JanCo FS 2, LLC v. ISS Facility Services, Inc.

JanCo FS 2, LLC v. ISS Facility Services, Inc.

C.A. No. N20C-09-104 EMD CCLD, Delaware Superior Court, Complex Commercial Litigation Division (August 21, 2025). Before Davis, J.

Relevant Facts

• JanCo FS 2, LLC, a portfolio company of Centre Partners, acquired ISS Facility Services, Inc.'s North American cleaning, hygiene, and pest-control business (the "Acquired Business") through an Asset Purchase Agreement (APA) in a transaction that closed on September 30, 2019, for approximately $80 million.

• ISS Facility Services was a subsidiary of ISS A/S, a Denmark-based multinational providing facility management services. The Acquired Business generated approximately $500 million in annual revenue from over 2,000 client contracts.

• During the sale process in 2019, the Acquired Business experienced customer attrition (loss of the Amazon contract worth $56 million/year, and notice from Ingram Micro worth $10 million/year) and operational challenges including difficulties transitioning to a new ERP system (IFS).

• The APA contained detailed representations and warranties by ISS, including an "Absence of Changes Representation" (Section 3.6) warranting no material adverse changes since March 31, 2019, and a "Material Contracts Representation" (Section 3.14) regarding the status of material contracts.

• The APA included a "materiality scrape" provision (Section 7.2(a)) that removed materiality qualifiers from representations for purposes of determining indemnification, effectively lowering the threshold for breach.

• ISS placed $5 million of the purchase price in a holdback account to secure potential indemnification obligations, with disputes to be resolved by the court rather than arbitration.

• After closing, JanCo discovered that several major customer contracts were lost or at risk, and the IFS ERP system was causing significant operational problems. JanCo claimed these issues constituted breaches of ISS's representations and warranties.

• ISS counterclaimed for a working capital adjustment of $3,390,119, alleging JanCo had understated closing working capital, and for $1,494,747 related to JanCo's failure to obtain Ingram Micro's consent to the assignment of its contract.

Legal Issues

• Whether ISS breached the Absence of Changes Representation (Section 3.6) by failing to disclose material adverse changes that occurred between March 31, 2019 and the September 30, 2019 closing date.

• Whether ISS breached the Material Contracts Representation (Section 3.14) by failing to disclose the loss or threatened loss of material customer contracts.

• Whether ISS committed fraud or willful misconduct in connection with its representations and the sale of the Acquired Business, which would remove the contractual cap on indemnification.

• Whether JanCo proved damages resulting from ISS's breaches of the APA representations and warranties.

• Whether ISS was entitled to a working capital adjustment and reimbursement for the Ingram Micro consent issue on its counterclaims.

• Whether ISS was entitled to release of the $5 million holdback amount.

Positions of the Parties

• JanCo argued ISS breached multiple APA representations by concealing customer losses (Amazon, Ingram Micro, and others), ERP system failures, and operational deterioration during the sale process. JanCo sought damages exceeding the $5 million holdback and alleged fraud/willful misconduct to overcome the contractual indemnification cap.

• JanCo contended that ISS's representations were false when made because ISS knew of significant customer attrition and operational problems but failed to disclose them, and that the materiality scrape provision meant even non-material misstatements constituted actionable breaches.

• ISS argued that JanCo conducted extensive due diligence, was aware of the key customer issues (including Amazon and Ingram Micro), and that the APA's representations were accurate when made. ISS contended JanCo could not prove justifiable reliance for its fraud claims.

• ISS counterclaimed that JanCo owed $3,390,119 for a working capital adjustment based on JanCo's understatement of closing working capital, and $1,494,747 for JanCo's failure to obtain Ingram Micro's consent to contract assignment as required by the APA.

• ISS also sought release of the entire $5 million holdback, arguing JanCo's indemnification claims failed on the merits.

Decision of the Court and Reasons

The court issued a mixed ruling after a bench trial.

On JanCo's breach of contract claims, the court found that ISS breached the Absence of Changes Representation (Section 3.6) because the materiality scrape lowered the threshold, and changes that occurred between the reference date and closing (including customer losses and ERP issues) constituted breaches when materiality qualifiers were removed. However, the court found that JanCo failed to prove damages caused by these breaches. JanCo's damages model was rejected because it relied on a comparison between projected and actual performance without adequately isolating losses caused by the specific breaches from losses caused by other factors, including JanCo's own post-closing operational decisions and the COVID-19 pandemic.

On JanCo's fraud and willful misconduct claims, the court ruled against JanCo. The court found that JanCo could not establish justifiable reliance because JanCo's own due diligence revealed many of the issues it later claimed were concealed. The APA also contained an anti-reliance clause (Section 3.27) limiting JanCo's ability to claim reliance on extra-contractual representations.

On ISS's counterclaims, the court ruled in ISS's favor. ISS proved it was entitled to a working capital adjustment of $3,390,119 based on the contractual methodology in the APA. ISS also proved JanCo owed $1,494,747 for failing to obtain Ingram Micro's consent to the assignment of its contract, a requirement under the APA that JanCo neglected.

On the holdback, the court found ISS was entitled to the release of the full $5 million holdback amount because JanCo failed to prove any damages entitling it to indemnification from the holdback. The net result was that JanCo owed ISS money: the working capital adjustment plus the Ingram Micro consent amount, offset by the holdback release.