Posts in Earn-Out

Chancery Holds That Claim Based on Purposeful Tanking of Merger Agreement Earnout Is Breach of Contract Claim

Shareholder Representative Services LLC v. Albertson’s Companies, C.A. No. 2020-0710-JRS (Del. Ch. June 7, 2021)
Many merger agreements include earnout provisions under which the stockholders in the acquired company are entitled to additional consideration upon the occurrence of certain financial milestones. In this case, the Court of Chancery analyzed and considered the appropriate way to plead claims that the acquirer purposefully operated the company to miss earnout milestones. More ›

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Chancery Refuses to Enforce Alleged Contractual Rights Not Obtained at the “Negotiating Table”

Obsidian Fin. Grp., LLC v. Identity Theft Guard Solutions, Inc., C.A. No: 2020-0485-JRS (Del. Ch. Apr. 22, 2021)
Delaware is “more contractarian” than many other jurisdictions. Accordingly, as this case illustrates, a court applying Delaware law will respect parties’ contractual choices and will not enforce alleged contractual rights not reflected in the plain language of the agreement. More ›

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Chancery Enters Judgment for Seller On Post-Closing Milestone Payment Claim Because Buyer Failed to Establish Occurrence of Condition Subsequent

Shareholder Representative Services LLC v. Shire US Holdings, Inc., et al., C.A. No. 2017-0863 KSJM (Del. Ch. Oct. 12, 2020)
After the purchaser of a drug manufacturer failed to make a post-closing milestone payment required under the applicable merger agreement, the seller filed a two count complaint in the Court of Chancery for breach of contract and attorneys’ fees. In a post-trial opinion, Vice Chancellor Kathaleen St. Jude McCormick concluded that a condition subsequent that would have relieved the buyer of its milestone payment obligation had not, in fact, occurred. The Vice Chancellor entered judgment for the seller and awarded attorneys’ fees based upon a prevailing party provision of the merger agreement. More ›

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Chancery Orders Trial to Determine Meaning of Ambiguous Post-Closing Covenants in a Stock Purchase Agreement

Schneider Nat’l Carriers, Inc. v. Kuntz, C.A. No. 2017-0711-PAF (Del. Ch. July 16, 2020)

If parties to a contract offer reasonable but conflicting interpretations of ambiguous contractual language, the Court of Chancery may deny summary judgment and order trial for purposes of weighing conflicting extrinsic evidence and witness testimony to interpret the meaning of the contractual language. More ›

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Delaware Superior Court Interprets Contractual Language Governing Earn-out Payment

B&C Holdings, Inc. v. Temperatsure Holdings, LLC, C.A. No. N19C-02-105 AML CCLD (Del. Super. Apr. 22, 2020).

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 ›

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Post-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 ›

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Delaware 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 ›

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Delaware Superior Court Finds Purchase Agreement Language Limits the Scope of Possible Claims Concerning Earn-Out Dispute

Collab9, LLC v. En Pointe Technologies Sales, LLC, C.A. No. N16C-12-032 (MMJ) (CCLD) (Del. Super. Sept. 17, 2019).

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 ›

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Chancery Addresses Earn-Out Dispute and Referee Process

Windy City Investments Holdings LLC v. Teachers Insurance and Annuity Association of America f/k/a Teachers Insurance and Annuity Association-College Retirement Equities Fund, C. A. No. 2018-0419-MTZ (Del. Ch. May 31, 2019).

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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