Dive into the complexities of M&A as we unravel a recent legal dispute in the aerospace industry. Explore the intricacies of warranty claims, allocation of liabilities, and the aftermath of an acquisition gone awry. Gain insights from a real-life case and discover valuable lessons for crafting airtight asset purchase agreements. Stay informed on legal battles shaping the M&A landscape.
M&A Stories
August 15, 2018
In a recent M&A development, a Pennsylvania-based international aerospace components supplier found itself in a legal clash with a Tulsa-based first-tier aircraft airframe component manufacturer. The disagreement centered on warranty claims related to two Gulfstream Aerospace Corporation wing supply programs, stemming from an acquisition completed on December 8, 2014.
The crux of the dispute revolved around the allocation of liabilities and obligations outlined in the asset purchase agreement. The agreement initially assigned the seller responsibility for excluded liabilities, those not assumed by the buyer. Post-closing, a disagreement emerged regarding warranty claims mentioned in the excluded liability schedule. The buyer argued these were the seller’s obligations, while the seller pointed to a different section where the buyer supposedly agreed to assume all warranty claims.
To address the issue, the buyer initiated legal proceedings in Delaware Superior Court on December 1, 2017. The court determined that the buyer’s responsibility for warranty claims exclusively applied to those unknown at the closing, ruling in favor of the buyer and holding the seller responsible for known warranty claims.
Despite the court’s decision, the matter of accountability for unknown warranty claims remained unresolved due to ambiguity in the asset purchase agreement’s relevant provisions, particularly the excluded liabilities schedule. Future interpretation might require considering additional evidence beyond the agreement, such as other written material and testimonies.
In hindsight, it is recommended that the asset purchase agreement explicitly clarify the allocation of responsibility for warranty claims. If the seller is to be responsible for known warranty claims, the agreement should state so explicitly, including known claims listed in a schedule attached to the purchase agreement. Additionally, the agreement should clearly specify that the buyer is responsible for warranty claims unknown to the seller.
Case Reference:
Triumph Aerostructures-Tulsa, LLC v. Spirit Aerosystems, Inc., C.A. No. N17C-11-262 MMJ CCLD, Superior Court of Delaware, (Decided: August 8, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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