Arthur J. Gallagher & Co. v. Joseph A. Agiato, Jr.
2024-0494-LWW
Del. Ch.Jul 31, 2025Background
- Gallagher acquired two companies (PIUS and Newlight), paying $50 million cash plus up to $150 million in earnouts tied to revenue targets over four years.
- The purchase was governed by an Asset Purchase Agreement (APA), an Employment Agreement with Agiato, and an Escrow Agreement securing certain stock against indemnity obligations.
- The Year 1 earnout depended on the New PIUS Division exceeding $20 million in specified revenue (NCFI), which both parties later stipulated was achieved.
- Gallagher withheld the Year 1 earnout, claiming various contractual breaches by Agiato and seeking indemnification instead.
- Gallagher also withheld escrowed shares, asserting timely notice of indemnification claims; Agiato disputed the timeliness and validity of that notice.
- The case came before the Delaware Court of Chancery on Agiato’s motion for partial judgment on the pleadings on key contract and escrow issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Year 1 Earnout Owed | Not owed due to Agiato's breaches and noncompliance | Earnout is owed; sole condition (revenue threshold) is met | Earnout payment is due; only revenue threshold matters |
| Condition Precedent via Operations | Post-closing conduct by Agiato is a condition | No, APA grants Gallagher discretion and doesn't specify this | No additional condition; APA is unambiguous; payment required |
| Condition Precedent via Employment | Agiato’s compliance with Employment Agreement is a condition | Execution (not compliance) is required | Only execution, not continued compliance or employment, is needed |
| Escrowed Shares Release | Valid indemnity claims/timely notice; keep shares | Notice untimely/claims invalid; release shares | Factual disputes prevent judgment for either side at this stage |
Key Cases Cited
- Klair v. Reese, 531 A.2d 219 (Del. 1987) (treats contract interpretation as a question of law for enforcing unambiguous contracts)
- Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228 (Del. 1997) (contract terms control when unambiguous; ambiguity if fairly susceptible to different interpretations)
- Salamone v. Gorman, 106 A.3d 354 (Del. 2014) (Delaware courts follow objective theory of contracts and prioritize parties’ intent as expressed in the agreement)
- Post Holdings, Inc. v. NPE Seller Rep LLC, 2018 WL 5429833 (Del. Ch. 2018) (buyers must perform contract even if seeking indemnification for material breach by sellers)