Margaret Dodson And Grace Platt Offer Insight On Earnout Disputes In Delaware For Delaware Business Court Insider

Bass, Berry & Sims attorneys Margaret Dodson and Grace Platt authored an article for Delaware Business Court Insider providing insight on two recent Delaware Supreme Court decisions that demonstrated Delaware courts’ willingness to hold buyers accountable when a buyer’s conduct undermines the earnout bargain.

Johnson & Johnson v. Fortis Advisors presented three significant issues for M&A practitioners: the implied covenant’s role in earnouts, the scope of commercially reasonable efforts obligations, and the enforceability of one-sided anti-reliance clauses.

Similarly in Fortis Advisors LLC v. Krafton, Inc., the Court of Chancery found every one of Krafton’s justifications pretextual and ordered specific performance, reinstating the studio’s CEO, restoring operational control, and equitably extending the earnout period by 258 days to account for the period of wrongful ouster. The remedy underscores the seriousness with which Delaware courts treat post-closing interference with earnout-related governance protections.

“Buyers who structure their post-closing conduct around avoiding earnout obligations—whether by deprioritizing the acquired business, factoring contingent-payment savings into decision-making, manufacturing pretexts for terminating key employees, or concealing material information during negotiations—face real consequences in Delaware courts,” said Margaret and Grace. “The lesson for M&A practitioners on both sides of the table is straightforward: draft earnout provisions, efforts obligations, anti-avoidance clauses, and anti-reliance language with care, because Delaware courts will read them closely and enforce them.”

The full article, “Earnout Disputes in Delaware: Buyers Beware,” was published by Law.com | Delaware Business Court Insider on May 3 and is available online (subscription required).