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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Morris James Blogs
Showing 5 posts in Earn-Out.
Delaware Superior Court Interprets Contractual Language Governing Earn-out Payment
As this decision demonstrates, Delaware courts will enforce the plain and ordinary meaning of contractual terms governing an earn-out payment, including the process by which a payment is to be calculated, noticed, and contested. More ›
SharePost-Closing Earn-Out Claims Dismissed, But Fiduciary Duty Claims Against Former Director Survive
Neurvana Medical, LLC v Balt USA, LLC, C.A. No. 2019-0034-KSJM (Del. Ch. Feb. 27, 2020).
Neurvana Medical, LLC (“Neurvana”) sold a medical device to Balt USA, LLC (“Balt USA”), largely for post-closing consideration if the device obtained regulatory approval. Balt USA was required to use commercially-reasonable efforts to obtain the approval, but otherwise, Balt USA had sole discretion over the process. More ›
ShareDelaware Superior Court Distinguishes Between Affirmative and Negative Covenants in Earnout Dispute
Quarum v. Mitchell Int’l, Inc., C.A. No. N19C-03-087 AML CCLD (Del. Super. Jan. 21, 2020).
Under Delaware law, parties may structure covenants in an earnout agreement as affirmative (mandating action) or negative (prohibiting action). Given the important differences in the obligations these types of covenants impose, as illustrated by this decision, parties should carefully consider the contractual language in drafting. More ›
ShareDelaware Superior Court Finds Purchase Agreement Language Limits the Scope of Possible Claims Concerning Earn-Out Dispute
Under an asset purchase agreement (“APA”), the purchaser (“PCM”) acquired substantially all of the assets of the “En Pointe” business from the seller (“Collab9”). The APA provided for an earn-out payment, calculated upon a percentage of En Pointe’s Adjusted Gross Profit over several years. The APA provided that the purchaser “shall have sole discretion with regard to all matters relating to the operation of the Business.” The agreement further disclaimed any express or implied obligation on the part of the purchaser to take any action, or omit to take any action, to maximize the earn-out amount, and stated that the purchaser “owes no duty, as a fiduciary or otherwise” to the seller. The APA also contained a clear combined integration and anti-reliance provision. More ›
ShareChancery Addresses Earn-Out Dispute and Referee Process
Claims seeking to enforce earn-outs are frequent. Parties often contractually agree that earn-out disputes are subject to an expert determination, rather than litigation in a judicial forum, and courts often dismiss disputes on that basis. This case arises in the somewhat familiar scenario where the parties’ dispute concerns contractual provisions related to, but not subject to, that expert determination, and thus falls within a court’s purview. More ›
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