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Chancery Addresses Earn-Out Dispute and Referee Process

Posted In Earn-Out

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.

Windy City addresses and denies a defendant’s motion to dismiss on jurisdictional and merits-based grounds. As to jurisdiction, the Court found that the parties’ agreement specifically allowed the Court to interpret the meaning of disputed contract terms relevant to the contractual referee determination of the earn-out amount and provided for a Delaware forum and Delaware choice of law. On the merits, the Court held that the agreement was not susceptible to only one interpretation, as each side’s proffered interpretation required the Court either “to minimize deliberately placed language or, in some cases, import extra-contractual concepts to reconcile that language.” The case therefore survives with the parties’ alternative contractual interpretations to be resolved after discovery.



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