Article

Note: Greenstar, LLC and Greenstar Allentown, LLC (Buyers) contracted to purchase assets owned by Todd A. Heller and Todd Heller, Inc. (Sellers). To finance the transaction, Buyers issued a promissory note with a principal of USD 11,410,000 with an interest rate of 3.25% and secured the note by a letter of credit.

The purchase agreement dictated that Buyers have the right to reduce the principal amount of the promissory note held by Sellers by an amount equal to a payment that is due and owing by Sellers to Buyers' indemnified persons. Furthermore, the purchase agreement specifies that, in the event Plaintiff-Buyers are entitled to receive payments from Sellers, Buyers have the option to offset the amount against any amounts payable to Sellers pursuant to the purchase agreement.

After acquiring the purchased assets, Buyers incurred expenses which developed due to the presence of broken glass stockpiles it had to remove. As a result, Buyers filed suit against Sellers for the alleged breach of representations and warranties contained in their purchase agreement and sought an injunction prohibiting Sellers from drawing on the LC. Prior to judgment, the court ordered the release of all but USD 3,000,000 of the promissory note to Sellers. Subsequently, the court ruled that Sellers had in fact breached several representations and that Buyers were to be awarded indemnification in the amount of USD 401,345.28, to be offset against the promissory note, as well as reasonable attorney fees and costs, which Buyers suggested to be USD 1,136,559.61. Sellers did not object to the reasonableness of the attorney fees and costs, but disputed Buyers attempt to subtract both awards from the remaining principal prior to the calculation of interest, which Sellers were allegedly still owed.

The U.S. District Court for the District of Delaware, Robinson, J., rejected Sellers' arguments, noting that "In general interest on deposited funds follows the principal, and when the entitlement to the principal is in dispute the one who is determined to be the [owner of the] principal is also entitled to the interest thereon.".

Sellers argued that it should collect interest on the full USD 3,000,000 because, prior to the date of judgment, no amount was "due and owing" to Buyers per the terms of the purchase agreement. Sellers also contested that the award of attorneys' fees and costs does not require it to be deducted from the promissory note, and, if it is deducted, it should not be required to forgo the interest. The court noted that over half of the principal belonged to Buyers and that Buyers must pay "'interest on the unpaid principal amount of this [Note]'". The court further noted both Buyers right to offset a payment obligation pursuant to the purchase agreement and that attorneys' fees would constitute a "due and owing" amount under the agreement. For those reasons, the court held that Sellers shall be paid interest only on the total amount it is owed, as opposed to the remaining USD 3,000,000. Additionally, the court found that Buyers were entitled to recover attorney fees and costs for the additional proceedings because they were required to file the motion under Fed. R. Civ. P. 54(d) in response to Sellers' dispute regarding the disbursement of the interest.

[ABS/mjb]

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