In upholding a decision(1) of the Delaware Court of Chancery, the Delaware Supreme Court recently ruled that, without provisions in an agreement specifying the actions that a buyer must take to maximise earn-out payments, the implied covenant of good faith and fair dealing does not require a buyer to run its business – in this case to renegotiate a distribution agreement with a third party – in order to maximise earn-out payments to the sellers. The court also rejected an argument that the sellers were required to pay the legal defence costs of the buyer for certain third-party lawsuits independently of any obligation by the sellers to indemnify the buyer for the underlying claims. The court reiterated that an obligation to advance defence costs is distinct from an obligation to indemnify, and if the parties intended for the sellers to undertake both obligations, this should have been explicitly stated in the agreement.
For further information on this topic please contact James Lidbury at Ropes & Gray LLP's Hong Kong office by telephone (+1 852 3664 6488), fax (+1 852 3664 6588) or email (firstname.lastname@example.org). Alternatively, contact James C Davis at Ropes & Gray LLP's Chicago office by telephone (+1 312 845 1200), fax (+1 312 845 5500) or email (email@example.com). The Ropes & Gray LLP website can be accessed at www.ropesgray.com.