Judge Sides With Bank in $30M Escrow Dispute

In 2022, Fifth Third Bank entered into a merger agreement to acquire Dividend Solar Finance LLC, a deal that included a $30 million escrow holdback to indemnify the bank in case of post-sale liabilities. The lock-up period for that escrow fund was set to expire on August 10, 2023, after which the funds would be released to the seller, LL Funds LLC, a Philadelphia-based private equity firm. According to the terms of the agreement, Fifth Third was entitled to make an indemnification claim against the escrowed funds only if it submitted notice within 20 days of receiving written notice of any third-party claim.

For several months after the acquisition, Fifth Third did not assert any claim. But on the very day the lock-up period was to end, the bank issued an indemnification notice. It cited an ongoing multistate investigation into Dividend's lending practices involving solar panel companies such as PowerHome Solar—also known as Pink Energy—which had filed for bankruptcy in late 2022. LL Funds challenged the notice, arguing that it was untimely and failed to meet the contractual standards.

The Allegations Over Timing and Validity

LL Funds alleged that Fifth Third was aware of the risks well before August 2023 and should have submitted its indemnification notice much earlier. According to court filings, Dividend received its first civil investigative demand (CID) from a coalition of state attorneys general as early as September 2022. LL Funds asserted this should have triggered the clock for indemnification under the agreement.

However, U.S. District Judge Lorna G. Schofield rejected that timeline. In her Friday order, she clarified that “no action was verbally ‘commenced or threatened’ against Dividend until Aug. 4, 2023,” and that the threat was not communicated in writing until January 2024. Thus, the August 10 indemnification notice was “well within” the timeframe stipulated by the merger agreement.

Schofield also disagreed with LL Funds’ argument that earlier CIDs were sufficient to trigger the indemnification clause. “Each of the Power Home CIDs and the AG coalition letter appeared on its face to focus on the misconduct of solar panel installers,” the judge wrote. “None of these documents commenced or threatened an ‘action … that may give rise to’ an indemnification claim because Dividend was facing the possibility of only derivative liability.”

She added, “Under the merger agreement ... there’s no indemnification for derivative liability.”

The Escrow Funds and Counterclaim

Despite the pending dispute, the parties had entered into an agreement in December 2023 to release the escrowed funds in three tranches, provided the attorney general coalition did not issue a “written demand” for recovery of specific financing fees. Fifth Third released the first $10 million as scheduled, but withheld the remaining $20 million after receiving a follow-up letter in January 2024 from the investigating attorneys general.

Judge Schofield upheld Fifth Third’s decision to withhold the remaining amount and ruled in favor of the bank on its counterclaims. As a result, LL Funds is required to return the $10 million already disbursed. The court found that Fifth Third’s notice “provided a good faith estimate of potential losses” and included “reasonable detail” supporting its indemnification claim, even if the investigation had not yet resulted in a formal legal action.

Barred From Taking Over Defense

LL Funds had also attempted to assume control of Dividend’s legal defense in the attorney general investigation. The merger agreement allowed the seller 30 days to do so after receiving an indemnification notice. However, LL Funds only provided its intent to assume the defense on July 23, 2024—well past the March 27, 2024 deadline.

Judge Schofield ruled the attempt was untimely: “Because plaintiff did not notify defendant that it was exercising its right to assume the defense until July 23, 2024, plaintiff’s notification was untimely.”

The Law Firms Involved

LL Funds is represented by Binder & Schwartz LLP, with attorneys Wendy Helene Schwartz, Lauren Kathryn Handelsman, and Sarah Dowd appearing in the case.

Fifth Third Bank is represented by Zeichner Ellman & Krause LLP, including attorney Michael E. Sims, and Vorys Sater Seymour and Pease LLP, represented by Nathaniel Lampley Jr., Victor A. Walton Jr., Jacob D. Mahle, and Wesley R. Abrams.

What’s Next?

While Friday’s ruling decisively favored Fifth Third, it remains to be seen whether LL Funds will appeal the decision or accept the judgment. For now, the decision reaffirms the enforceability of indemnification timelines and notice provisions in post-M&A escrow arrangements. It also underscores the importance of distinguishing between direct and derivative liability in post-sale disputes—a critical distinction that played a central role in the court’s reasoning.