Background - In December 2014 Plaintiffs sold several building-products companies to Defendants; the purchase price included a $100 million earnout tied to 2015 Adjusted EBITDA. - The Agreement required the Purchaser to deliver an Initial Earnout Statement and gave Sellers 45 days to accept or deliver a Notice of Disagreement identifying Disputed Items; unresolved items after 30 days were to be submitted to a Neutral Accountant (an internationally recognized accounting firm) to resolve Unresolved Objections. - Purchaser delivered an Initial Earnout Statement in April 2016 showing Adjusted EBITDA below earnout thresholds; Sellers disputed the Adjusted EBITDA calculation, Purchaser’s operation of the companies (covenant breach under §5.19), and Purchaser’s refusal to provide access to records. - The parties failed to agree on an engagement letter for the Neutral Accountant; Sellers then sued in Chancery seeking an order compelling arbitration of all unresolved objections and asserting breach/indemnification claims. - Defendants moved to dismiss, arguing (1) the Neutral Accountant’s jurisdiction is narrowly limited to pure accounting disputes and (2) any indemnity claims are time-barred by the contract’s survival/limitations provisions because Sellers did not give proper indemnity notice before the General Survival Date (June 13, 2016). - The court concluded the Neutral Accountant has jurisdiction to determine Adjusted EBITDA and which Disputed Items fall within that definition; however, indemnification claims are barred because Sellers’ Notice of Disagreement did not satisfy the contract’s §9.05 notice requirements before the survival date. ### Issues | Issue | Plaintiff's Argument | Defendant's Argument | Held | |---|---:|---:|---:| | Scope of Neutral Accountant’s authority (substantive arbitrability) | Sellers: Neutral Accountant should decide all Disputed Items in the Notice of Disagreement. | Defendants: Neutral Accountant limited to a narrow set of accounting-methodology disputes. | Neutral Accountant has jurisdiction over the calculation of Adjusted EBITDA, including deciding which Disputed Items fall within Adjusted EBITDA. | | Procedural powers (discovery for Neutral Accountant) | Sellers: Neutral Accountant must be able to compel necessary document/exchange to decide disputes. | Defendants: (no dispute at oral argument). | Parties agreed Neutral Accountant may compel document exchange and discovery necessary for its work. | | Remedy if Neutral Accountant finds an issue outside Adjusted EBITDA | Sellers: Seek damages/breach claims in court for covenant violations affecting the earnout. | Defendants: Such claims are subject to contract’s indemnification regime and survival limits. | If Neutral Accountant cannot consider an objection, Sellers’ sole remedy is an indemnification claim; but that claim is subject to contractual notice/survival rules. | | Timeliness of indemnification claims | Sellers: Estoppel/waiver/acquiescence should prevent dismissal despite late formal indemnity pleading. | Defendants: Contractual survival date (June 13, 2016) bars indemnity claims because proper notice under §9.05 was not given; post-deadline conduct cannot revive claims. | Sellers failed to provide §9.05 notice before the survival date; indemnification claims are time-barred; estoppel/waiver/acquiescence inapplicable. | ### Key Cases Cited Parfi Hldgs. AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002) (two-step test for substantive arbitrability and scope analysis) Viacom Int’l Inc. v. Winshall, 72 A.3d 78 (Del. 2013) (arbitrator decides what financial information is considered in earnout calculations) Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) (pleading-standard principles and notice by complaint) Kofron v. Amoco Chems. Corp., 441 A.2d 226 (Del. 1982) (standard for dismissal for failure to state a claim) In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162 (Del. 2006) (limits on accepting conclusory allegations without supporting facts) SBC Interactive, Inc. v. Corp. Media P’rs, 714 A.2d 758 (Del. 1998) (Delaware’s strong public policy favoring arbitration)