Kristen Wright v. Clinton Phillips ( 2020 )

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
June 22, 2020
Richard E. Berl, Jr. Stephen A. Spence
HUDSON, JONES, JAYWORK & BAIRD MANADLAS BROCKSTEDT,
FISHER, LLP LLC
34382 Carpenter's Way, Suite 3 1413 Savannah Rd., Suite 1
Lewes, DE 19958 Lewes, DE 19958
RE: Wright v. Phillips, C.A. No. 11536-VCG; Final Order
Dear Counsel:
I have your letters on the parties’ remaining disagreements regarding a final
order. First, the Petitioner, Kristen Wright, was a one-half owner in the businesses
at issue (the “Business”) until December 21, 2017 (the “Transfer Date”). Since that
time, she has enjoyed neither her share of the Business, nor the cash value of that
interest (the “Purchase Price”). Conversely, the Respondent, Clinton Phillips, has
had the entirety of the Business, as well as the use of the cash value of the purchase
price. Accordingly, interest from the time of the Transfer Date is required in equity.
Contrary to the Respondent’s position, this is not a penalty; it is an adjustment
necessary to make the Petitioner whole. The Respondent points to the fact that he
made some monthly payments against the Purchase Price. He argues this should
relieve him of any obligation to pay pre-judgement interest. I find to the contrary;
because the total of those payments has been deducted from the purchase price as
though made on the Transfer Date, he is avoiding an amount of interest, not over-
incurring it. Pre-judgement interest must run from December 21, 2017.
I turn to the applicable rate. The legal rate for prejudgment interest is 5% over
the discount rate; 1 however, this may be adjusted, as equity requires, in this Court’s
discretion. 2 I note the Business at issue is a modest recycling concern previously
operated by the litigants as husband and wife. It was not entered as an arms-length
investment or commercial venture. Presumably, the Business does not have access
to commercial loans at the rates that larger entities would enjoy, nor does the record
suggest it is in possession of amounts of cash that would provide lucrative
investment opportunities. The Petitioner, as an individual, would not have been able
to invest the proceeds, had they been paid on the Transfer Date, at anything like the
legal rate. In other words, the legal rate of interest appears excessive. I also note
that this action has proceeded slowly for reasons not solely attributable to the
1
See 6 Del. C. § 2301(a) (“Where there is no expressed contract rate, the legal rate of interest
shall be 5% over the Federal Reserve discount rate. . .”).
2
E.g., Glidepath Ltd. v. Beumer Corp. 2019 WL 855660, at *25 (Del. Ch. Feb. 21, 2019) (citing
Summa Corp. v. Trans World Airlines, Inc., 540 A.2d 403, 409 (Del. 1988)) (noting Chancery’s
“broad discretion” to fix a pre-judgement interest rate); Seibold v. Camulos Partners LP, 2012
WL 4076182, at *24 (Del. Ch. Sept. 17, 2012) (“[A] court of equity has broad discretion, subject
to principles of fairness, in fixing the prejudgment interest rate to be applied.” (quoting Summa
Corp., 540 A.2d at 409)).
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Respondent, as the parties indulged in extensive litigation over adjustments to the
purchase price. For all these reasons, I find that the legal interest rate—which the
Petitioner calculates at 7%—is therefore likely to create a windfall to the Petitioner.
I take judicial notice that the annual inflation rate over the period in question
has fluctuated, but has averaged around 2% and never exceeded 2.44%. 3 Given that
fact, as well as the nature of the Business, the relationship of the parties and the
course of the litigation, I find this is the rare case where imposition of interest at the
legal rate would offend equity. I find a rate of interest of 3% to be appropriate.
Finally, the Petitioner seeks an additional $26,594.50 adjustment to the
purchase price. After a long process involving litigation of adjustments to the
purchase price, I found, by Memorandum Opinion of May 28, 2020, that the final
amount owed for the Petitioner’s share was $859,297. That is the amount to which
interest must be applied. The Petitioner, however, points out that the Receiver here
proposed, and I adopted, the payment of both parties’ legal fees from the Business.
The Petitioner now seeks the further adjustment to purchase price, to compensate
her for legal fees that she asserts that she paid out of pocket, beyond her fees paid
3
See Federal Reserve Bank of Minneapolis, Consumer Price Index, 1913-,
https://www.minneapolisfed.org/about-us/monetary-policy/inflation-calculator/consumer-price-
index-1913- (summarizing data provided by the United States Department of Labor, Bureau of
Labor Statistics, available at https://www.bls.gov/cpi/home.htm regarding the historical
Consumer Price Index).
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for from the Business. This request, I find, comes too late. The time for adjustments
has passed, and any further rights to adjustment have been waived by both parties.
The parties should provide me with a form of final order consistent with this
Letter Opinion as well as my Memorandum Opinion of May 28, 2020.
To the extent the foregoing requires an order to take effect, it is SO
ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
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