The Delaware Supreme Court affirmed a Delaware Chancery Court decision addressing the use of experts to resolve post-closing disputes with respect to earn-outs -- conditional payments contingent on the future performance of a company. The claim arose out of a merger agreement that provided for earn-out payments to the stockholders of the target company based on profits of the acquired business following the consummation of the merger. The merger agreement stated that disputes over earn-out amounts would be resolved by an accounting firm whose determination would be a final, binding and conclusive resolution of the dispute. After a dispute arose with respect to certain earn-out payments, the parties to the merger transaction engaged a third-party accounting firm to resolve the dispute. The acquiring company was ordered by the accounting firm to pay an earn-out to the target company's stockholders. The acquiring company filed suit seeking to vacate the order of the accounting firm. The Delaware Chancery Court granted summary judgment in favor of the target company stockholders. In granting summary judgment, the court noted that the accounting firm's award was to be reviewed under the Federal Arbitration Act (the "FAA"). The FAA allows a court to vacate an arbitration award only when such award "was procured by fraud" or is subject to "manifest error." This case illustrates that courts are unlikely to second-guess the scope of a reviewer's inquiry with respect to post-closing purchase price adjustments.

Viacom Int'l. v. Winshall, No. 513, 2012 (Del. Sup. Ct., July 16, 2013)