A recent Delaware Court of Chancery opinion is an important tool for the toolbox of corporate and commercial litigators for upholding what the court refers to as “a survival clause”–which provides a contractually shortened period by which claims must be made. HBMA Holdings, LLC v. LSF9 Stardust Holdings LLC, C.A. No. 12806-VCMR (Del. Ch. Dec. 8, 2017).
Brief Background: The facts of this case involved indemnification claims that were based on a contract. That contract provided that a notice of claims for indemnification needed to be made within 30 days of the matter giving rise to such a claim. The court found that the notice of claim was not given within that 30-day period.
Key Principles: The court explained that Delaware enforces shortened statute of limitations based on contracts if the period is considered reasonable. See footnotes 53 and 54. The court found that a provision in the contract in this case that notice of claims for indemnification needed to be made within 30 days was enforceable.
Referring to these types of contract provisions as “survival clauses,” the court explained that Delaware courts uphold unambiguous survival clauses that, in effect, serve as shortened statutes of limitations. The claim in this case was barred because the applicable 30-day period passed, and therefore the claim was barred. This decision and the explanation of the law it applies, has great relevance to many similar contractual provisions.
The court also addressed the perennial issue of substantive, as compared to procedural, arbitrability. That analysis was applied in the context of an Earn Out dispute in which the agreement required the parties to submit certain issues to a neutral accountant.