An AIG unit has partially defeated a lawsuit over an acquisition gone wrong, but one of the buyer’s key claims will move forward.
The Delaware Superior Court ruled Monday in Surteco North America, Inc. v. AIG Specialty Insurance Company, dismissing two of three breach-of-contract claims Surteco brought against AIG Specialty Insurance Company, an AIG subsidiary, under a representations and warranties insurance policy.
Surteco North America, headquartered in Myrtle Beach, South Carolina, makes decorative surface materials for furniture and flooring. In December 2022, it agreed to buy Omnova Solutions, a chemical company that makes a protective floor coating, based in Beachwood, Ohio. To protect against breaches of Omnova’s representations in the deal, Surteco bought a buyer-side R&W policy from AIG.
Omnova’s growth depended heavily on its top customer, Shaw Industries, a flooring manufacturer based in Dalton, Georgia. After the deal closed, Shaw terminated its relationship with Omnova. Surteco sued AIG, alleging Omnova had breached three representations it had made to Surteco: that no material adverse effect had occurred, that Omnova’s business had continued on its “ordinary course,” and that Omnova had not received written notice of a top customer’s intent to scale back purchases.
“During the time Omnova solicited bids from potential buyers, its relationship with Shaw began to change,” Judge Kathleen M. Miller wrote. Omnova told Surteco that weak sales at one of its plants was due to “normal market flunctions,” but failed to report written correspondence from Shaw saying that it intended buy less Omnova product. Shaw also prohibited Omnova from visiting its plant and refused to negotiate a renewal with Shaw as its contract neared expiration.
Nonetheless, the judge dismissed the material-adverse-effect claim, finding Omnova’s “‘awareness’ that Shaw may take actions sometime in the future” wasn’t sufficient. The judge said Surteco needed to show that Omnova had suffered an event that threatened its long-term earnings during the six months leading up to the sale, known as the representation period.
She likewise dismissed the ordinary-course claim, since Surteco’s allegations “do not implicate any action taken by Omnova that deviated from the ordinary course,” relying instead solely on Shaw’s own conduct.
But the court let the top-customer claim survive, ruling that Surteco adequately alleged Omnova received written correspondence reflecting Shaw’s intent to cut back purchases and failed to disclose it.
The court also granted Surteco leave to amend its dismissed claims.