafting purchase agreements should be explicit about remedy hierarchy if they intend one—the mere existence of both remedies does not create an unstated preference. The decision also clarifies that the anti-double-counting provision, far from restricting buyer remedies, evidences the parties’ recognition that overlapping remedies are permissible. Buyers and sellers should consider this ruling when negotiating dispute resolution procedures and remedy provisions in acquisition agreements.