A common type of business litigation case in Delaware involves post-closing purchase price adjustments, a variation of often-litigated earn-out disputes. Many agreements for the sale of a business include a provision that appoints an independent accounting firm to resolve disputes regarding a determination post-closing of working capital as of the closing date, for example, which impacts the final purchase price. A well-reasoned and pithy analysis of this type of issue was featured in a recent decision by the Complex Commercial Litigation Division of the Delaware Superior Court in the matter styled LDC Parent, LLC v. Essential Utilities, Inc., C.A. No. N20C-08-127-MMJ-CCLD (Del. Super. Apr. 28, 2021).
This decision determined that the particular post-closing dispute involved was subject to the binding decision of an independent accountant. More specifically, the parties disagreed about whether a Capital Expenditure, defined in the agreement as actually paid or payable, was properly capitalized according to U.S. GAAP. The Court rejected the argument that the issue was one of contract interpretation that should be subject to judicial review–and agreed with the argument that the dispute was covered by a clause that made it fall within the scope of the independent accountant’s decision-making authority.
The Court also held that it was not necessary to decide at this point whether the accounting issue involved would result in the independent accountant serving as an expert or an arbitrator–though the opinion features many citations to Delaware opinions that have addressed that specific issue in the context of similar post-closing dispute clauses that provide for certain post-closing issues to be decided by an independent accountant.
This opinion should be kept handy in the toolbox of those who litigate post-closing price adjustment cases as well as those who draft such agreements.