This post was prepared by an Eckert Seamans associate.
Repudiation coupled with non-performance establishes a total breach of the contract for statute of limitations purposes, according to this recent decision that clarifies and perhaps restates Delaware law on this issue. Still, in Bioveris Corp. v. Meso Scale Diagnostics, LLC, C.A. No. 8692-VCMR (Del. Ch. Nov. 2, 2017), Vice Chancellor Montgomery-Reeves found that the plaintiff’s claims were barred by the doctrine of laches and that no exception to the tolling of the statute of limitations was applicable.
Background: Plaintiff, Bioveris, and defendant, Meso Scale Technologies (Meso Technologies”), formed a joint venture, Meso Scale Diagnostics (“Meso Diagnostics”), to pursue technology developments. The parties entered into a joint venture agreement (“JVA”), the terms of which addressed dispute resolution procedures, including a negotiation and arbitration phase, and specifically tolled the statute of limitations for claims during the negotiation and arbitration phases.
In resolution of a prior legal action, Bioveris agreed to sell its 31% interest in Meso Diagnostics to Meso Technologies pursuant to a Settlement Agreement.
After Meso Technologies acquired Bioveris’s 31% interest in the joint venture, the parties complied with the buyout protocol of the JVA terms which had been incorporated into the Settlement Agreement. On May 28, 2010, however, Meso Technologies paid a smaller installment than required and notified Bioveris that its reduced payment “represents the remaining balance due.” Exactly three years later, on May 28, 2013, Bioveris notified Meso Technologies that it was initiating the negotiation phase under the JVA to dispute the balance of the remaining sums due Bioveris, and purportedly tolling the statute of limitations on that claim.
Bioveris soon thereafter filed an action seeking seeking monetary damages for the remaining balance owed for its interest in the joint venture, appointment of a representative to the joint venture’s board, and legal fees. Defendants moved for summary judgment, arguing that the three year statute of limitations had expired, and laches barred plaintiff’s claims.
Analysis: Vice Chancellor Montgomery-Reeves ruled that when a plaintiff is seeking a legal remedy in the Court of Chancery under ancillary jurisdiction, the Court will apply the applicable statute of limitations under the doctrine of laches “absent tolling or extraordinary circumstances.” The Court found that plaintiff should not be placed in a better position in a court of equity than it would have in a court of law.
Bioveris argued that Meso Technologies’ letter of May 28, 2010 did not constitute a total repudiation of its ongoing payment obligations owed to Bioveris, and thus did not trigger the statute of limitations with respect to all future payments owed to Bioveris. In other words, Bioveris argued that since future payments remained under the buyout schedule, the statute of limitations only began with repsect to the sums due on May 28, 2010.
The Court rejected this argument, and held that a “repudiation coupled with simultaneous non-compliance gives rise to an action for total breach.” The Court noted that a bare repudiation of future obligations does not per se trigger a total breach of an installment contract. The Court further held that the total breach present in this action “trigger[s] the statute of limitations as to the total amount due under the contract.”
Accordingly, the Court ruled that plaintiff’s claims were barred by the doctrine of laches.
Takeaway: The Court’s statement of the law regarding the triggering of the statute of limitations upon breach of an installment payment, coupled with repudiation, brings clarity to Delaware law on this important issue.