Comet Systems, Inc. v. Miva, Inc., (Del. Ch., Oct. 22, 2008), read opinion here. This Chancery Court opinion involves the interpretation of an earnout provision and a change-of-control bonus in a merger agreement. The Court’s own introductory overview of the the factual background and the issue addressed is the most efficient means to summarize this case and it will also allow the reader to determine if it sparks enough interest to download the whole decision at the above link. What follows is a quote from the first page of the Court’s 20-page decision:

This breach of contract case arises out of a dispute between the former stockholders of a software company and a successor entity which purchased that company over the interpretation and performance of the earnout provisions of the merger agreement in which those stockholders were bought-out. The former stockholders have moved for partial summary judgment as to the first count of their verified complaint, and the purchasers have cross-moved for summary judgment on all counts.

The central issue presented by these motions is whether a change-of-control bonus paid to the employees of the target corporation prior to the closing of the merger is a “one-time, non-recurring expense” that should be excluded from the target’s costs for the purpose of computing the earnout. If the bonus payment is excluded from the cost calculation, the former stockholders will be entitled to an additional payment of approximately $1.67 million under the earnout. The court finds that this is a pure question of law, on which the former stockholders are entitled to summary judgment. The court also concludes that, as a result of a delay in payment, the former stockholders are entitled to an award of interest on the portion of the earnout they already received, as well as on the portion which the court finds they should have gotten.

 In LaPoint v. AmerisourceBergen Corp., (Del. Ch., Sept. 4, 2007),  read opinion here, the Chancery Court ruled that a merger agreement was breached in connection with an "earnout provision", and awarded former shareholders of the acquired company $21 million in damages.  Amerisource has vowed to appeal, as reported by Bloomberg News here. The Chancellor provided an introductory overview of the case that deserves to be quoted, as follows:

This case falls into an archetypal pattern of doomed corporate romances. Two companies—Bridge Medical, Inc. and AmerisourceBergen Corporation–agree to merge, each convinced of a happy future filled with profits and growth. Although both partners harbor some initial misgivings, the merger agreement reflects these concerns, if at all, in an inaccurate and imprecise manner. After some time, the initial romance fades, the relationship consequently sours, and both parties find themselves before the Court loudly disputing what the merger agreement “really meant” back in its halcyon days. If this case is different, it is only in the speed with which the ardor faded. 

UPDATE: Here  is the affirmance by the Delaware Supreme Court in a 7-page Order dated April 8, 2008,  upholding the Chancellor’s opinion.


The Delaware Business Court Insider‘s current edition includes an article I co-authored with Chauna Abner that highlights a recent Delaware Court of Chancery decision that explains the types of claims that are barred by a standard integration clause–as compared to the more robust anti-reliance clause that is required to preclude most typical claims arising from allegations about misrepresentations made regarding a contract. See Shareholder Representative Services v. Albertsons Cos., C.A. No. 2020-0710-JRS (Del. Ch. June 7, 2021). The article is available at this link.

Courtesy of The Delaware Business Court Insider, a copy of the article also appears below.

“Chancery Identifies Claims Barred by Standard Integration Clause”

By: Francis G.X. Pileggi* and
Chauna A. Abner**

The Court of Chancery’s recent decision in S’Holder Representative Servs. LLC v. Albertsons Cos., C.A. No. 2020-0710-JRS (Del. Ch. June 7, 2021), involves the seller of a business claiming that the buyer intentionally evaded post-merger earnout payments. This opinion is useful for its explanation of the types of claims that will, and will not, be barred by a standard integration clause.


The basic facts involved the sale of a company called Plated, bought by Albertsons, the supermarket chain. The closing price was $175 million with an earnout of up to $125 million if certain milestones were reached. Although the merger agreement gave Albertsons sole and complete discretion over the operation of Plated post-closing, the agreement specifically prohibited Albertsons from taking any action with the intent of decreasing or avoiding the earnout. Nonetheless, it was alleged that Albertsons changed Plated’s business model post-closing with an intent to avoid the earnout.

The Court’s decision was rendered in the context of a motion to dismiss, but detailed facts were recited indicating that the top management of Albertsons never intended to promote Plated. If properly supported, Plated would have fulfilled its projected revenues and, thus, would have triggered the earnout.


The Court began its analysis noting the “typical” facts the case presented surrounding the payout of post-closing earnout consideration. Specifically, the Court explained that: “[A]s is typical, . . . Albertsons bargained for the right to operate Plated post-closing in its discretion limited only by its express commitment not to operate Plated in a manner intended to avoid the obligation to pay the earnout.” Id. at *1.

The Court recited the well-settled standard for deciding a motion to dismiss followed by the elements to establish a breach of contract claim and a fraudulent inducement claim. Id. at *16. In deciding whether Albertsons breached the merger agreement by intentionally decreasing or avoiding the earnout, the court turned to the meaning of “intent” and explained that: “‘Intent’ is a ‘well-understood concept,’ defined as ‘a design, resolve or determination with which persons act.’” Id. at *17. The Court further explained that “[a] defendant’s intent can be inferred from well-pled allegations in a complaint, with the understanding that allegations of intent need only be averred generally.” Id.

Specifically, in the context of this case, the Court explained that: “To plead a buyer’s intent to avoid an earnout, the goal of avoiding the earnout need not be ‘the buyer’s sole intent’; rather, a plaintiff may well-plead that the buyer’s actions were ‘motivated at least in part by that intention.’” Id. at *17.

Key Takeaways

The most noteworthy aspects of this opinion are found in the Court’s distinction between the claims that will be barred by a standard integration clause–as compared with the claims that will only be barred if a standard integration clause is supplemented and buttressed by more explicit anti-reliance language demonstrating with clarity that the plaintiff has agreed that it was not relying on facts outside the contract.

The Court instructed that:

• Fraud claims will not be barred by a simple integration clause that does not contain a more robust and explicit anti-reliance provision that expresses with clarity that there will be no reliance on facts outside the contract. In this case, the integration clause alone would not bar allegations of extra-contractual statements of fact. But that is not what the plaintiff alleged.

• Because the plaintiff alleged fraudulent inducement and claimed that Albertsons lied about its “future intent” with respect to the operation of the post-business closing, the Court explained clear anti-reliance language was needed to stand as a contractual bar to an extra-contractual fraud claim based on factual representations.

• By contrast, an integration clause alone is sufficient to bar a fraud claim based on expressions of future intent or future promises. The Court cited among other cases in support of its reasoning, Black Horse Capital, LP v. Capital Xstelos Holdings, Inc., 2014 Del. Ch. LEXIS 188, at * 22 (Del. Ch. Sept. 30, 2014), to explain that an extra-contractual fraud claim based on a “future promise” cannot stand when the parties committed in a clear integration clause that they will not rely on promises and representations outside the agreement.

• The Court, however, concluded that plaintiff bargained for Albertsons not to intentionally scuttle the earnout and, therefore: “It may attempt to prove a breach of that contractual obligation [regarding intent] but cannot claim fraud based on future promises not memorialized in the merger agreement.”

*Francis G.X. Pileggi is the managing partner of the Delaware office of Lewis Brisbois Bisgaard & Smith LLP, and the primary author of the Delaware Corporate and Commercial Litigation Blog at

**Chauna A. Abner is a corporate and commercial litigation associate in the Delaware office of Lewis Brisbois Bisgaard & Smith LLP.


This post was prepared by Frank Reynolds, who has been following Delaware corporate law, and writing about it for various legal publications, for over 30 years.

The Delaware Chancery Court ordered general contractor Tutor Perini Corp. to turn over $8 million to Greenstar Services Corp.’s former owners, after finding they met the terms of a holdback agreement by collecting $60 million in change-order fees after Greenstar’s 2011 sale in Greenstar IH Rep, LLC et al. v. Tutor Perini Corp., No. 12885-VCS, memorandum opinion (Del. Ch. Dec. 4, 2019).

Vice Chancellor Joseph R. Slights III’s Dec. 4, 2019 memorandum opinion resolves a remaining dispute in Greenstar’s breach of contract suit over contingent considerations that were part of building contractor Tutor Perini’s $208.4 million payment for Greenstar’s specialty construction companies.

The opinion could prompt corporate officers and their counsel to reexamine the precision and comprehensiveness of the often-disputed terms of earn-out and hold-back agreements that frequently make up a substantial portion of the consideration in mergers and acquisitions.

After a three-day trial in Greenstar’s 2016 suit, the vice chancellor entered judgment for Greenstar and its former shareholders and officers, finding they presented the only reasonable interpretation of how the purchase pact’s collection milestone triggers would work.

In a separate ruling the same day, he also ordered Tutor Perini to pay Delaware limited liability company Greenstar’s attorney fees and expenses of $52,436 within 20 days.  Greenstar IH Rep, LLC et al. v. Tutor Perini Corp., No. 12885-VCS, letter opinion (Del. Ch. Dec. 4, 2019).

In his memorandum opinion, the vice chancellor said the 2011 merger, whereby Greenstar became a wholly-owned subsidiary of Sylmar, California-based Tutor Perini included:

  • An earnout agreement based on Greenstar and its plumbing and electrical/mechanical      specialty construction companies meeting certain profitability targets during the five-year period following the acquisition, and
  • A holdback pact requiring co-plaintiff Gary Segal and two other Greenstar principal shareholders — who stayed on post-merger to run the operating companies — to collect their estimated $60 million in change-order bills from customers in order to receive a contingent $8 million payment.

“As they are wont to do, the contingent consideration provisions prompted post-closing disagreements,” and even modifying the holdback in 2013 did not help, the vice chancellor said. “While intended to provide clarity,” that revision “did no such thing,” because Tutor Perini maintained that it owed Greenstar’s ex-owners nothing, and the parties went to trial, he said.

In a separate Oct. 31, 2017 decision, the Chancery Court ruled that Greenstar was entitled to $19 million in earn-out payments and dismissed Tutor Perini’s fraud and offset counterclaims. Greenstar IH Rep, LLC et al. v. Tutor Perini Corp., No. 12885-VCS, memorandum opinion issued (Del. Ch. Oct. 17, 2017).  The state Supreme Court affirmed that judgment, leaving only the holdback claim in the breach of contract suit. Tutor Perini Corporation v. Greenstar IH Rep. LLC, No. 507-2018 order issued (Del. May 11, 2017).

After trial on April 18 and post-trial argument on September 10 on the holdback issue, the vice chancellor said Greenstar had proved the existence of a valid contract, the breach of a contractual obligation and damages suffered because of that breach.

He found that the agreement’s “ordinary meaning leaves no room for uncertainty” and “the plain, common, and ordinary meaning of the words … lends itself to only one reasonable interpretation:” that the holdback agreement requires only collection of money that generates additional net profit.

By contrast, Tutor Perini’s interpretation of the holdback provides “no single formula for determining net profit” because its formula varies from job to job, he said.

Therefore, since the two parties agree that the contract is not ambiguous and the plaintiffs proffer “the only reasonable construction of the holdback agreement,” the plaintiffs are entitled to immediately receive the entire $8 million in the holdback escrow, the Vice Chancellor ruled.



A recent article on The Harvard Law School Corporate Governance Blog collected decisions, mostly based on Delaware law, that address Earn Out disputes, which generally involve agreements for the sale of a company that allow for post-closing payments subject to various milestones or revenue targets being satisfied. Commonly, the buyer of the company is required to use a level of effort to reach those milestones or revenue goals that is variously described as reasonable efforts or diligent efforts or similar “hard to measure” language.

Recent Delaware decisions on those topics have been highlighted on these pages here and here and here, but the above-linked article does a notable job of compiling many recent cases in one place with helpful commentary.

My favorite scholarly commentary on the topic of “commercially reasonable efforts” in general, is provided by friend of the blog, Professor Stephen Bainbridge, whose scholarship is often cited in Delaware court opinions.

A recent Delaware Supreme Court decision dismissed a claim for post-closing adjustments to the purchase price for the sale of a company. Anecdotally, almost every merger or acquisition agreement that includes a purchase price that provides for an adjustment after closing for such things as net working capital or an earnout will generate a dispute.  The case of Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Company LLC, No. 573, 2016 (Supr. Ct., June 27, 2017)(as corrected on June 28, 2017), is no exception and the Court’s 48-page opinion provides helpful insights into how the Delaware courts deal with the complex contractual issues involved in such disputes.

Basic Background Facts: This case involved the purchase by Westinghouse Electric Company of a subsidiary of the Chicago Bridge & Iron Company.  Westinghouse designs nuclear power plants and Chicago Bridge builds them.  They had done business together for many years prior to the closing on the purchase of Chicago Bridge’s subsidiary by Westinghouse.  One of the reasons for the purchase was that two nuclear plants that Chicago Bridge had been building were beset by cost overruns and delays, and Chicago Bridge wanted to limit its future exposure.  The deal terms included some unusual provisions such as a bar to post-closing liability for certain representations by Chicago Bridge.  The intent of the deal was to transfer future liabilities on the construction of the two nuclear power plants to Westinghouse.

The deal terms provided for post-closing adjustments to determine net working capital, as well as  earnout provisions. Any disputes regarding net working capital were to be presented to an independent auditor for a binding and non-appealable decision.

As the court explains, the net working capital adjustment was intended to address changes from the date of the signing of the agreement until the date of closing. However, the claims by Westinghouse that it sought to have the independent auditor decide, involved time periods and claims that exceeded that limited scope. Chicago Bridge sought an injunction to prevent Westinghouse from presenting those issues to the independent auditor.  The Court of Chancery ruled in favor of Westinghouse.  The Supreme Court in this decision reversed the opinion of the Court of Chancery and ruled in favor of Chicago Bridge.

Key Legal Principles: The court provides a useful recitation of various aspects of Delaware law on contract interpretation that is especially applicable to complex agreements.  The court observed that as often happens in disputes over complex agreements, both parties asserted that their views of the disputed language were supported by the unambiguous terms of the agreement, but they reached opposite conclusions.  The court explained that an agreement is not ambiguous even though the parties reached contrary conclusions about its meaning. Rather, unless the court determines that its meaning it not susceptible to different reasonable interpretations, it will not be considered ambiguous.

The court engaged in some public policy and doctrinal pronouncements in addition to reciting multiple contract interpretation principles. For example, the court explained that the “basic business relationship between the parties must be understood to give sensible life to any contract.”  The essence of this contract was that the seller would be relieved of any future liabilities for the construction of the plants after closing.  Nonetheless, despite the limitations of post-closing adjustments focusing on net working capital, Westinghouse presented a claim for approximately $2 billion. (A harbinger of the conclusion in this opinion was the Court’s use of an exclamation point in the introductory background facts after the sentence which described the amount of the claim.)

Citing to American Bar Association publications on model stock purchase agreements, as well as treatises commenting on such agreements, the court observed that “purchase price adjustments in merger agreements account for changes in a target’s business between the signing and the closing of the merger.” See footnotes 64 to 68.  The court continued by noting that the definition of “net working capital” in this case, read in conjunction with the entire agreement, required the use of the seller’s past accounting practices rather than a new assessment of those practices’ compliance with GAAP.

The focus of any post-closing adjustment in this matter was required to be based on the application of the past practices used by the seller in accordance with GAAP—but the Court recognized that “GAAP allows for a variety of treatments and different accountants may come to differing views on what constitutes acceptable GAAP treatment . . ..” The court found that it would be unreasonable to interpret the definition of working capital as allowing for a different accounting approach from that used by the seller in their financial statements.

The court reasoned that this approach was a practical one because it would be difficult to account for the changes in the seller’s business between signing and closing if one accounting approach is used to complete the financial statements prior to the signing and another accounting approach was used to make the adjustments for the period between the signing and the closing.

The court also explained that the independent auditor had a very limited role and was not authorized to address any potential issue that might be raised in connection with the purchase agreement. The court cited to other Delaware cases in which an independent auditor, pursuant to the agreement, was authorized to address limited issues but was not given broad authority as an arbitrator. See, e.g., footnote 83.  For example, the independent auditor in this case was not empowered to address claims regarding breach of representations in the agreement.  This is especially so based on the unusual provisions of the relevant agreement that limited any post-closing liability of the seller.

The court also observed, citing treatises on agreements involving mergers and acquisitions, that the financial statement representations are the most important representations in such an agreement. See footnote 87.  The limitation on post-closing liability in the agreement, according to the plain English meaning of the relevant terms, prevented liability for representations regarding those financial statements.

The court discussed several Delaware and New York decisions addressing similar provisions in agreements, and distinguished some and relied on others to support its decision. Citing to prior Delaware decisions, the Supreme Court held that “where the contract expressly provides that the representations and warranties terminate upon closing . . . the parties have made clear their intent that they can provide no basis for a post-closing suit seeking a remedy for an alleged misrepresentation. That is, when the representations and warranties terminate, so does any right to sue on them.” See footnote 88.

See generally, Morris v. Spectra Energy Partners (DE) GP, LP, C.A. No. 12110-VCG (Del. Ch. June 27, 2017)(lengthy opinion issued the same day that interpreted undefined terms in a complex agreement involving an alternative entity. That opinion also provided important insights into the application of Delaware contract interpretation principles.)

In Winshall v. Viacom Int’l., C. A. No. 6074-CS (Del. Ch., Nov. 10, 2011), read opinion here, the Delaware Court of Chancery granted a motion to dismiss a claim for breach of the implied covenant of good faith and fair dealing in a dispute over post-merger earn-out payments. What is also of note for practitioners is that the Chancellor provided some very interesting commentary about the pleading standard for Rule 12(b)(6) motions and the Delaware Supreme Court’s recent decision in Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A. 3d 531, 536 (Del. 2011), a decision that was highlighted on these pages (along with several links to related commentary on this pleading issue), here. See footnote 23 starting on page 10 of the opinion (linked above). Stay tuned for more commentary on this pleading issue in future posts on this blog.

Kevin F. Brady of Connolly Bove Lodge & Hutz LLP provided this summary.

In 2006, Viacom International, Inc., acquired Harmonix Music Systems, Inc., a company best known for creating the music-oriented video games Rock Band and Guitar Hero, through an agreement between Viacom, Harmonix and the selling stockholders of Harmonix (the “Selling Stockholders”), which included the plaintiff, Walter A. Winshall. Viacom promised the Selling Stockholders an up-front payment of $175 million for their shares, as well as the contingent right to receive uncapped earn-out payments based on Harmonix’s financial performance in 2007 and 2008. The merger agreement did not contain any provision governing the operation of Harmonix during the earn-out period, nor did it contain any efforts clause related to the earn-out payments.

In March, 2007, Harmonix entered into a three-year agreement with Electronic Arts, Inc. for the distribution Rock Band wherein Harmonix agreed to pay sales and other fees to EA for the distribution of Rock Band and if EA met a specified “sequel threshold” by earning a certain amount of revenues, it would receive the right to distribute sequels to Rock Band. Rock Band had a very successful launch in November, 2007, so that made it possible for Viacom and Harmonix to renegotiate the terms of the original EA agreement in 2008. The amended EA Agreement broadened and clarified the scope of Rock Band products to which EA had distribution rights — Rock Band 2 (which was released in 2008) and The Beatles: Rock Band (which was under development by Harmonix at the time).

Winshall filed suit alleging, among other things, that Viacom and Harmonix breached their implied covenant of good faith and fair dealing under the Merger Agreement because when they were given the opportunity to renegotiate the EA Agreement, Viacom and Harmonix were obligated to use that opportunity to lower the distribution fees paid to EA in 2008 and, thus, increase the 2008 earn-out payment to the Selling Stockholders.

Under Delaware law, the implied covenant of good faith and fair dealing:

is not a license to rewrite contractual language just because the plaintiff failed to negotiate for protections that, in hindsight, would have made the contract a better deal. Rather, a party may only invoke the protections of the covenant when it is clear from the underlying contract that “the contracting parties would have agreed to proscribe the act later complained of . . . had they thought to negotiate with respect to that matter.

Winshall argued that, because Viacom and Harmonix had the opportunity to increase the amount of the 2008 earn-out payment, Viacom and Harmonix had an implied obligation under the merger agreement to take that opportunity. The Court disagreed finding that Winshall failed to allege facts that supported a reasonable inference that the Selling Stockholders did not get the benefit of their bargain under the merger agreement. The Court also found that Viacom and Harmonix did not impair the Selling Stockholders rights under the merger agreement. Although Viacom and Harmonix did not accept a reduction in 2008 distribution fees, neither did they take action to increase the 2008 fees beyond what was expected under the original EA agreement. Moreover, the Court found that “it was not conceivable that the benefits conferred on Viacom and Harmonix by the renegotiation were offered in exchange for product sales in which the Selling Stockholders had a valid expectancy interest – i.e., sales during 2008.”

Finally, the Court noted that “when a contract confers discretion on one party, the implied covenant of good faith and fair dealing requires that the discretion – such as Viacom’s discretion in controlling Harmonix after the Merger and during the earn-out period – be used reasonably and in good faith… and a party does not act in bad faith by relying on contract provisions for which that party bargained where doing so simply limits advantages to another party.”

BONUS SUPPLEMENT: Professor Stephen Bainbridge provides scholarly insights on this case here.

Olson v. Halvorsen, (Del. Ch., Oct. 22, 2008), read opinion here. The Chancery Court decided an issue of first impression in the context of cross motions for summary judgment in this case: Does the statute of frauds apply to an LLC Agreement. The answer is yes.

Moreover, the court reasoned that in light of the multi-year earnout provision involved in the LLC agreement at issue–that was never signed, the exception to the statute of frauds for partial perfomance did not apply. See generally Section 2714(a) of Title 6 of the  Delaware Code (requiring signed writing for an agreement that will not be performed within the space of a year)

SUPPLEMENT:  Professor Larry Ribstein has a scholarly analysis here of the decision and a broader discussion of oral LLC agreements, with reference to his prior treatment of the topic in his treatises and other articles he has written.