Practical Advice on Escrow Disputes

Andrew Pearce

Practical Advice on Escrow Disputes
February 2019

Escrow Disputes

Most M&A transactions contain escrow provisions, in which a portion of the purchase price is placed in a third party escrow account to cover subsequent working capital adjustments, claims for indemnification, or breaches of a seller’s reps and warranties to the buyer. As with any type of complex business transaction, disputes can arise over who is entitled to receive those escrowed funds. In his Continuing Legal Education (CLE) presentation to the Mergers & Acquisitions Section of the Houston Bar Association, Andrew Pearce spoke about his experience litigating disputes involving escrow holdbacks to illustrate helpful considerations, potential pitfalls, and the sometimes unintended consequences of these provisions.

The presentation was centered around these key takeaways:

  • Materiality language in SPA was material
    – What is “material”?
    – How do you determine “material”?
  • Anticipated damages were insufficient
    – Should a buyer be entitled to claims against an escrow fund based only on anticipated damages, or must they be actual damages already incurred?
  • Right of Set-Offset enabled Buyer to avoid paying on Seller Notes
    – Should a buyer be entitled to set-off amounts owed in seller notes or should claims be limited to the escrow fund?

Download a PDF of the presentation from our speaker:
Andrew Pearce, Shareholder – Litigation Group Chair