AM Buyer, LLC v. Argosy Investment Partners IV, L.P. ( 2024 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
AM BUYER LLC and )
AM INTERMEDIATE PARENT, INC., )
)
Plaintiffs, )
)
v. ) C.A. No. N23C-11-167
) PRW CCLD
ARGOSY INVESTMENT )
PARTNERS IV, L.P. and )
ANVIL CAPITAL PARTNERS III, L.P., )
)
Defendants. )
Submitted: July 25, 2024
Decided: September 3, 2024
Upon Defendants’ Motion for Summary Judgment,
GRANTED in part, DENIED in part.
Upon Defendants’ Request for Fees and Costs,
DENIED.
MEMORANDUM OPINION AND ORDER
David S. Eagle, Esquire, Sally E. Veghte, Esquire, KLEHR HARRISON HARVEY
BRANZBURG LLP, Wilmington, Delaware; Bonita Stone, Esquire (argued),
KATTEN MUCHIN ROSENMAN LLP, Chicago, Illinois, Attorneys for Plaintiffs
AM Buyer LLC and AM Intermediate Parent, Inc.
Kelly E. Farnan, Esquire, Kevin M. Gallagher, Esquire, Edmond S. Kim,
Esquire, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware;
Michael R. Shumaker, Esquire (argued), Christopher N. Thatch, Esquire,
Anika M. Smith, Esquire, JONES DAY, Washington, District of Columbia,
Attorneys for Defendants Argosy Investment Partners IV, L.P. and Anvil
Capital Partners III, L.P.
WALLACE, J.
Plaintiff-Buyers acquired certain companies from Defendant-Sellers through
a purchase agreement. That purchase agreement provided for a post-closing earnout
payment due to Sellers if certain criteria were met. If an earnout-payment dispute
arose, the agreement provided that it would be resolved by an independent
accountant. The independent accountant’s report would then only be reviewable by
a court for clear and manifest error.
One such earnout-payment dispute indeed arose. So, the parties sent it to an
independent accountant for resolution. The independent accountant issued its report.
In that written report, the independent accountant determined that Buyers indeed
owe Sellers an earnout payment.
Displeased, Buyers filed suit. Buyers say that the written report isn’t final and
binding on the parties, that the independent accountant exceeded its contracted-for
authority, and that the independent accountant manifestly erred. Sellers counter that
the written report is final and binding and that Buyers breached the agreement by
failing to make the earnout payment. Sellers now move for summary judgment on
Buyers’ affirmative counts and their own counterclaims.
As the acquisition agreement provides, the independent accountant’s written
report is final and binding on the parties. The independent accountant didn’t exceed
the scope of its authority under the agreement. And none of the written report’s
findings constitute manifest error.
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As such, Sellers are entitled to a final declaration that the determined earnout
payment is valid and enforceable. But Sellers haven’t prevailed on their breach-of-
contract claim. Nor have they earned their incurred fees and costs as they suggest.
Accordingly, and for the reasons further explained now: Sellers’ Motion for
Summary Judgment on Buyers’ Affirmative Counts is GRANTED; Sellers’ Motion
for Summary Judgment on their First Counterclaim is GRANTED; Sellers’ Motion
for Summary Judgment on their Second Counterclaim is DENIED; and, Sellers’
Request for Fees and Costs is DENIED.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. THE PARTIES
Plaintiff AM Buyer, LLC is a Delaware limited liability company.1 AM Buyer
is a subsidiary of Plaintiff AM Intermediate Parent, Inc. (“Buyer Parent” and
collectively for ease of reference, “AM Buyer”).2
Defendants Argosy Investment Partners IV, L.P. and Anvil Capital Partners
III, L.P., (collectively for ease of reference, “Argosy”) are Delaware limited
partnerships.3
1
Complaint (“Compl.”) ¶ 2 (D.I. 1).
2
Id. ¶ 3.
3
Id. ¶¶ 4–5. Argosy and Anvil are identified as the “Sellers’ Representative” in the operative
agreement. Id.
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B. THE MEMBERSHIP INTEREST PURCHASE AGREEMENT
In May 2020, AM Buyer acquired certain “Acquired Group[s]”4 from Argosy
via a Membership Interest Purchase Agreement (“MIPA”).5 The MIPA provides for
a base purchase price along with a potential post-closing “Earnout Payment.”6
The potential Earnout Payment is central to this dispute. Described in MIPA
Section 2.1(b), the Earnout Payment amount, if any, is based on an “Earnout Period
EBITDA” calculation with respect to the “Earnout Period.”7 Earnout Period
EBITDA is also a defined term in the MIPA.8 Relevant here, the definition includes:
(v) any compensation and benefits costs with respect to an individual
hired to fill the open Production Engineer position, the open
Distribution Manager position or the two open OEM Sales
Manager positions within the Acquired Group consistent with the
expenses added back in the budget presented to the buyer (see
Exhibit F attached hereto) and
(vi) non-recurring transaction costs and expenses (including, without
limitation, professional advisor fees, closing fees, diligence fees
and similar expenses) incurred by or on behalf of the Acquired
Group (including, without limitation, in connection with the
completion of the Contemplated Transactions, financing relating to
4
“Acquired Group” is defined in the MIPA as “(a) Holdings, (b) Enefco Holding, and (c) each
Operating Company; provided, that for the avoidance of doubt any reference to Acquired Group
herein shall include each Company that is a member of the Acquired Group.” Transmittal Affidavit
of Edmond S. Kim in Support of Defendants’ Motion for Summary Judgment (“Kim Aff.”), Ex. 1
(“MIPA”) Art. X (Definitions) (underlining in original) (D.I. 11).
5
See generally MIPA.
6
Id. § 2.1.
7
Id. § 2.1(b)(i). The “Earnout Period” is defined as between July 2020 and June 2021. Id. Art.
X (Definitions).
8
Id. Art. X (Definitions).
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the Contemplated Transactions and the raising of equity capital in
connection with and in furtherance of the Contemplated
Transactions) . . . .9
MIPA Exhibit F is titled “Budget re: Earnout Period EBITDA.”10 It provides an
“Adjusted Budget” that was presented to AM Buyer.11
Section 2.1(b) governs Earnout Payment procedures. Sub-section (i) says:
On or before September 1, 2021, Buyer Parent shall prepare and deliver
to the Sellers’ Representative an earnout statement (the “Earnout
Statement”), which shall set forth Buyer Parent’s good faith
determination of (i) Earnout Period EBITDA, and (ii) the Earnout
Payment, if any.12
If Argosy disagrees with the Earnout Statement, then pursuant to sub-section (ii):
Within thirty (30) days after Buyer Parent’s delivery of the Earnout
Statement to the Sellers’ Representative, the Sellers’ Representative
may deliver written notice (the “Earnout Protest Notice”) to Buyer
Parent of any objections, and the basis therefor, which the Sellers’
Representative may have to the Earnout Statement. Any Earnout
Protest Notice shall specify in reasonable detail the nature of any
disagreement so asserted, to the extent that the Sellers’ Representative
has been furnished with access to the information reasonably necessary
for the Sellers’ Representative to provide such detail.13
The sub-section then states:
If the Sellers’ Representative delivers the Earnout Protest Notice within
the prescribed thirty (30)-day time period and the Parties have not
resolved all disagreements as to the computation of the Earnout Period
9
Id. (underlining in original).
10
Id., Ex. F (Budget re: Earnout Period EBITDA).
11
Id.
12
Id. § 2.1(b)(i) (bold and italics in original).
13
Id. § 2.1(b)(ii) (bold and italics in original).
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EBITDA and Earnout Payment within thirty (30) days after the delivery
of such Earnout Protest Notice, then the dispute resolution procedures
in Section 2.2(b)(ii) shall apply thereto, mutatis mutandis.14
MIPA Section 2.1(b)(iv) provides certain covenants relating to the Earnout Period.
Relevant here, Buyer Parent covenants that “it shall at all times maintain, and cause
the Acquired Group to maintain, separate books, records and financial statements for
the Acquired Group reasonably sufficient to determine, and to provide the to the
Sellers’ Representative sufficient and accurate verification of, the Earnout
Payment.”15
MIPA Section 2.2(b) identifies and defines documents that need to be included
in the “Closing Statement.”16 Sub-section (i) then allows for a “Protest Notice” if
there is a disagreement regarding the Closing Statement documents.17 Sub-section
(ii), titled “Resolution of Protest,” says:
If the Buyer and the Sellers’ Representative are unable to resolve any
disagreement with respect to the calculation of [the Closing Statement
documents], within thirty (30) days following the delivery of any
Protest Notice, then either the Buyer or the Sellers’ Representative may
refer the items remaining in dispute to . . . an independent accounting
firm of national reputation reasonably satisfactory to the Buyer and the
Sellers’ Representative (in either case, the “Independent
Accountant”).18
14
Id. § 2.1(b)(ii) (underlining and italics in original).
15
Id. § 2.1(b)(iv)(C).
16
Id. § 2.2(b).
17
Id. § 2.2(b)(i).
18
Id. § 2.2(b)(ii) (bold and italics in original).
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After detailing each party’s submission requirements to the Independent Accountant,
the sub-section states that:
The Independent Accountant shall conduct its review, resolve all
disputes and, to the extent necessary, compute the [Closing Statement
documents], as applicable to the extent such item remains in dispute,
based solely on the information submitted by the Sellers’
Representative and the Buyer (not by independent review or
otherwise).19
The sub-section further states:
In resolving any disputed item, the Independent Accountant (A) may
not assign a value to any particular item greater than the greatest value
for such item claimed by either the Sellers’ Representative or the Buyer,
or less than the lowest value for such item claimed by either the Sellers’
Representative or the Buyer, in each case as presented to the
Independent Accountant, (B) shall be bound by the principles set forth
in this Section 2.2, and (C) under all circumstances, shall limit its
review to matters specifically set forth in the Protest Notice.20
Sub-section (iii) is titled “Final Determination.”21 It provides that:
Notwithstanding anything to the contrary in this Agreement, any
disputes raised in the Protest Notice regarding any amount shown in the
Closing Statement shall be resolved solely and exclusively as set forth
in this Section 2.2(b). The findings and determinations of the
Independent Accountant as set forth in its written report shall be
deemed final, conclusive and binding upon the Parties and shall not be
subject to collateral attack for any reason, other than fraud or clear and
manifest error. The Parties shall be entitled to have a judgment entered
on such written report in any court of competent jurisdiction.22
19
Id. § 2.2(b)(ii).
20
Id. (underlining in original).
21
Id. § 2.2(b)(iii).
22
Id. (underlining in original).
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Under MIPA Section 2.1(b)(iii), the Earnout Payment is due “[w]ithin five (5)
Business Days after the final determination of the Earnout Period EBITDA Amount
and Earnout Payment . . . .”23
MIPA Article IX governs indemnification.24 Section 9.4 provides that:
Subject to the terms, conditions and limitations set forth in this Article
IX, the Buyer and the Buyer Parent shall . . . jointly indemnify, defend
and hold harmless the Sellers . . . from and against any and all Losses
sustained or incurred by any Seller Indemnified Party based upon,
arising out of or resulting from: . . . (b) any breach of any Covenant
made by such Person in this Agreement.25
C. THE EARNOUT PAYMENT DISPUTE
Pursuant to MIPA Section 2.1(b)(i), Buyer Parent delivered its Earnout
Statement to Argosy containing its Earnout Period EBITDA calculation for the
Earnout Period.26 According to that calculation, no Earnout Payment was due.27
Argosy objected to Buyer Parent’s Earnout Statement with an Earnout Protest
Notice in accordance with MIPA Section 2.1(b)(ii).28 The Earnout Protest Notice
first outlined its dispute with the Earnout Statement.29 In that initial section, the
23
Id. § 2.1(b)(iii).
24
Id. Art. IX (Indemnification).
25
Id. § 9.4 (Indemnification by Buyer).
26
Compl. ¶¶ 35–37.
27
Id. ¶ 37.
28
Id. ¶ 40; Kim Aff., Ex. 3 (“Earnout Protest Notice”). Argosy enlisted the help of Dicicco,
Gulman & Company LLP (“DGC”) to create its notice memorandum. Compl. ¶ 39; Earnout Protest
Notice, Ex. A (“Earnout Protest Notice Memorandum”).
29
Earnout Protest Notice Memorandum Art. III (Earnout Payment).
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notice described its view on Exhibit F:
Attached as Exhibit F to the MIPA was the approved adjusted budget
for 2020 reflecting Net Sales, Direct Costs, Overhead and Operating
Expenses with a target EBITDA of $[a certain sum]. This detailed
budget represents the mutual written agreement among the Parties on
the intended operating model that management was supposed to follow
post-closing for the Earnout Period. The Exhibit F budget was the
foundation of the earnout structure as agreed to by the Parties (the
“Approved Budget”).30
The Earnout Protest Notice identified other “Observations and Findings” and noted
certain “key material issues, discrepancies with the provisions of the MIPA and
miscalculations of the Earnout Payment and the Earnout Period EBITDA.”31
Relevant here, the notice flagged AM Buyer’s 2020 acquisition of a company called
Teknipure.32 Specifically, the notice stated:
DGC inquired about overhead costs and expenses of the Acquired
Group allocable to Teknipure and was informed by the Buyer that it did
not have the sophistication in its financial reporting to identify such
costs and related allocations. However, pursuant to the MIPA, the
Buyer was required to identify costs associated with Teknipure as “it
shall at all times maintain, and cause the Acquired Group to maintain,
separate books, records and financial statements for the Acquired
Group reasonably sufficient to determine, and provide to the Sellers
Representative sufficient and accurate verification of, the Earnout
Payment”.33
According to DGC, an Earnout Payment was indeed owed after making seven add
30
Id.
31
Id. Art. IV (Observations and Findings).
32
Id.
33
Id.
-8-
back adjustments to the Earnout Period EBITDA calculation.34
D. THE INDEPENDENT ACCOUNTANT’S ENGAGEMENT AND REPORT
Next, the parties attempted to resolve the Earnout Payment dispute pursuant
to the MIPA’s dispute resolution provisions.35 Unable to do so within the prescribed
period, the parties engaged Marcum LLP (the “Independent Accountant”) in April
2022.36 The parties elected Mr. Jimmy Pappas, Marcum’s National Leader of
Forensic Advisory Services, “to compute the amount of the Earnout payment, if
any.”37
According to the engagement letter, Mr. Pappas’ role was to “arbitrate a post-
acquisition earnout dispute . . . pursuant to the terms of” the MIPA.38 Further,
Mr. Pappas was engaged to “examine and opine upon the merits of the earn-out
dispute in accordance with the terms and conditions set forth in [the MIPA]
(including, without limitation, the principles set forth in Section 2.2(b)(ii) of [the
MIPA]).”39
Following the procedure set forth in that section, both parties sent opening
34
Id. Art. VI (Conclusion).
35
Compl. ¶¶ 42-44.
36
Id. ¶ 45.
37
Id.at ¶ 46; Kim Aff., Ex. 5 (“Engagement Letter”), at 1.
38
Id.
39
Id.
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submissions and rebuttal statements to the Independent Accountant.40 Argosy’s
opening statement identified the seven disputed items specified in the Earnout
Protest Notice, and Argosy’s rebuttal statement identified five additional items in
dispute.41 The Independent Accountant then responded with questions and asked for
supplemental statements and documentation.42
In October 2022, the Independent Accountant issued its 26-page report (the
“Independent Accountant’s Report”).43 The Independent Accountant’s Report
40
Compl. ¶¶ 49–52; Kim Aff., Ex. 7 (“Argosy Opening Statement”) (D.I. 62); Kim Aff., Ex. 8
(“AM Buyer Opening Statement”); Kim Aff., Ex. 9 (“Argosy Rebuttal”); Kim Aff., Ex. 9
(“AM Buyer Rebuttal”).
41
Argosy Opening Statement at 10-14 (Table 9); Argosy Rebuttal at 10-12 (Other Disputed
Items). In the end, the disputed items (totaling twelve) submitted were:
1. Accounting support related to Aug-20 acquisition;
2. Earnout period sales deferred to Jul-21;
3. Strategy support related to Aug-20 acquisition;
4. Senior management recruiting/relocation;
5. Variable compensation in excess of budget;
6. Professional fees related to Teknipure/Acquisition;
7. Duplicate head of Europe;
8. Marketing Consultant & BI Reporting Integration;
9. Acquisition Expense;
10. Web Consulting;
11. Recruiting (Indeed); and,
12. Miscellaneous Acquisition Expense.
Kim Aff., Ex. 13 (“Independent Accountant’s Report”), at 6 (D.I. 63).
42
Compl. ¶ 53; Kim Aff., Ex. 10 (“Independent Accountant Inquiry”).
43
See generally Independent Accountant’s Report.
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contains eight enumerated sections.44 Before resolving the twelve disputed items,
the Independent Accountant identified four “recurring themes” permeating
throughout the dispute: (1) MIPA Exhibit F; (2) the Bank Covenant EBITDA;
(3) the transaction costs and expenses; and, (4) the separate books and records.45
Relevant here are themes one and four.
In theme one, the Independent Accountant analyzed whether MIPA Exhibit F
was an “Approved Budget” that Buyer should have followed, or merely a calculation
method for the purposes of calculating Earnout Period EBITDA. 46 Based on its
“analysis of the MIPA,” the Independent Accountant found that “the inclusion of
Exhibit F therein is best interpreted as providing budgetary parameters for the
operation of the Acquired Group by the Buyer during the Earnout Period.”47 The
Independent Accountant identified and described multiple MIPA considerations it
relied upon in reaching that conclusion.48
In theme four, the Independent Accountant addressed Buyer’s obligation
under MIPA Section 2.1(b)(iv) to “maintain . . . separate books, records and financial
statements for the Acquired Group reasonably sufficient to determine, and to provide
44
Id. at 2 (Table of Contents).
45
Id. at 6–14 (Analysis of Matters Impacting Multiple Disputed Items).
46
Id. at 6–10 (MIPA Exhibit F – “Budget re: Earnout Period EBITDA”).
47
Id. at 7.
48
Id. at 7–10.
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to the Sellers’ Representative sufficient and accurate verification of, the Earnout
Payment.”49 Noting that the Buyer Parent “does not dispute” that it didn’t maintain
separate books and records, the Independent Accountant found that “the failure to
maintain such separate books and records is contrary to the terms of the MIPA.”50
As such, the Independent Accountant found that, “in the context of the earnout
dispute, the Independent Accountant may afford certain of the Sellers’
Representative positions more weight in circumstances where lack of clarity on the
pertinent issues exists as a result of the failure to maintain separate books and
records.”51
Having identified and resolved those four thematic issues, the Independent
Accountant then addressed all twelve disputed items in the Earnout Period EBITDA
calculation.52 For each, the Independent Accountant described the nature of the
disputed item, Argosy’s adjustment and argument, AM Buyer’s adjustment and
argument, its own determination, and its reasoning.53 The Independent Accountant
then summarized all twelve disputed items in a table format.54
49
Id. at 13–14 (Separate Books and Records).
50
Id. at 13.
51
Id. at 13–14.
52
Id. at 14–25 (Determination of Disputed Items).
53
Id.
54
Id. at 25–26 (Summary of Disputed Item Determinations).
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Based on those determinations, the Independent Accountant concluded that
Buyer Parent owed Argosy an Earnout Payment and specified the amount owed.55
Soon thereafter, Am Buyer initiated the present lawsuit.
E. PROCEDURAL BACKGROUND
This action came to the Superior Court by way of a 10 Del. C. § 1902
transfer.56 AM Buyer’s transferred complaint brings three causes of action:
declaratory judgment that the Independent Accountant’s decision is not binding
(Count I);57 in the alternative, declaratory judgment that the Independent
Accountant’s decision exceeded the scope of its authority (Count II); 58 and, also in
the alternative, declaratory judgment that the Independent Accountant’s decision
constituted manifest error (Count III).59
Argosy answered with two counterclaims of its own.60 Concurrent with its
answer, Argosy moved for summary judgment and to stay discovery.61 The Court
denied the motion to stay and deferred the motion for summary judgment until the
parties engaged in “some” discovery “focused on the generation of the Independent
55
Id. at 26 (Earnout Period EBITDA and Earnout Payment).
56
D.I. 2.
57
Compl. ¶¶ 91–99.
58
Id. ¶¶ 100–113.
59
Id. ¶¶ 114–124.
60
See generally Defendants’ Answer and Counterclaims (D.I. 8).
61
D.I. 9; D.I. 12.
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Accountant’s Report.”62 Following that order, the parties engaged in written
discovery63 and deposed Mr. Pappas along with both parties’ Rule 30(b)(6) corporate
representatives.64
Now, Argosy moves for summary judgment on all of AM Buyer’s affirmative
counts and summary judgment in its favor on all its own counterclaims.65 AM Buyer
opposes the motion.66 That motion is now ripe for decision.
II. PARTIES’ CONTENTIONS
Argosy moves for summary judgment dismissal of AM Buyer’s three
affirmative counts.67 Regarding Count I, Argosy says that the MIPA’s plain
language makes the Independent Accountant’s Earnout Payment determination final
and binding.68 With respect to Counts II and III, Argosy says that AM Buyer merely
raises evidentiary issues already decided by the Independent Accountant that should
be left undisturbed.69
62
Order Denying Defendants’ Motion to Stay Discovery and Deferring Defendants’ Summary
Judgment Motion at 2 (D.I. 32).
63
D.I. 39; D.I. 40; D.I. 41.
64
D.I. 57; D.I. 58; see also Kim Aff., Ex. 16 (“Pappas Dep. Tr.”) (D.I. 65).
65
See generally Opening Brief in Support of Defendants’ Amended Motion for Summary
Judgment (“Defs.’ Mot. for Summ. J.”) (D.I. 60).
66
See generally Plaintiffs AM Buyer, LLC and AM Intermediate Buyer Parent, Inc.’s Opposition
to Defendants’ Amended Motion for Summary Judgment (“Pls.’ Answering Br.”) (D.I. 70).
67
Defs.’ Mot. for Summ. J. at 29–30.
68
Id. at 16–20.
69
Id. at 20–29.
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Argosy also moves for summary judgment in its favor on its counterclaims.70
In its first counterclaim, Argosy asks for the Court to declare that the Independent
Accountant’s rulings are final, conclusive, and binding, and to order AM Buyer to
make the Earnout Payment as finally determined.71 In its second counterclaim,
Argosy says that AM Buyer’s failure to make the Earnout Payment constitutes a
breach of the MIPA.72 Argosy asks the Court to award Argosy damages as a result
of said breach.73
AM Buyer opposes Argosy’s motion in full.74 AM Buyer says that its Count
I should survive because the MIPA’s dispute resolution procedures make the
Independent Accountant’s Report non-binding on the parties.75 For its Count II, AM
Buyer contends that the Independent Accountant’s Exhibit F interpretation and
separate books and records conclusion exceeded the scope of its contracted-for
authority.76 And on Count III, AM Buyer identifies five errors in the Independent
Accountant’s Report it alleges were clear and manifest:
• That Exhibit F was the “approved budget” for the Earnout Period;
70
Id. at 30–33.
71
Defendants’ Answer and Counterclaims ¶¶ 30–40.
72
Id. ¶¶ 41–48.
73
Defs.’ Mot. for Summ. J. at 32–33.
74
See generally Pls.’ Answering Br.
75
Id. at 23–28.
76
Id. at 9–19, 28–34.
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• That AM Buyer didn’t maintain separate books and records;
• Disputed Item No. 4’s resolution regarding allocation of certain
fees;
• Disputed Item Nos. 5 and 6’s resolution regarding certain
calculations and allocations; and,
• Disputed Item No. 3’s resolution to add back certain compensation
amounts.77
Last, AM Buyer argues that Argosy’s request for damages, fees, and other costs is
premature and inappropriate.78
III. STANDARD OF REVIEW
Summary judgment is warranted “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits” show “there is
no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.”79 The movant bears the initial burden of proving its
motion is supported by undisputed facts.80 If the movant meets its burden, the non-
movant must show there is a “genuine issue for trial.”81 To determine whether a
77
Id. at 9–22; Compl. ¶¶ 68–90.
78
Pls.’ Answering Br. at 34–36.
79
Del. Super. Ct. Civ. R. 56(c); Options Clearing Corp. v. U.S. Specialty Ins. Co., 2021 WL
5577251, at *7 (Del. Super. Ct. Nov. 30, 2021).
80
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
81
Del. Super. Ct. Civ. R. 56(e); see also Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995) (“If
the facts permit reasonable persons to draw but one inference, the question is ripe for summary
judgment.”).
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genuine issue exists, the Court construes the facts in the light most favorable to the
non-movant.82
The “Court may not be able to grant summary judgment ‘if the factual record
has not been developed thoroughly enough to allow the Court to apply the law to the
factual record.’”83 But “[i]f the Court finds that no genuine issues of material fact
exists, and the moving party has demonstrated [its] entitlement to judgment as a
matter of law, then summary judgment is appropriate.”84
IV. DISCUSSION
A. THE INDEPENDENT ACCOUNTANT’S ROLE AS EXPERT, NOT ARBITRATOR.
Before addressing AM Buyer’s affirmative counts, the Court must first
determine if the Independent Accountant was engaged as an expert or an arbitrator.
Argosy suggests that MIPA Section 2.2(b)(ii) calls for arbitration,85 while AM Buyer
says that provision calls for an expert determination.86
82
Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del. 1977).
83
Radulski v. Liberty Mut. Fire Ins. Co., 2020 WL 8676027, at *4 (Del. Super. Ct. Oct. 28, 2020)
(cleaned up).
84
Brooke v. Elihu-Evans, 1996 WL 659491, at *2 (Del. Aug. 23, 1996) (citing Oliver B. Cannon
& Sons, Inc. v. Dorr-Oliver, Inc., 312 A.2d 322 (Del. Super. Ct. 1973)); see also Jeffries v. Kent
Cnty. Vocational Tech. Sch. Dist. Bd. of Educ., 743 A.2d 675, 677 (Del. Super. Ct. 1999)
(“However, a matter should be disposed of by summary judgment whenever an issue of law is
involved and a trial is unnecessary.” (citing Mitchell v. Wolcott, 83 A.2d 759, 761 (Del. 1951))).
85
See Defs.’ Mot. for Summ. J. at 7–10 (referring to the Independent Accountant’s “arbitration”
of the dispute), 22 (citing to law about review of an arbitrator’s decision); see also Reply Brief in
Support of Defendants’ Amended Motion for Summary Judgment (“Defs.’ Rep. Br.”) at 10–12
(D.I. 72).
86
Pls.’ Answering Br. at 2.
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Following the Delaware Supreme Court’s decision in Terrell v. Kiromic
Biopharma, Inc.87 and the Court of Chancery’s decision Penton Business Media
Holdings, LLC v. Informa PLC,88 Delaware courts have applied the “authority test”
to determine whether parties have opted for arbitration.89 “The test turns primarily
on the degree of authority delegated to the decision-maker.”90 In a plenary
arbitration, the arbitrator has authority “to decide all legal and factual issues
necessary to resolve the matter.”91 By contrast, an expert determination is typically
limited “to deciding a specific factual dispute concerning a matter within the special
expertise of the decision maker, usually concerning an issue of valuation.”92
The Court of Chancery already resolved the expert or arbitrator question. In
her minute order issued prior to transferring the case here, the Vice Chancellor ruled
that “[t]he Accountant is an expert, not an arbitrator.”93 That ruling could now
certainly be deemed the law of the case.94
87
297 A.3d 610 (Del. 2023).
88
252 A.3d 445 (Del. Ch. 2018).
89
See ArchKey Intermediate Holdings Inc. v. Mona, 302 A.3d 975, 993 (Del. Ch. 2023); Paul v.
Rockpoint Grp., LLC, 2024 WL 89643, at *10 (Del. Ch. Jan. 9, 2024); Cedres v. Geoffrey Servs.
Corp., 2024 WL 1435110, at *2 (Del. Ch. Apr. 3, 2024); Pazos v. AdaptHealth LLC, 2024 WL
3761817, at *6 (Del. Super. Ct. July 30, 2024).
90
ArchKey Intermediate Holdings Inc., 302 A.3d at 982.
91
Terrell, 297 A.3d at 618 (cleaned up).
92
Id.
93
AM Buyer, LLC & AM Intermediate Parent, Inc. v. Argosy Inv. Partners IV, L.P. & Anvil
Capital Partners III, L.P., 2022-0991-MTZ (Chancery Dkt.) D.I. 54.
94
“The law of the case doctrine is a ‘judicially-created doctrine that prevents parties from
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Even without that ruling, though, it’s evident that MIPA Section 2.2(b) calls
for an expert determination. Section 2.2(b)(ii) as applied to Section 2.1(b) is limited
just to resolving Earnout Statement disputes—an isolated factual issue.95 It calls for
that specific factual dispute to be resolved by an Independent Accountant, a subject-
matter expert.96 The Independent Accountant was not tasked with making judicial
determinations of legal obligations, and there are no judicial-proceeding-like
guidelines or rules.97 The Independent Accountant was also allowed to make
inquisitorial investigations, and indeed did so by asking for supplemental
submissions.98 And the Court’s review of the Independent Accountant’s Report is
limited to finding clear and manifest error.99 With all that, it was no doubt the
relitigating issues that previously have been decided.’” CRE Niagara Holdings., LLC v. Resorts
Grp., Inc., 2023 WL 2625838, at *7 (Del. Super. Ct. Mar. 24, 2023) (cleaned up). “Once a matter
has been addressed in a procedurally proper way by a court, it is generally held to be the law of
that case and will not be disturbed by that court unless a compelling reason to do so appears.” Zirn
v. VLI Corp., 1994 WL 548938, at *2 (Del. Ch. Sept. 23, 1994). Though decided by the Court of
Chancery before transfer, this particular issue was resolved by a court within this same action in a
procedurally proper way.
95
See Terrell, 297 A.3d at 618.
96
See ArchKey, 302 A.3d at 996 (“The first clue is that the decision maker is an Independent
Accountant. That choice strongly suggests an intent to rely on the Independent Accountant’s
subject matter expertise . . . and [is] inconsistent with legal arbitration.”).
97
See id. (“A second clue is the absence of any reference to a set of procedural rules, which is a
defining characteristic of arbitration provisions.” (internal quotations and citations omitted)).
98
See id. (“Experts are allowed to be more inquisitorial than judges and are not required to decide
the dispute only on evidence submitted to them by the parties.” (internal quotations and citations
omitted)); see also Independent Accountant Inquiry.
99
See ArchKey, 302 A.3d at 996–97 (“Review on the basis of manifest error is recognized under
the law of contracts with respect to appraisals and expert determinations.” (citations omitted)).
- 19 -
parties’ intent to enlist the Independent Accountant as an expert, not arbitrator.
Accordingly, the Independent Accountant was acting as an expert, not
arbitrator, in resolving the Earnout Payment dispute.100
B. THE INDEPENDENT ACCOUNTANT’S REPORT IS FINAL AND BINDING.
Argosy first moves for summary judgment dismissal of AM Buyer’s Count I.
In that count, AM Buyer asks the Court to declare that the Independent Accountant’s
determination resolving the Earnout Statement dispute isn’t final or binding.
Delaware law governs the MIPA, and in Delaware a contract’s proper
construction is a question of law.101 “Delaware adheres to the ‘objective’ theory of
contracts, i.e. a contract’s construction should be that which would be understood by
an objective, reasonable third party.”102 And “[w]hen the contract is clear and
unambiguous, [the Court] will give effect to the plain-meaning of the contract’s
terms and provisions.”103 But a contract may be deemed ambiguous when it is
100
For some additional support, compare Cedres, 2024 WL 1435110, at *2–4 (finding that the
provision at issue called for arbitration because (1) the provision required the independent party to
make judicial determinations of legal obligations in relation to the entire litigation, and (2) the
provision provided judicial-proceeding-like guidelines) with MIPA § 2.2(b)(ii) (limiting the
Independent Accountant’s authority to a specific fact issue and eschewing judicial-proceeding-like
guidelines).
101
E.g., Exelon Generation Acquisitions, LLC v. Deere & Co., 176 A.3d 1262, 1266–67
(Del. 2017) (“The proper construction of any contract . . . is purely a question of law . . . .”) (quoting
Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1992));
Northrop Grumman Innovation Sys., Inc. v. Zurich Am. Ins. Co., 2021 WL 347015, at *9 (Del.
Super. Ct. Feb. 2, 2021) (“[T]he interpretation of contractual language . . . is a question of law.”)
102
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citation omitted).
103
Id. at 1159–60 (Del. 2010) (citation omitted); see also Rhone-Poulenc Basic Chems. Co., 616
A.2d at 1195 (“Clear and unambiguous language . . . should be given its ordinary and usual
- 20 -
subject to multiple reasonable interpretations.104 When a contract is ambiguous, that
“rais[es] factual issues requiring consideration of extrinsic evidence to determine the
intended meaning of the provision[s] in light of the expectations of the contracting
parties.”105
The provisions to be interpreted here are MIPA sections 2.1(b) and 2.2(b).
MIPA Section 2.1(b) governs the procedure for submitting and responding to an
Earnout Statement.106 Section 2.1(b)(ii) provides that, if “the Parties have not
resolved all disagreements as to the computation of the Earnout Period EBITDA and
Earnout Payment . . . then the dispute resolution procedures in Section 2.2(b)(ii)
shall apply thereto, mutatis mutandis.”107 Section 2.1(b)(iii) then says that, “[w]ithin
five (5) Business Days after the final determination of the Earnout Period EBITDA
Amount and Earnout Payment,” any determined Earnout Payment is owed.108
MIPA Section 2.2(b)(ii) describes those dispute resolution procedures—vis à
vis an Independent Accountant—with reference to certain Closing Statement
documents.109 Section 2.2(b)(iii) then says that “[t]he findings and determinations
meaning.”).
104
Osborn ex rel. Osborn, 991 A.2d at 1160.
105
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1229 (Del. 1997).
106
MIPA § 2.1(b).
107
Id. § 2.1(b)(ii) (italics in original).
108
Id. § 2.1(b)(iii).
109
Id. § 2.2(b)(ii).
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of the Independent Accountant as set forth in its written report shall be deemed final,
conclusive and binding upon the Parties . . . .”110
Those two MIPA provisions are brought together by the Latin phrase mutatis
mutandis. That phrase is undefined in the MIPA, so the Court can look to its plain
and commonly understood meaning.111 Mutatis mutandis is commonly understood
as “‘useful Latinism’” that means “‘the necessary changes having been made.’”112
Since it would be time-consuming to note “‘minor adjustments to individual
provisions’” across different sections of the same instrument, it’s conventional to
accomplish such adjustments “‘in one fell swoop with the Latin phrase mutatis
mutandis.’”113 In common English, the phrase’s counterpart would be “‘together
with any necessary conforming changes.’”114
As employed here, mutatis mutandis makes necessary changes to MIPA
Section 2.2(b)(ii) so that it can apply to Earnout Payment disputes. That makes
sense, because MIPA Section 2.2(b)(ii) describes the dispute resolution procedure
for Closing Statement document disputes, not Earnout Statement disputes.115 After
110
Id. § 2.2(b)(iii).
111
Osborn ex rel. Osborn, 991 A.2d at 1159.
112
Penton Bus. Media Holdings, LLC, 252 A.3d at 467 (quoting In re IAC/InterActive Corp., 948
A.2d 471, 508 (Del. Ch. 2008)).
113
Id. (citing Kenneth A. Adams, A Manual of Style for Contract Drafting 387 (4th ed. 2017)).
114
Id.115
See MIPA § 2.2(b)(ii).
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making the necessary minor changes, MIPA Section 2.2(b)(ii) unambiguously calls
for an Independent Accountant to conduct its review, resolve all Earnout Statement
disputes, and calculate the Earnout Payment as applicable and based solely on the
information submitted by the parties.
The parties, in an apparent understanding of the mutatis mutandis language
and its effect, indeed engaged an Independent Accountant to resolve their Earnout
Statement dispute. But now that the Independent Accountant has issued its written
report, AM Buyer says that report isn’t final or binding.116 Specifically, AM Buyer
says Section 2.2(b)(iii) doesn’t apply to Earnout Statement disputes because Section
2.1(b)(ii) only references Section 2.2’s procedural provision, not its provision
rendering the Independent Accountant’s report final and binding.117
Not so. These parties agreed for an Independent Accountant to resolve
Earnout Statement disputes. And they engaged Marcum LLP to do so through a
written report. Once that report is issued, the MIPA describes its effect. In Section
2.2(b)(iii), it provides that the “findings and determinations of the Independent
Accountant as set forth in its written report shall be deemed final, conclusive and
binding upon the Parties[.]”118 That provision applies to any written report by the
116
Pls.’ Answering Br. at 23–28.
117
Id.
118
MIPA § 2.2(b)(iii) (emphasis added).
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Independent Accountant, regardless of dispute type.
Other MIPA provisions further solidify the written report’s finality and effect.
MIPA Section 2.1(b)(vi)—discussing Earnout Payment interest rates—explicitly
says that “[a]ny portion of the Earnout Payment due and owing from Buyer Parent,
as finally determined pursuant to Section 2.2(b)(iii),” bears interest at prescribed
rates.119 Contrary to AM Buyer’s suggested interpretation, that provision clearly
states that Earnout Statement disputes are “finally determined” by the Independent
Accountant’s written report.
“In upholding the intentions of the parties, a court must construe the
agreement as a whole, giving effect to all provisions therein.”120 When interpreting
its provisions together, the MIPA unambiguously renders the written report final and
binding on the parties. Accordingly, Argosy’s motion for summary judgment on
AM Buyer’s Count I is GRANTED.
C. THE INDEPENDENT ACCOUNTANT DIDN’T EXCEED ITS AUTHORITY
UNDER THE MIPA.
Argosy moves for summary judgment on AM Buyer’s Count II as well.121 In
that count, AM Buyer alleges that the Independent Accountant exceeded its scope
119
Id. § 2.1(b)(vi) (emphasis added).
120
E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985).
121
Defs.’ Mot. for Summ. J. at 29–30.
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of authority under the MIPA.122 Because MIPA Section 2.2(b)(ii) is an expert
determination provision, Delaware rules of contract interpretation and the MIPA’s
terms control the Court’s review.123
Under MIPA Section 2.2(b)(ii), the Independent Accountant “shall conduct
its review, resolve all disputes and, to the extent necessary, compute the [Earnout
Period EBITDA], as applicable to the extent such item remains in dispute, based
solely on the information submitted by the Sellers’ Representative and the Buyer (not
by independent review or otherwise).”124 The section further provides that:
In resolving any disputed item, the Independent Accountant (A) may
not assign a value to any particular item greater than the greatest value
for such item claimed by either the Sellers’ Representative or the Buyer,
or less than the lowest value for such item claimed by either the Sellers’
Representative or the Buyer, in each case as presented to the
Independent Accountant, (B) shall be bound by the principles set forth
in this Section 2.2, and (C) under all circumstances, shall limit its
review to matters specifically set forth in the Protest Notice.125
This section’s provisions are unambiguous. The parties enlisted the Independent
Accountant as an expert to resolve the Earnout Statement dispute and determine an
Earnout Payment.
122
Compl. ¶¶ 100–113.
123
See Penton Bus. Media Holdings, 252 A.3d at 465-67; see also Terrell, 297 A.3d at 619
(applying contract interpretation principles after finding the dispute resolution provision did not
call for arbitration); Pazos, 2024 WL 3761817, at *6–7 (same).
124
MIPA § 2.2(b)(ii) (emphasis added).
125
Id. (emphasis added).
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AM Buyer points to two specific instances where it contends that the
Independent Accountant exceeded its authority in the written report. First, AM
Buyer says that the Independent Accountant made an unauthorized legal conclusion
by determining that Exhibit F was an “approved budget” for the Earnout Period.126
Second, AM Buyer says the Independent Accountant exceeded its authority when it
determined that AM Buyer failed to maintain separate books and records.127
Put simply, the Independent Accountant didn’t exceed its contracted-for
authority when making determinations regarding certain factual disputes attendant
to the earnout issue submitted to it; that’s exactly what it was employed to do.
The parties submitted twelve disputed Earnout Statement items to the
Independent Accountant for resolution. In addition, Argosy identified certain issues
it found troubling in the Earnout Statement. The Independent Accountant then
addressed those identified issues and resolved the twelve disputed items.
The Exhibit F budgetary issue was submitted to the Independent Accountant
and addressed as one of the dispute’s recurring themes. Using its expertise, the
Independent Accountant interpreted Exhibit F and determined that it was an
approved budget. That determination wasn’t outside the MIPA-designated authority
and isn’t a legal conclusion. The Independent Accountant did not exceed the
126
Pls.’ Answering Br. at 10–15, 31.
127
Id. at 16–19, 31–34.
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MIPA’s scope when interpreting and resolving the budgetary dispute stemming from
Exhibit F.
The books and records issue was raised in the Earnout Protest Notice and
presented to the Independent Accountant in turn. The Independent Accountant’s
Report addressed the issue in its “Analysis of Matters Impacting Multiple Disputed
Items” section.128 The Independent Accountant identified MIPA Section 2.1(b)(iv)’s
requirement that AM Buyer “‘at all times maintain, and cause the Acquired Group
to maintain, separate books, records and financial statements for the Acquired Group
reasonably sufficient to determine, and to provide to the Sellers’ Representative
sufficient and accurate verification of, the Earnout Payment.’”129
The Independent Accountant then exercised its contractually designated
authority to determine, in the context of resolving the Earnout Statement dispute,
that the Buyer did not maintain such separate books and records as is required by the
MIPA.130 After reaching that determination, the Independent Accountant’s Report
stated: “Consequently, in the context of the earnout dispute, the Independent
Accountant may afford certain of the Sellers’ Representative positions more weight
in circumstances where lack of clarity on the pertinent issues exist as a result of the
128
Independent Accountant’s Report at 13–14.
129
Id. at 13 (citing MIPA § 2.1(b)(iv)).
130
Id.
- 27 -
failure to maintain separate books and records.”131
The Independent Accountant’s books and records determination was well
within its contracted-for authority. The Independent Accountant resolved the books
and records dispute submitted to it and then used its expertise as an accountant to
provide a remedy. That remedy was for the specific purpose of resolving the Earnout
Payment Dispute—not for any legal purpose.
As a designated expert, the Independent Accountant’s authority was limited
“to deciding a specific factual dispute within the decision maker’s expertise.”132 An
expert is not making decisions “on issues of law or legal claims.”133 This expert was
tasked with resolving a specific factual dispute—the appropriate Earnout Payment
owed—and was thus granted authority to resolve all relevant disputations therein.
In so doing, the Independent Accountant weighed evidence from both sides and
made certain determinations. Because that is what the parties agreed to, the MIPA’s
131
Id. at 13–14 (emphasis added).
132
Ray Beyond Corp. v. Trimaran Fund Mgmt., L.L.C., 2019 WL 366614, at *6 (Del. Ch. Jan. 29,
2019) (citing N.Y.C. BAR COMM. ON INT’L COM. ARB., PURCHASE PRICE ADJUSTMENT CLAUSES
& EXPERT DETERMINATIONS: LEGAL ISSUES, PRACTICAL PROBLEMS & SUGGESTED IMPROVEMENTS
at 4 (2013)); see also Cedres, 2024 WL 1435110, at *2–3 (Del. Ch. Apr. 3, 2024) (“The parties
agree that the expert’s determination of the disputed factual issue will be final and binding on
them. The parties are not, however, normally granting the expert the authority to make binding
decisions on issues of law or legal claims, such as legal liability.” (quoting Penton Bus. Media
Holdings, 252 A.3d at 464)).
133
Penton Bus. Media Holdings, 252 A.3d at 464. That differs from arbitration, where “the parties
have intended to delegate to the decision maker authority to decide all legal and factual issues
necessary to resolve the matter.” Id.
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scope wasn’t exceeded here.
Accordingly, Argosy’s motion for summary judgment on AM Buyer’s Count
II is GRANTED.
D. THE INDEPENDENT ACCOUNTANT DIDN’T COMMIT MANIFEST ERRORS.
Argosy also moves for summary judgment dismissal of AM Buyer’s Count
III.134 In that count, AM Buyer says the Independent Accountant’s Report contains
multiple manifest errors.135 The same previously discussed rules of contract
interpretation apply.136
MIPA Section 2.2(b)(iii) states that “[t]he findings and determinations of the
Independent Accountant as set forth in its written report shall be deemed final,
conclusive and binding upon the Parties and shall not be subject to collateral attack
for any reason, other than fraud or clear and manifest error.”137 Based on that
provision’s unambiguous terms, the Court can only overturn the Independent
Accountant’s final determination regarding the owed Earnout Payment if it finds
clear and manifest error.
“[C]lear and manifest error” is not defined in the MIPA, but the core of the
134
Defs.’ Mot. for Summ. J. at 29–30.
135
Compl. ¶¶ 114–124.
136
See Part IV(B), supra.
137
MIPA § 2.2(b)(iii) (emphasis added).
- 29 -
term at issue here was recently defined by this Court in Pazos v. AdaptHealth LLC.138
There, the Court described a manifest error as a “plain and obvious error,” or an error
which is “obvious or easily demonstrable without extensive investigation.”139
What’s more, manifest error should be “confined to errors which are obviously
capable of affecting the determination.”140 Such an error “need not be manifest at
the time the decision is made, but may become manifest as a result of subsequent
investigation.”141
The Court will employ the manifest error formulation described in Pazos.
Thus, the Independent Accountant “only committed manifest error if it made a plain
and obvious error, and the record demonstrates strong reliance on that error.”142
To make its manifest-error decision, the Court may consider “the reasons
138
2024 WL 3761817, at *7–8. The phrasing at issue in Pazos was that the independent
accountant’s determination “shall not be subject to appeal or further review absent manifest error.”
Id. at *7 (emphasis added). The addition of “clear and” by these sophisticated parties here can
only—if anything—serve to further restrict the type of error subject to judicial review and increase
the complainer’s burden. See Weinberg v. Waystar, Inc., 249 A.3d 1039, 1045 (Del. 2023) (noting
that in a contract “‘and’ typically bears a conjunctive meaning”); see also Clear, MERRIAM-
WEBSTER DICTIONARY (online ed.), www.merriam-webster.com/dictionary/clear (last visited Aug.
29, 2024) (defining “clear” in pertinent part as “free from obscurity or ambiguity: easily
understood; unmistakable); and Clear error, BLACK’S L. DICTIONARY 683 (11th ed. 2019)
(describing “clear error” as a “decision or action that appears to a reviewing court to have been
unquestionably erroneous).
139
Id. at *7 (quoting KENDALL ON EXPERT DETERMINATION § 14.11-2, at 347 (5th ed. 2015)
[hereinafter KENDALL ON EXPERT DETERMINATION]).
140
Id. (quoting KENDALL ON EXPERT DETERMINATION, supra, § 14.11-4, at 348).
141
Id. at *8 (quoting KENDALL ON EXPERT DETERMINATION, supra, § 14.11-2, at 347).
142
Id.
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expressed for the expert’s determination (which might include some clarification of
those reasons), ‘documents which are expressly referred to in the determination and
form an essential part of the determination (such as the agreement between the
parties), the submissions of the parties which are referred to in the reasons,’ and the
easily discernable facts.”143
In its complaint and briefing, AM Buyer points to five allegedly manifest
errors made by the Independent Accountant.144 For each purported error, AM Buyer
tries to poke holes in the Independent Accountant’s specific determinations.
AM Buyer says that the Independent Accountant’s Exhibit F determination
constitutes error because the MIPA doesn’t explicitly define it as a binding approved
budget.145 AM Buyer points to certain submissions to show that it did, in fact,
maintain separate books and records.146 AM Buyer further posits that the
Independent Accountant made “the unsupported and incorrect determination to
143
Id. at *9 (quoting KENDALL ON EXPERT DETERMINATION, supra, § 14.11-3, at 347–48).
144
Compl. ¶¶ 68–90 (identifying errors); Pls.’ Answering Br. at 9–22 (same). Recall, those five
purported errors are:
• That Exhibit F was the “approved budget” for the Earnout Period;
• That AM Buyer didn’t maintain separate books and records;
• Disputed Item No. 4’s resolution regarding allocation of certain fees;
• Disputed Item Nos. 5 and 6’s resolution regarding certain calculations and
allocations; and,
• Disputed Item No. 3’s resolution to add back certain compensation amounts.
145
Pls.’ Answering Br. at 10–16.
146
Id. at 16–19.
- 31 -
allocate 25% of the Senior Manager Recruiting/Relocation fees to Earnout Period
EBITDA” when resolving disputed item number 4.147 And AM Buyer contends that,
with regards to disputed items 5 and 6, the Independent Accountant “reperformed
calculations and used an allocation methodology in favor of Sellers’
Representatives, while ignoring or failing to solicit [AM Buyer’s] position.”148 Too,
AM Buyer argues that the Independent Accountant conducted an “independent
review” by adding back the Interim Chief Marketing Officer’s compensation without
properly documented support.149
In its briefing, AM Buyer asks the Court to do a deep dive into each allegedly
errant fact determination, scrutinize Mr. Pappas’ deposition answers, and conduct its
own accountant-level review. The Court declines that invitation. The Court’s role
is limited to determining whether a plain and obvious error occurred.150
When conducting that limited review, AM Buyer’s identified determinations
don’t constitute either clear or manifest error. Regarding Exhibit F, the Independent
Accountant reviewed both sides’ arguments and determined that it’s inclusion in the
147
Compl. ¶¶ 75–81.
148
Id. ¶¶ 82–86.
149
Id. ¶¶ 87–90.
150
See CLP Toxicology, Inc. v. Casla Bio Holdings LLC, 2019 WL 1233458, at *1 (Del. Ch. Feb.
18, 2019) (which might take the form of “an unambiguous and undisputed mistake of fact”); see
also Tenenbaum Living Tr. v. GCDI S.A., 682 F. Supp. 3d 342, 355 (S.D.N.Y. 2023) (noting that
proper employment of a manifest error clause “requir[es] courts not to make such determinations
themselves but rather to defer to qualified experts selected by the parties.”).
- 32 -
MIPA is best interpreted as providing operative budgetary parameters.151 With
respect to separate books and records, the Independent Accountant reviewed the
evidence submitted by both parties and sided with Argosy.152 In resolving disputed
items 4, 5, and 6, the Independent Accountant factored in AM Buyer’s failure to
maintain separate books and records, considered a number of invoices for support,
weighed both sides’ positions, and made a determination for each.153 And when
settling disputed item number 3, the Independent Accountant was presented with
documents and other evidence sufficient to reach a conclusion.154 None of those
determinations constitute either clear or manifest error by the Independent
Accountant.
The Independent Accountant’s designated task was to “examine and opine
upon the merits of the earn-out dispute in accordance with the terms and conditions
set forth in [the MIPA] (including, without limitation, the principles set forth in
Section 2.2(b)(ii) of [the MIPA]).”155 The Independent Accountant did just that in
its twenty-six-page report, identifying and addressing four thematic issues before
151
See Independent Accountant’s Report at 6–10.
152
See id. at 13–14.
153
See id. at 18–22.
154
See id. at 17–18.
155
Engagement Letter at 1.
- 33 -
resolving all twelve disputed items in the Earnout Period EBITDA calculation.156
For each determination, the Independent Accountant’s Report described the nature
of the disputed item, weighed arguments and documents against each other, and
resolved the dispute.157 Those determinations are supported by the parties’
submissions and well-reasoned in the report. They aren’t, as is required here, either
clear or “plain and obvious error.”158
At bottom, the ability to weigh documents one way or the other is within the
province of this expert.159 And “in order to decide the point which has been referred
to him,” an expert may sometimes “decide a disputed point of interpretation of the
contract between the parties.”160 As such, the Independent Accountant had the
authority to determine, based on the parties’ submissions and its own MIPA
interpretations, the parties’ disputed items. AM Buyer’s disquiet about just how the
Independent Accountant weighed those items doesn’t empower the Court to simply
substitute its own judgment or analysis for this subject-matter expert’s.161 Because
156
See Independent Accountant’s Report at 6–14.
157
See id.158
See Pazos, 2024 WL 3761817, at *7 (citing KENDALL ON EXPERT DETERMINATION, supra,
§ 14.11-2, at 347).
159
See MIPA § 2.2(b)(ii).
160
ArchKey, 302 A.3d at 997–98.
161
See Tenenbaum Living Tr., 682 F. Supp. 3d at 355 (“A manifest error clause avoids [the peril
of a court’s erroneous financial computations] by requiring courts not to make such determinations
themselves but rather to defer to qualified experts selected by the parties.”); id. (“for manifest error
clauses to properly serve their function, they must preclude courts from reexamining the
- 34 -
AM Buyer fails to identify any clear or manifest errors, its claim must be dismissed.
Accordingly, Argosy’s motion for summary judgment on AM Buyer’s Count
III is GRANTED.
E. ARGOSY IS ENTITLED TO ITS REQUESTED FINAL DETERMINATION, BUT NO
BREACH OCCURRED AND NO FEES ARE OWED.
Last, Argosy moves for summary judgment in its favor with respect to both
its counterclaims.162 In its first counterclaim, Argosy asks for the Court to declare
that the Independent Accountant’s Report is valid and enforceable, and to order
Argosy to make the Earnout Payment awarded in that report plus interest and fees.163
In its second counterclaim, Argosy asks the Court to determine that AM Buyer
breached the MIPA by failing to pay the Earnout Payment, and to award damages.164
Argosy also asks for fees and costs associated with bringing the present motion.165
Argosy is entitled to its first counterclaim ask. Under MIPA § 2.2(b)(iii), the
parties are “entitled to have a judgment entered on [the Independent Accountant]’s
Report” in any court of competent jurisdiction.”166 As just discussed, the
Independent Accountant’s Report is final and binding on the parties and the
substantive correctness of the determination to which the clause applies”).
162
Defs.’ Mot. for Summ. J. at 32–33.
163
Defendants’ Answer and Counterclaims ¶¶ 30–40.
164
Id. ¶¶ 41–48.
165
Defs.’ Mot. for Summ. J. at 32–33.
166
MIPA § 2.2(b)(iii).
- 35 -
Independent Accountant didn’t commit either clear or manifest error. So, the
Independent Accountant’s Report is valid and enforceable, and AM Buyer must now
make the finally determined Earnout Payment as the MIPA instructs.167
But Argosy falls short on its second counterclaim. A breach-of-contract claim
requires: (1) the existence of a contract; (2) a breach of the contract; and (3) damages
suffered as a result of the breach.168 Under MIPA § 2.2(b)(iii), the Independent
Accountant’s findings and determinations “shall not be subject to collateral attack
for any reason, other than fraud or clear and manifest error.”169
Here, AM Buyer subjected the Independent Accountant’s Report to a
collateral attack within the MIPA’s bounds by claiming that the written report
contained manifest errors. AM Buyer hasn’t breached the MIPA’s provision that
allows for such attacks. Indeed, the MIPA contemplates—for Earnout Payment
disputes such as this one—that these parties “shall be entitled to have a judgment
entered” by a “court of competent jurisdiction” after a manifest error attack.170
Following this order’s entry of judgment, the Earnout Payment will become due.
But AM Buyer’s failure to pay the Earnout Payment while the Independent
Accountant’s Report was actively challenged in this Court for clear and manifest
167
See id. § 2.1(b)(iii).
168
E.g., VLIW Tech., LLC v. Hewlett–Packard Co., 840 A.2d 606, 612 (Del. 2003).
169
MIPA § 2.2(b)(iii) (emphasis added).
170
Id.
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error doesn’t constitute a breach of the MIPA’s plain terms.171
Finally, Argosy isn’t entitled to the fees and costs it asks for. Argosy points
to the MIPA’s indemnification provisions to justify its request.172 But MIPA Section
9.4’s plain language conditions indemnification upon AM Buyer’s failure to perform
a “covenant.”173 No such failure occurred. The MIPA doesn’t otherwise impose an
independent duty to pay defense costs.174 Nor does it contain a fee-shifting
provision.175 And absent an express contractual provision, Argosy hasn’t earned an
award of fees and costs under Delaware law.176
Accordingly, Argosy’s motion for summary judgment on its first
counterclaim is GRANTED. But both Argosy’s motion for summary judgment on
its second counterclaim and its request for fees and costs are DENIED.
171
In addition, the materiality of any alleged breach is a non-briefed factual issue. And even it
were, materiality is a factual question not ordinarily well-suited for judgment as a matter of law.
See, e.g., IP Network Sols., Inc. v. Nutanix, Inc., 2022 WL 369951, at *11 (Del. Super. Ct. Feb. 8,
2022).
172
Defs.’ Mot. for Summ. J. at 32–33 (citing MIPA § 9.4).
173
See MIPA § 9.4(a).
174
See Winshall v. Viacom Int’l., Inc., 76 A.3d 808, 819 (Del. 2013).
175
See SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330, 352 (Del. 2013) (“In contract
litigation, where the contract contains a fee-shifting provision, we will enforce that provision.”).
176
See id. (“Under the American Rule and Delaware law, litigants are normally responsible for
paying their own litigation costs.” (quoting Mahani v. Edix Media Grp., Inc., 935 A.2d 242, 245
(Del. 2007))); Kuang v. Nat’l. Cole Corp., 884 A.2d 500, 506 (Del. 2005) (“One well-recognized
exception to the American Rule is where the losing party has acted in bad faith, vexatiously,
wantonly, or for oppressive reasons.” (cleaned up and citations omitted)); Lawson v. State, 91 A.3d
544, 552 (Del. 2014) (the party seeking to invoke the bad-faith exception must demonstrate by
“clear evidence that the party from whom fees are sought . . . acted in subjective bad faith” (internal
quotations and citations omitted)). Argosy makes no such showing.
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V. CONCLUSION
For the foregoing reasons: Argosy’s Motion for Summary Judgment on
AM Buyer’s Affirmative Counts is GRANTED; Argosy’s Motion for Summary
Judgment on its First Counterclaim is GRANTED; Argosy’s Motion for Summary
Judgment on its Second Counterclaim is DENIED; and, Argosy’s Request for Fees
and Costs is DENIED.
IT IS SO ORDERED.
/s/ Paul R. Wallace
_______________________
Paul R. Wallace, Judge
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