IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
LONGSHOT HOLDINGS, INC., )
)
Plaintiff, ) C.A. No. N22C-04-129 MAA CCLD
)
v. )
)
QUAKER CHEMICAL )
CORPORATION, d/b/a Quaker )
Houghton, a Pennsylvania corporation, )
)
)
Defendant. )
Submitted: July 24, 2026
Decided: October 8, 2026
POST-TRIAL OPINION
James H. S. Levine, Esquire, and Emily L. Wheatley, Esquire, of TROUTMAN
PEPPER LOCKE, LLP, Wilmington, Delaware, and Brian W. Ledebuhr, Esquire
(Argued), of VEDDER PRICE, Chicago, Illinois, Attorneys for Plaintiff Longshot Holdings, Inc.
Sydney S. Liebesman, Esquire and Kasey H. DeSantis, Esquire (Argued), FOX
ROTHSCHILD, LLP, Wilmington, Delaware, Attorneys for Defendant Quaker
Chemical Corporation.
Adams, J.
INTRODUCTION
This post-trial decision resolves a breach of contract action concerning a postclosing dispute. The parties, who had originally planned to do a straight stock sale,
shifted to an alternative transaction structure to avoid certain tax liabilities for the
buyer. This shift involved the transfer of the sold business’ stock to a holding
company in what is called an “F-Reorganization” pursuant to the Internal Revenue
Code. This F-Reorganization created an additional entity layer between the original
shareholders of the sold company and the company itself. That middle-layer entity
became the seller in the transaction.
After closing, the middle-layer entity began a liquidation, causing its
shareholders—originally the shareholders of the sold entity—to incur taxable gains
from the liquidation proceeds. The middle-layer entity brought this action, seeking
to have the buyer of the business indemnify the seller for the tax liability of its
shareholders, pursuant to a clause in the transaction contract which provides the
“Seller” of the business would be entitled to some tax indemnification from the
buyer.
This case proceeded to trial because the term “Seller” as used in the
transaction document is ambiguous, potentially meaning either that middle-layer
entity or its shareholders. This post-trial opinion resolves the ambiguity, finding the
preponderance of the evidence shows the term “Seller” meant only the middle-layer
1
entity, meaning the buyer is only liable to indemnify for the middle-layer entity’s tax
liability, meaning the buyer is not required to indemnify the ultimate shareholders
for their taxable gains on the liquidation of the middle-layer entity.
Even if the seller/middle-layer succeeded on liability, it is unable to prove
entitlement to damages by a preponderance of the evidence. The shareholders of
this entity, as the ones facing tax liability, alone bore the liability. The Court further
finds that the seller/middle-layer entity has failed to prove the existence of damages
by a preponderance of the evidence, foreclosing the Court from forming any
conclusions regarding damages.
FINDINGS OF FACT1
A. The Parties.
Plaintiff Longshot Holdings, Inc. (“Longshot”) is a Delaware corporation with
a principal place of business in South Dakota.2 Before the instant disputed
transaction, Plaintiff was the owner of the stock of the former Coral Chemical
Company (“Coral”), an Illinois S-Corporation—meaning Coral was treated as a
1
The facts referenced herein are either findings of the Court by a preponderance of the evidence or stipulated by the Parties.
2
D.I. 104 (“PTO”) at 7. While Longshot’s version of the case caption includes various individuals and a trust as plaintiffs, they are no longer parties to this action. Their only cause of action was dismissed on summary judgment. See D.I. 27 (containing the Second Amended Complaint, in which Count I is between Longshot and the defendant, while Count II is between the remaining plaintiffs and the defendant); D.I. 75 at 32:18-23 (dismissing Count II on summary judgment).
2
pass-through entity for federal income tax purposes.3 As the name suggests, Coral
was a chemical company.4
Defendant Quaker Chemical Corporation d/b/a Quaker Houghton (“Quaker”)
is a Pennsylvania Corporation.5 As the name suggests, Quaker is another chemical
company.6
Coral was owned by John Schueneman, a resident of South Dakota; Shane
Schueneman, John’s son, a Wisconsin resident; T. Joseph Schueneman, a Nebraska
resident; and MJS Gift Trust (the “Trust”), a South Dakota trust (the Schuenemans,
with the Trust, the “Individual Shareholders”).7
B. The Schuenemans Decide to Sell Coral.
In 2019, John and Shane Schueneman decided they wished to sell Coral.8 At
the time, the Schuenemans held the majority of Coral’s stock.9 In pursuing a sale,
Coral retained RSM US, LLP to serve as the tax advisor on the deal.10
3
PTO at 7.
4
Id. at 6.
5
Id. at 7.
6
Id.
7
Id.
8
Id. at 8. John Schueneman worked for Coral from 1967 until the transaction. PTO at 7. Shane Schueneman worked for Coral for over 20 years. Id.
9
Id. Prior to the transaction, John Schueneman held 69.5%, Shane Schueneman held 25%, the MJS Gift Trust held 5% and T. Joseph Schueneman, held 0.41%. Id. at 7-8.
10
Id. at 8.
3
Coral began negotiations with Quaker for Quaker to acquire Coral.11 During
negotiations with Quaker, John Schueneman expressed his desire to retire upon
selling Coral.12 On July 23, 2020, the Parties executed a letter of intent for Quaker
to acquire 100% of Coral’s stock.13 The parties commenced due diligence.14
C. The F-Reorganization and MIPA.
In September 2020, Quaker raised concerns about Coral’s S-Corporation
election, noting one of Coral’s shareholders had not signed the S-election form.15
Quaker was concerned that, once acquired, Coral would face significant tax liability
because of the potentially defective election.16
After exploring options for an alternative sale structure, the Parties agreed to
pursue an F-Reorganization of Coral pursuant to the Internal Revenue Code.17 The
F-Reorganization included the following steps: (1) the creation of Longshot, (2) the
conversion of 100% of the Individual Shareholders shares in Coral for 100% of the
Longshot shares, and (3) the employment of certain Internal Revenue Code
elections, such as the pass-through S status for Longshot, all of which ultimately
11
Id.
12
Tr. 1 (Schueneman) at 54:1-2. Citations to the three-day trial transcript (dated 12.2.25, 12.6.25, and 2.23.26) are referenced at “Tr. 1,” “Tr. 2,” and “Tr. 3” respectively. 13
PTO at 8.
14
Id.
15
Id.; Tr. 1 (McGrath) at 228:8-230:3.
16
Tr. 1 (McGrath) at 229:10-231:12.
17
PTO at 9. The F-Reorganization was proposed by Plaintiff’s representatives. Id. at 8 (defining Plaintiff’s representatives); Tr. 1 (McGrath) at 243:3-5.
4
culminated in Longshot owning 100% of Coral, and the Individual Shareholders
owning 100% of Longshot.18 This was implemented in order to cure Coral’s
potentially defective tax election. Notably, Longshot was not obliged to liquidate
after closing the sale of Coral’s stock, meaning the Individual Shareholders could
hold on to their 100% interest in Longshot instead of liquidating the company.19
The F-Reorganization was not implemented without some initial skepticism
from the Individual Shareholders. In a due diligence document entitled the “Certain
Material Issues” list produced by the Parties during negotiations over the potential
transaction structure, Plaintiff called for “a full gross up to the Coral stockholders.”20
Accordingly, drafts of the Membership Interest Purchase Agreement (“MIPA”)
crafted by the parties began including provisions referencing the a “Gross-Up
Amount” to be paid by Quaker to neutralize certain tax consequences of the FReorganization.21 In early drafts of the MIPA, the Gross-Up Amount was set as a
fixed payment.22
During due diligence, RSM created several schedules projecting the various
financial ramifications of the transaction.23 Several of these schedules contain a note
18
PTO at 10.
19
Tr. 3 (Walloch) at 45:9-12 (acknowledging that “nothing in the Internal Revenue Code required that Longshot be liquidated.”). There is dispute over whether Longshot has completed a liquidation. Tr. 2 (McGrath) at 22:10-17.
20
JX 34.
21
See, e.g., JX 127 JX 127 at QUAKER_0025149.
22
See JX 78 at QUAKER_0023651.
23
See, e.g., JX 55; JX 72; JX 163.
5
next to an empty line item set aside to track taxable gains due to a post-closing
liquidation of Longshot, noting “No Liquidation in F Reorg.”24 Both parties
approved RSM’s financial schedules, and the requisite Gross-Up Amount
calculation, prior to closing.25
Ultimately, on December 22, 2020, the Parties executed and immediately
closed on the final MIPA.26 The MIPA contained the following Gross-Up Amount
definition:
“Gross-up Amount” means an amount needed to ensure that Seller
realizes the same amount of after-Tax proceeds from the sale of the
Membership Interests, taking into account receipt of this “Gross-up
Amount,” that Seller would have realized had the transaction
contemplated by this Agreement been a direct sale of 100% of the
capital stock of Pre Conversion Coral to Purchaser (without an election
under Section 338(h)(10) or 338(e) of the Code) versus a sale of the
Membership Interests following the Pre-Closing Reorganization
Transactions. For purposes of this definition, it shall be assumed that
Seller is subject to an income Tax at the highest combined marginal Tax
rate applicable to Seller.27
“Seller” is elsewhere defined as Longshot, with “Owners” being defined as the
Individual Shareholders, collectively.28
The MIPA characterizes the “Seller” as “duly qualified or licensed to do
business and…in good standing in each jurisdiction in which the character of the
24
See, e.g., JX 55; JX 72; JX 163.
25
JX 71; JX 72; JX 118 at QUAKER_0021779; JX 119.
26
JX 127.
27
Id. at QUAKER_0025149.
28
Id. at QUAKER_0025246.
6
properties it owns, operates or leases or the nature of its activities makes such
qualification or licensure necessary…”29
The MIPA also contains a Tax Indemnification Provision, which provides, in
part:
The Purchaser will indemnify and hold harmless Seller from and
against, and will pay to Seller the monetary value of, (i) any Taxes
imposed on the Company in any Post Closing Period and (ii) any
incremental U.S. federal, state and local income Taxes in excess of the
Gross-up Amount incurred or suffered as a result of a redetermination
of the amount of Gross-up applicable to the transaction directly by
Seller on the sale of Membership Interests pursuant to this Agreement.30
Annex 1 of the MIPA identified certain assets which were excluded from the
transaction and retained by Longshot.31
Quaker paid $53,000,000 to Longshot in exchange for the membership
interests in Coral, paying an additional Gross-Up Amount of $643,978 which was
agreed to by the Parties on December 9, 2020.32
D. Post-Closing Calculations and Conflict.
After closing, throughout 2021, RSM prepared various financial schedules for
the Parties tracking the tax consequences of the MIPA, which continued the pre29
Id. at QUAKER_0025160.
30
Id. at QUAKER_0025189.
31
Id. at QUAKER_0025208.
32
PTO at 11.
7
closing trend of not incorporating the tax ramifications for gains arising out of a
liquidation of Longshot in the Gross-Up Amount calculation.33
In an email dated August 21, 2021, a tax partner at RSM posited the Individual
Shareholders would be “stuck with the gain when [they] pull[] the rest of the cash
out” of Longshot via a liquidation and noted, “I am not sure they grasped it,”
referring to the Individual Shareholders.34
On November 24, 2021, RSM provided Quaker with a final Gross-Up
calculation, which now (for the first time) incorporated taxable gains to the
Individual Shareholders arising out of a post-closing liquidation of Longshot.35 The
latest figures called for an additional Gross-Up Amount payment of roughly $1.4
million.36 RSM’s final calculations also identified certain state-level taxes owed by
Longshot itself.37
Longshot began liquidation immediately after closing, when Schueneman
elected to distribute all the proceeds of the sale to the Individual Owners, rather than
hold them at the Longshot entity-level.38 As noted above, this liquidation was neither
called for by the MIPA nor required by the Internal Revenue Code.
33
Tr. 2 (McGrath) at 47:21-48:10; JX 163.
34
JX 173.
35
JX 206; JX 207.
36
JX 206; JX 207.
37
JX 207.
38
Tr. 1 (Schueneman) at 79:14-22.
8
Quaker refused to pay the additional portion of the Gross-Up Amount
demanded by Longshot, so Longshot filed the instant action.
PROCEDURAL HISTORY
Longshot filed this action on April 20, 2022.39 In the ultimately operative
Second Amended Complaint, Longshot raised a single cause of action for breach of
contract against Quaker.40 The Individual Shareholders brought a separate count
alleging breach of contract against Quaker, contending they were beneficiaries under
the MIPA.41 The gravamen of Longshot’s claim was that the final definition for
Gross-Up Amount obliged Quaker to indemnify the Individual Shareholders for tax
liability incurred as a result of Longshot’s liquidation.42
On November 25, 2024, the Court ruled on a motion for summary judgment
filed by Quaker.43 In that ruling, the Court dismissed the Individual Shareholders’
cause of action against Quaker, finding that they were not third-party beneficiaries
who could assert rights under the MIPA.44
The Court could not resolve Longshot’s claim against Quaker on summary
judgment. The Court explained that, because the term “Seller” as used in the MIPA
was ambiguous, potentially referring to just Longshot or also the Individual
39
D.I. 1.
40
D.I. 27.
41
Id.
42
Id.
43
D.I. 73; D.I. 75.
44
D.I. 75 at 32:18-23.
9
Shareholders, the Court could not ascertain whether the tax liability of the Individual
Shareholders incurred because of the liquidation of Longshot was covered under the
MIPA’s Gross-Up Amount.45 If “Seller” was meant to refer to the Individual
Shareholders, their tax liability for the liquidation of Longshot post-closing was
potentially required to be indemnified by Quaker as part of the Gross-Up Amount.
If Seller instead referred only to Longshot, the Individual Shareholders would not
be able to seek a Gross-Up Amount which neutralized their personal tax liability,
since Longshot itself did not sustain the liquidation gains at the entity level.
To resolve this ambiguity, the Parties proceeded to trial, which occurred in
two parts. Fact witness testimony occurred on December 2 and 3, 2025, with expert
testimony on February 13, 2026.46 John Schueneman testified, as did Quaker’s
Michael McGrath.47 Joseph Walloch served as Longshot’s expert witness on
damages.48 RSM’s Sarah Neff was deposed, and her deposition transcript was
45
Id. at 31:1-32:12.
46
D.I. 131. At the time of the transaction, McGrath was the Vice President of Global Tax at Quaker. Tr. 1 (McGrath) at 222:22-223:1.
47
D.I. 131. McGrath was actively involved in the negotiations and due diligence for the transaction, giving him firsthand knowledge regarding the issues in this case. Tr. 1 (McGrath) at 224:9-228:7 (McGrath discussing his familiarity with due diligence, the Gross-Up amount calculations, letter of intent, and discussion with legal and financial advisors). Schueneman, by contrast, testified that although Longshot agreed to the F reorganization, he “d[idn’t] understand these reorganizations very well.” Id. (Schueneman) at 130:12-13.
48
Id.
10
included in the joint exhibit list for trial,49 but Neff did not testify at trial, and the
deposition transcript was not introduced at trial.50
On April 8, 2026, Longshot filed an opening post-trial brief.51 Quaker filed
an answering brief on May 8, 2026,52 with Longshot filing a reply brief on May 27,
2026.53 On June 10, 2026, the Court heard post-trial argument.54 On July 24, 2026,
the Court received the post-trial argument transcript and took the matter under
advisement. 55
STANDARD OF REVIEW
In a bench trial, the judge, as fact-finder,56 “must assess the credibility of each
witness and determine the weight given to the testimony.”57 To reach a verdict on
the issues, the court considers admitted exhibits, the testimony of witnesses, the
Parties’ arguments, and Delaware law.58 The court can consider “each witness’s
means of knowledge; strength of memory; opportunity to observe; how reasonable
or unreasonable the testimony is; whether it is consistent or inconsistent; whether it
49
JX 351.
50
D.I. 141.
51
D.I. 134 (“OB”).
52
D.I. 135 (“AB”).
53
D.I. 137 (“RB”).
54
D.I. 139.
55
D.I. 140.
56
See, e.g., Shallcross Mortg. Co. v. Ewing, 2024 WL 3738713, at *1 (Del. Super. Aug. 9, 2024) (citation omitted).
57
Williams v. Bay City, Inc., 2009 WL 5852851, at *1 (Del. Super. Dec. 23, 2009) (citation omitted).
58
Outbox Sys., Inc. v. Trimble, Inc., 2024 WL 1886089, at *7 (Del. Super. Apr. 30, 2024).
11
has been contradicted; the witnesses’ biases, prejudices, or interests; the witnesses’
manner or demeanor on the witness stand; and all circumstances that according to
the evidence, could affect the credibility of the testimony.”59 After reviewing the
evidence presented, the court is “free to accept or reject any and or all sworn
testimony.”60
A party bears the burden of proving its claims by a preponderance of the
evidence.61 Proof by a preponderance of the evidence means “proof that something
is more likely than not.”62 If the evidence presented by the Parties “is inconsistent,
and the opposing weight of the evidence is evenly balanced, then ‘the party seeking
to present a preponderance of the evidence has failed to meet its burden.’”63 “All
elements of a claim must be proven by a preponderance of the evidence, including
the plaintiff’s damages.”64
59
Zenith Energy Terminals Joliet Hldgs. LLC v. CenterPoint Props. Tr., 2024 WL 3570165, at *3 (Del. Super. July 29, 2024) (citation omitted).
60
Pardo v. State, 160 A.3d 1136, 1150 (Del. 2017).
61
See, e.g., Navient Sols., LLC v. BPG Off. P’rs XIII Iron Hill LLC, 2023 WL 3120644, at *10 (Del. Super. Apr. 27, 2023) (citation omitted).
62
Feenix Payment Sys., LLC v. Blum, 2024 WL 2768386, at *10 (Del. Super. May 29, 2024). 63
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 545 (Del. Super. 2005) (quoting Eskridge v. Voshell, 593 A.2d 589 (Del. 1991) (TABLE)), aff’d, 886 A.2d 1278 (Del. 2005). 64
See, e.g., Buck v. Viking Hldg. Mgmt. Co. LLC, 2024 WL 4352368, at *21 (Del. Super. Sept. 30, 2024) (citation omitted).
12
ANALYSIS
1. The MIPA’s Definition of “Seller” is Ambiguous, Necessitating the
Consideration of Extrinsic Evidence.
As an initial matter, the Parties dispute whether the MIPA is ambiguous,
requiring the Court to evaluate extrinsic evidence.65 The Court need not wade deep
into this issue, as the Court already made this determination at the summary
judgment stage.
In ruling on Quaker’s motion for summary judgment, the Court held “there is
ambiguity in the contract over the term ‘Seller.’ Although Quaker contends that it is
unambiguous that Seller excludes the individual shareholders, the Court is not
convinced of that case.”66 This declaration serves as the binding law of the case, and
the Court will not reevaluate it here.67 The MIPA is ambiguous, with “Seller” being
susceptible to multiple reasonable interpretations, and the Court will consider
extrinsic evidence.68
65
AB at 24; RB at 2.
66
D.I. 75 at 31:12-16 (citation modified).
67
See, e.g., Schneider Nat’l Carriers, Inc. v. Kuntz, 2022 WL 1222738, at *13 (Del. Super. Apr. 25, 2022) (“The court’s prior determinations that the Tractor Acquisition Covenant is susceptible to multiple reasonable interpretations—and is therefore ambiguous—is the law of the case. The law of the case doctrine usually requires that matters previously ruled upon by the same court be put to rest.” (citation modified)).
68
E.g. Sunline Com. Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836, 847 (Del. 2019).
13
2. The Extrinsic Evidence Shows the Gross-Up Amount Does Not
Incorporate the Tax Consequences of Longshot’s Liquidation.
Longshot contends the extrinsic evidence demonstrates the term “Seller”
refers to both Longshot and the Individual Shareholders, meaning the tax
consequences suffered by the Individual Shareholders due to the liquidation of
Longshot should be incorporated into the Gross-Up Amount.69 Quaker contends the
term “Seller” refers only to Longshot, so the Parties never intended for the GrossUp Amount to include gains incurred by Individual Shareholders due to the
liquidation of Longshot.70 The preponderance of the evidence supports Quaker’s
position, meaning Longshot has failed to show a breach of the MIPA.
First, RSM, Longshot’s tax advisor, evinced the mutual understanding of the
Parties that the Gross-Up Amount would not reflect the liquidation of Longshot. In
the pre-closing financial schedules, RSM repeatedly noted that its calculations
anticipated “No Liquidation in F Reorg.”71 The Parties did not revisit this issue
before or immediately after closing, instead accepting RSM’s figures and calculating
the Gross-Up Amount accordingly.72 This indicates that Longshot, RSM, and
Quaker were not contemplating a Gross-Up Amount which reflected payment to the
owners of Longshot for the liquidation of Longshot, meaning the Parties did not
69
OB at 28.
70
AB at 40.
71
JX 55; JX 72; JX 163.
72
JX 71; JX 72; JX 118 at QUAKER_0021779; JX 119.
14
anticipate the Individual Shareholders were “Sellers” entitled to a Gross-Up Amount
reflecting this liquidation.73
Second, this mutual understanding is further reflected by the post-closing
conduct of the Parties. For nine months after closing, Longshot did not raise the
issue of incorporating the liquidation into the Gross-Up Amount.74 Instead, ten
months of recalculations of the Gross-Up Amount passed before Longshot caused
RSM to provide a new calculation which purported to incorporate the consequences
of a liquidation gain.75 Prior to closing, Longshot had not indicated to Quaker that
it would liquidate after the transaction.76 Longshot’s silence on the issue
immediately after closing further evinces a mutual understanding that liquidation tax
ramifications would not be incorporated into the Gross-Up Amount.
73
Longshot relies on the deposition testimony of Sarah Neff of RSM, who did not testify at trial, to argue the “No Liquidation in F Reorg” tag on these documents was a mere placeholder. See RB at 17 (citing JX 351). The Court is not persuaded that a deposition quote unpaired with credible trial testimony supports a finding, by a preponderance of the evidence, in favor of Longshot. This is especially true where the deposition transcript was not introduced into evidence at trial. D.I. 141. The Court also notes McGrath testified that he never asked RSM what “no liquidation in Freorg meant” because “[t]here was no point to. They said it right here,” and there was no “point in [asking]” because a liquidation is not a mandatory part of an F-Reorganization. Tr. 2 (McGrath) at 79:4-80:10. McGrath further testified that he did not “know what [Longshot] intended to do with the money after the sale” process. Id. at 80:11-18.
As Quaker’s expert, George Koutouras, testified, “[i]in the case of an F-reorganization, [a liquidation] is not a foregone conclusion, and so it’s a function of the circumstances of a particular transaction.” Tr. 3 (Koutouras) at 64:17-19.
74
Tr. 2 (McGrath) at 47:21-48:10; JX 163.
75
JX 206; JX 207.
76
Tr. 2 (McGrath) at 22:18-20.
15
Third, the MIPA does not reference a forthcoming liquidation of Longshot.77
If both Parties anticipated a post-closing adjustment to the Gross-Up Amount to
reflect a liquidation, the Court would expect that to at least be referenced in the
MIPA. This is not the case here. Instead, the decision to liquidate was unilaterally
held with Longshot, who did not provide sufficient evidence that Quaker knew of a
forthcoming liquidation until months after closing.78
Fourth, while John Schueneman testified that he informed Quaker of his plans
to retire after closing,79 this itself does not prove that Quaker knew of a forthcoming
liquidation of Longshot after closing. The two decisions are not intrinsically
linked—Longshot could have survived unliquidated while Schueneman retired. The
uncertainty that Longshot would liquidate is further reflected by the fact that
Longshot retained some assets after closing.80
Fifth, in an email dated August 21, 2021—months after the execution of the
MIPA—Phyllis Gannon, a tax partner at RSM noted the Individual Shareholders
would be “stuck with the gain when [they] pull[] the rest of the cash out” of Longshot
and wrote, “I am not sure they grasped it,” meaning Longshot was warned about the
tax ramifications of a liquidation but did not realize the scope of the risk.81 This
77
JX 127.
78
JX 206; JX 207.
79
Tr. 1 at 54:1-2.
80
JX 127, Annex 1; Tr. 2 (McGrath) at 24:13-25:8. See also Tr. 2 (McGrath) at 80:2-10 (noting the absence of a mandatory liquidation in a F-Reorganization).
81
JX 173.
16
reflects the exact opposite of a mutual understanding that a liquidation was inevitable
and would be funded by Quaker.82
Sixth, the MIPA itself, while not always clear and consistent in its term usage,
has separate definitions for “Seller” (meaning Longshot) and “Owners” (meaning
the Individual Shareholders).83 This definition scheme, while not dispositive given
the above-discussed ambiguity concerning the true definition of “Sellers,” supports
a finding that “Seller,” as used in the Gross-Up Amount, does not refer to the
Individual Shareholders. Combining this evidence with the remaining record, the
Court finds the preponderance of the evidence shows Longshot alone was referenced
in the Gross-Up Amount definition.
While the Certain Material Issues list produced by the Parties during deal
negotiations calls for “a full gross up to the Coral stockholders,”84 this document
was produced months before closing, limiting the Court’s reliance on it, and does
not itself outweigh the opposing evidence showing the Parties did not have a mutual
82
In fact, McGrath testified that Quaker’s tax counsel, BDO, was “surprised” about the updated calculation from Longshot and RSM. Tr. 2 (McGrath) at 53:7-16. See also Tr. 2 (McGrath) at 77:23-78:1 (“It seemed evident that Longshot would continue as a going concern”). Schueneman testified he did not expect Quaker would be willing to pay the Gross-Up Amount incorporating liquidation gains when Longshot provided that revised Goss-Up Amount. Tr. 1 (Schueneman) at 93:9-94:10. This testimony indicates the absence of a mutual understanding that the revised GrossUp Amount incorporating liquidation gains was something to which Longshot was entitled under the MIPA.
83
JX 127 at QUAKER_0025146.
84
JX 34.
17
understanding that Longshot was planning a liquidation for which Quaker could
expect a higher Gross-Up Amount.
The Court acknowledges that prior drafts of the MIPA were revised to shift
the Gross-Up Amount from a fixed numerical figure to a to-be-determined amount.85
While this enables post-closing adjustments to the Gross-Up Amount, this
definitional shift itself does not prove that Quaker and Longshot understood that a
liquidation of Longshot was imminent and the Gross-Up Amount would be adjusted
to reflect this liquidation and compensate the Individual Shareholders.
Longshot argues that any interpretation of the definitions of Gross-up Amount
and Seller which renders the tax liabilities of the Individual Shareholders uncovered
renders the Tax Indemnification Provision meaningless, since Longshot is a passthrough entity.86 Longshot’s argument fails because it has some entity-level tax
liability, meaning the provision has some effect even without applying it to
liquidation-related taxes.87 That the entity-level taxes were ultimately minimal and
only state-level is of no moment,88 as the clause still has some effect, even if not a
massive one.89
85
See JX 78 at QUAKER_0023651.
86
OB at 29-31.
87
E.g. JX 207 at LONGSHOT0008514 (calculating entity-level taxes).
88
RB at 11 (discussing the de minimis nature of the taxes owed by Longshot to several states). 89
O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 287 (Del. 2001) (noting contracts should be interpreted in a way that does not render any provisions illusory or meaningless, not in a way that renders all provisions applicable to a particular case (citations omitted)).
18
Longshot highlights the definition of Gross-Up Amount, which provides that
the Gross-Up Amount is to be calculated so as to ensure that “Seller” receives “the
same amount of after-Tax proceeds from the sale…that Seller would have realized
had the transaction contemplated by this Agreement been a direct sale of 100% of
the capital stock of Pre-Conversion Coral to Purchaser.” while Longshot, an entity
created for the F-Reorganization transaction model, could never have sold 100% of
pre-conversion capital, since it never had it.90 According to Quaker, this provision
only calls for a hypothetical computation, in which Longshot is assumed to have held
and sold all of the shares of pre-conversion Coral, and the Gross-Up Amount is
calculated accordingly.91 Ultimately, the Court is not persuaded this shows that
“Seller” should be interpreted to reference both Longshot and its Individual
Shareholders. Quaker is correct that the clause can be interpreted as envisioning a
calculation based on the hypothetical in which Longshot owned all of the stock in
Coral from the outset.
Longshot also highlights the testimony of John Schueneman, who testified
that Seller is elsewhere used to refer to a business “duly qualified or licensed to do
business” in certain jurisdictions, but that Coral, not Longshot, held these licenses,
indicating the flexible use of the word “Seller.”92 While this perhaps further evinces
90
OB at 28 (citing JX 127).
91
AB at 32-33 (citing Tr. 2 (McGrath) at 101:12-102:6).
92
Tr. 1 (Schueneman) at 143:15-144:9.
19
the ambiguity surrounding the definition of the term “Seller,” it does not show that
Seller is intended to reference the Individual Shareholders, as the clause appears to
reference Coral. This testimony does not move the needle towards Longshot’s
desired result.
Considering the foregoing, and the remaining testimony and evidence in the
record, the Court finds Longshot has not proven a contractual obligation for Quaker
to pay a heightened Gross-Up Amount to the Individual Shareholders as “Sellers”
because of the liquidation of Longshot. Longshot has not shown that both parties
understood Quaker would be on the hook for a higher Gross-Up Amount due to the
liquidation. This alone defeats Longshot’s claims, since Longshot has not shown a
contractual obligation which was breached, but the remaining analysis into damages
is provided in the interest of justice.
3. Longshot Has Not Proven Damages.
a. Longshot has not proven its entitlement to damages for taxes incurred by
the Individual Shareholders.
While Longshot cannot show a breach of contract by Quaker, its claims
independently fail due to the failure to prove damages. Longshot must prove it is
entitled to damages by a preponderance of the evidence.93 Longshot must show “the
93
JanCo FS 2, LLC v. ISS Facility Servs., Inc., 344 A.3d 1009, 1038 (Del. Super. 2025) (citation omitted).
20
existence of damages provable to a reasonable certainty, and that the damages flowed
from the defendant’s violation of the contract.”94
Longshot seeks a $1.4 million damages figure constituting that remaining
chunk of Longshot’s proposed Gross-Up Amount which was not indemnified by
Quaker.95 This remainder purportedly equals the taxes incurred by the Individual
Owners because of Longshot’s liquidation.96
Quaker first targets Longshot’s damages figure by pointing out that it is the
Individual Owners, not Longshot, who have faced tax consequences from
Longshot’s liquidation, meaning Longshot itself has suffered no damages even if
Quaker had breached the MIPA.97 Longshot responds by citing Schueneman’s
testimony that Longshot paid the taxes on behalf of the Individual Owners, therefore
incurring damages.98
This argument is unsuccessful. To the extent Quaker can be said to have
breached the MIPA (it did not), the Parties directly aggrieved by Quaker’s conduct
are the Individual Shareholders, not Longshot. The Individual Shareholders—those
who actually lost money—are not a party to this lawsuit. Schueneman’s decision to
have Longshot indemnify the Individual Shareholders for the Individual
94
Base Optics Inc. v. Liu, 2015 WL 3491495, at *16 (Del. Ch. May 29, 2015) (citation modified). 95
OB at 49.
96
OB at 50.
97
AB at 47-48.
98
RB at 24 (citing Tr. 1 (Schueneman) at 93).
21
Shareholders’ taxes99 creates a break in the chain of causation: any injury to
Longshot was directly caused by Schueneman’s decision to have the entity
indemnify its Individual Owners, not Quaker’s purported breach. Beyond citing
Schueneman’s testimony, Longshot provides no caselaw showing that such an
indirect injury to Longshot entitles it to compensation from Quaker.100 Accordingly,
the bulk of Longshot’s damages theory fails.
Further, as Quaker identifies, Longshot’s damages theory fails for a lack of
supporting proof.101 Longshot relies on an RSM-produced schedule calculating a
new Gross-Up Amount which incorporates the gains on the liquidation of
Longshot.102 Several problems arise. First, the figures in that schedule are
uncorroborated.103 Longshot points to Longshot’s tax returns, which contain figures
documenting the gain allocated to each of the Individual Shareholders,104 but
Longshot does not provide proof that those tax returns were used to calculate the
Gross-Up Amount proposed by RSM. Longshot produced records of various checks
99
Tr. 1 (Schueneman) at 92:7-94:16.
100
See HLSP Hldgs. Corp. v. Fortune Mgmt., Inc., 991 A.2d 18 (Del. 2010) (affirming Superior Court’s dismissal of a claim, on summary judgment, where the injury suffered was felt by the shareholders of a corporation, not the corporation itself). The Court further notes that the shareholders did not produce their tax returns to Quaker. Tr. 3 (DeSantis) at 51:18-19. 101
AB at 48.
102
JX 207.
103
Longshot produced no evidence as to who performed the calculation of the final gross-up amount or the formula used.
104
JX 215 at QUAKER_0017144, QUAKER_00171907049, QUAKER_0017154,
QUAKER_0017159.
22
sent to various governmental entities and contends these checks demonstrate
payment was made for liquidation-related taxes, but these checks do not clearly
articulate the purpose for which they were paid.105 Some of the checks were not sent
to government authorities, but were instead paid to RSM or Glenda Schueneman.106
Testimony on what taxes were paid and by whom is contradictory, with Schueneman
claiming to have paid the taxes of all Individual Shareholders, 107 while Walloch
testified the Individual Shareholders were required to pay the taxes themselves.108
With this uncertainty, the Court cannot declare, by a preponderance of the
evidence, that Longshot’s damages figure is reliable, even if it were damages
actually suffered by Longshot for which Longshot could recover. The Court is not
convinced by a preponderance of the evidence that Longshot’s Individual
Shareholders incurred the tax liability reflected in Longshot’s damages figure, due
to a completed liquidation of Longshot, and then paid those taxes. Longshot failed
to prove it is entitled to a remainder of the Gross-Up Amount by a preponderance of
the evidence.
105
JX 327. In addition, the total amount of the checks produced is nearly $3 million, more than double what Longshot is requesting as damages in this action and $1 million more than the $2 million final Gross-Up number in JX207. While it appears that Longshot paid certain governmental entities taxes, the problem here is Longshot fails to provide evidence that the numbers in the K-1 forms formed the basis of the gross-up calculation by RSM (JX 207). 106
See e.g. JX 327 at LONGSHOT0012525 (a check directed to RSM, not a government body and LONGSHOT0012528 (paid to Glenda Schueneman)).
107
Tr. 1 (Schueneman) at 90:11-17.
108
Tr. 3 (Walloch) at 51:2-10.
23
b. Longshot is not entitled to damages for a purported miscalculation of the
Gross-Up Amount or prejudgment interest.
Longshot also pursues $395,109 because of a purported calculation error in
the Gross-Up Amount already paid by Quaker in which RSM apparently used a
different tax rate than that called for in the MIPA, deflating the figure.109 Longshot
contends that RSM (its own advisor) used actual tax rates instead of maximum tax
rates, causing the deflation.110
As an initial matter, it is unclear under which theory Longshot pursues this
claim. Longshot’s post-trial briefing otherwise makes no reference to a breach claim
based on this issue. Further, Longshot’s briefing makes no reference to the elements
of a promissory estoppel or quasi-contract cause of action. As noted above, it was
RSM (working on behalf of Longshot) who made the error, not Quaker.
Accordingly, Longshot seeks payment of additional funds in the absence of a theory
justifying their remission. This claim for damages fails on that basis alone.
Longshot claims these damages based on its expert’s report, which does not
articulate whether or how these damages would be applicable if Longshot failed to
prove that Quaker must pay damages for the Individual Shareholders’ tax liability—
the very situation present here.111
109
OB at 51.
110
Id.
111
JX 287 at 18.
24
The definition for Gross-Up Amount in the MIPA provides that, for purposes
of the Gross-Up Amount, the applicable tax rate shall be the maximum tax rate
applicable to Seller.112 As discussed above, the Court is not convinced that Seller
should be interpreted to refer to anyone but Longshot, a pass-through entity not
subject to any federal tax rate. Indeed, at trial, Quaker’s expert pointed out that the
tax rate employed in the Gross-Up Amount is arguably too high since the applicable
federal rate is zero.113
The Court is not persuaded that the preponderance of the evidence shows
Longshot is entitled to a higher Gross-Up Amount based on an increased applicable
tax rate or that the figure proposed by Longshot to remedy this purported issue is
accurate.
Because Longshot failed to prove any of its claims, its claim for prejudgment
interest is likewise denied.114
CONCLUSION
The Court finds as follows:
1. Longshot failed to prove, by a preponderance of the evidence, a breach of the
MIPA.
112
JX 127 at QUAKER_0025149.
113
Tr. 3 (Koutouras) at 78:11-21.
114
OB at 51.
25
2. Failure to prove a breach notwithstanding, Longshot failed to prove any
damages for its claims.
If there are any open issues not addressed or mooted by this post-trial opinion,
the Parties shall notify the Court by letter within five days. Otherwise, this opinion
shall serve as the final judgment in this action.
IT IS SO ORDERED.
26