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

Posted In CCLD, Earn-Out

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.

The seller sued the purchaser and counterclaims and third-party claims were brought in response.  The seller’s core claim was for breach of contract, but it also sued for breach of the implied covenant of good faith and fair dealing, and fraud based upon alleged inaccuracies in the purchaser’s quarterly earn-out certifications.  Various parties moved to dismiss certain claims and the Delaware Superior Court granted those motions in part. 

Among the dismissed claims were the seller’s claims for breach of the implied covenant and fraud.  Given the APA’s “comprehensive and explicit” language controlling the obligations of the parties with respect to operating the business post-closing, there was no place for the gap-filling role of the implied covenant under the circumstances.  Further, the seller’s fraud claim, based upon the purchaser’s alleged failure to respect duties in the APA, amounted to a deficient “repackaging” of or “bootstrapping” to its breach of contract claim.  The Superior Court also dismissed a counterclaim by the purchaser for fraud in the inducement, citing the clear anti-reliance provisions in the APA.