The Problem of Locked Up Money: The PayQuik.com Dispute
Nothing is more frustrating than expecting a check and then not getting it, and no one knows that better than the former shareholders of PayQuik.com. In a complaint filed in Delaware federal court recently, the representative of the former stockholders of PayQuik sued Citibank )PayQuik’s acquirer) and U.S. Bank (the escrow agent) to compel the release of the balance of the escrow. At the closing of the transaction, Citibank placed 10% of the merger consideration in an escrow account with U.S. Bank. Near the end of the escrow period, Citibank brought an indemnification claim, but the stockholder representative asserted that Citibank submitted this claim one day after the escrow period had expired. As is typical, the escrow bank took no position on the dispute, so the stockholder representative decided to seek a court order directing release of the funds. This raises an interesting question that we have come across on other transactions: What options do the former stockholders of an acquired company have if the acquirer brings a claim near the end of an escrow period that the stockholders believe is either invalid or of little merit?
