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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: May 5, 2016

Claim for Not Paying Escrowed Funds Timely Even Though Claim for Failure to Create Escrow Was Not

On April 28, 2016, the First Department issued a decision in Golden Technology Management, LLC v. NextGen Acquisition, Inc., 2016 NY Slip Op. 03248, holding that a claim for failing to pay funds out of escrow was timely even though a claim for failure to establish the escrow would have been untimely, explaining:

Plaintiffs allege that defendants breached the payment provisions of a stock purchase agreement (the contract), which required defendant NextGen Acquisition, Inc. to pay a purchase price consisting of a cash payment to be made at closing and a “holdback” amount, defined in the agreement, to be placed into an account of the acquired company, nonparty NextGen Fuels, Inc., and held for a period of no more than one year. The contract created two separate obligations — an obligation to deposit funds into a separate account at closing and an obligation to pay those funds to plaintiffs one year later. Plaintiffs commenced this action against NextGen Acquisition and allegedly related entities almost seven years after the closing date but less than six years after the holdback amount was to be distributed from the company’s account.

While plaintiffs argue that the contract did not expressly require deposit of the holdback amount “at closing,” the relevant provisions of the contract clearly required the deposit to be made at or about the time of closing, so that the holdback would be available to either indemnify the buyers or make payment to the sellers, pursuant to the contract. A cause of action for breach of the deposit obligation would therefore be time-barred. However, plaintiffs do not seek to enforce the deposit obligation. They seek to enforce the payment obligation only, and the cause of action for breach of that obligation accrued one year after closing, i.e., when plaintiffs obtained “a legal right to demand payment.”

(Internal quotations and citations omitted). Unfortunately for the plaintiffs, the court went on to dismiss their claim on other, substantive, grounds.

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