The issue in this case focused on the interpretation of an indemnification provision in a Stock Purchase Agreement (the “SPA”) between MultiPlan and I/MX. After the SPA was executed, but with a remainder of the purchase price still in escrow, the indemnified purchaser, MultiPlan, received notice from a third party (“QMC”) of a problem regarding one of the assets it purchased from I/MX. Thereafter, MultiPlan refused to pay the escrowed remainder of the purchase price to I/MX, demanding indemnification for the “threatened” third party action.
The SPA indemnification provision stated in relevant part: “[MultiPlan] shall be entitled to indemnification for any and all Damages incurred by [MultiPlan] to the extent based upon, arising out of or related to (a) any breach of any representation or warranty by [I/MX].” The SPA went on to state: “If any Action is commenced or threatened that may give rise to a claim for indemnification . . . then such Indemnified Party will promptly give notice to the Indemnifying Party.” The SPA defined “Action” as “any claim, action, or suit, or any proceeding or investigation by or before any Governmental Authority or any arbitration or mediation before any third party.” Further, the Escrow Agreement entered into by the parties provided for the release of all funds in escrow to I/MX . . . except “if any claim pursuant to . . . the [SPA] shall have been properly asserted.”
The Court of Chancery, analyzing the plain language of the SPA, decided that no “Action” had been commenced, and that the word “threatened,” which was not defined in the SPA, should be given its plain meaning. As such, the court found “that the relevant inquiry was whether QMC ‘gave signs or warnings’ to MultiPlan that it was going to [bring suit] or announced . . . that it intended to, or that it was possible that it would, commence an Action.” The court, finding in favor of I/MX, held that in order to constitute a “threat” QMC “must have expressed that it was going to do something about that problem, in such a way that a reasonable person would understand [it] was intending to press the issue through a proceeding before a third party.”