Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Co.

Chicago Bridge & Iron Company N.V. (“Chicago Bridge”) and Westinghouse Electric Company (“Westinghouse”) had an extensive collaboration and complicated commercial relationship involving the construction of nuclear power plants by Chicago Bridge’s subsidiary, CB&I Stone & Webster, Inc. (“Stone”). As delays and cost overruns mounted, this relationship became contentious. To resolve their differences, Chicago Bridge agreed to sell Stone to Westinghouse. The purchase agreement was unusual in a few key respects: (1) the purchase price at closing by Westinghouse was set in the contract at zero ; and (2) Westinghouse agreed that its sole remedy if Chicago Bridge breached its representations and warranties was to refuse to close, and that Chicago Bridge would have no liability for monetary damages post-closing (the “Liability Bar”). In contesting Chicago Bridge’s calculation of the Final Purchase Price, Westinghouse asserted that Chicago Bridge (which had been paid zero at closing and had invested approximately $1 billion in the plants in the six months leading to the December 31, 2015 closing) owed it nearly $2 billion. Westinghouse conceded the overwhelming percentage of its claims were based on the proposition that Chicago Bridge’s historical financial statements (the ones on which Westinghouse could make no post-closing claim) were not based on a proper application of generally accepted accounting principles (“GAAP”). Chicago Bridge and Westinghouse unsuccessfully attempted to resolve their differences. But, once it was clear that Westinghouse would seek to have the Independent Auditor review Chicago Bridge’s accounting practices, Chicago Bridge filed this action seeking a declaration that Westinghouse’s changes based on assertions that Stone’s financial statements and accounting methodologies were not GAAP compliant were not appropriate disputes for the Independent Auditor to resolve when those changes were, in essence, claims that Chicago Bridge breached the Purchase Agreement’s representations and warranties and therefore were foreclosed by the Liability Bar. Westinghouse moved for judgment on the pleadings, arguing that the Purchase Agreement established a mandatory process for resolving the parties’ disagreements. The Court of Chancery ruled in favor of Westinghouse, reading the process the Purchase Agreement set out for calculating certain payments (called the “True Up”) as providing Westinghouse with a wide-ranging right to challenge any accounting principle used by Chicago Bridge. The Delaware Supreme Court concluded the Court of Chancery erred in interpreting the Purchase Agreement this way. The Court therefore reversed and required entry of a judgment on the pleadings for Chicago Bridge. View "Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Co." on Justia Law