Chertok v. Zillow, Inc., C.A. No. 2019-0849-LWW (Del. Ch. Oct. 18, 2021)

Plaintiffs, a former co-founder and director of NMD Interactive (“Chertok”) and an LLC that he managed, brought a breach of contract action against Zillow seeking merger consideration and dividends in connection with Zillow’s 2013 acquisition of NMD. Over the course of six years, Zillow and plaintiffs engaged in negotiations relating to payment of consideration and dividends that Zillow continued to withhold based on plaintiffs’ alleged failure to comply with conditions in the merger agreement. Relevant to the analysis in this case, starting in 2011, NMD brought litigation unrelated to the merger against Chertok in New York federal court, which concluded in 2017.

In October of 2019, more than six years after the merger’s closing, plaintiffs filed a complaint in the Delaware Court of Chancery alleging that Zillow breached NMD’s charter by withholding the disputed merger consideration and dividends. Zillow moved to dismiss the complaint arguing that the charter was not controlling and that plaintiffs had failed to comply with conditions to payment in the merger agreement. Additionally, Zillow argued that plaintiffs’ claims were time-barred as they were filed over three years after the expiration of the applicable statutory period. 

The Court agreed that the plaintiffs’ claims were time-barred and dismissed the action. Noting that plaintiffs sought legal rather than equitable relief, the Court applied the statute of limitations and its tolling doctrines. The Court found no “unusual conditions” or “extraordinary circumstances” that would excuse the plaintiffs’ delay or other grounds for tolling. Plaintiffs argued that the statutory period should be tolled because Chertok “pursued claims continuously” in the New York litigation. The Court rejected this argument finding that because the New York litigation did not challenge the Zillow merger and because Chertok was not a claimant, the claims Chertok attempted to bring in Delaware were not “pursued continuously” through the New York litigation. Plaintiffs also argued that Zillow should be equitably estopped from asserting that plaintiffs’ claim was time-barred because, by arguing that the merger agreement required compliance with certain conditions to payment, Zillow was taking a position inconsistent with “one to which [Zillow] acquiesced.” Finding that Zillow consistently took the position that there were conditions to payment in the merger agreement, the Court found no “acquiescence” exception to the application of the three-year statutory period.