Shareholder Representative Services v. Albertsons Companies, C.A. No. 2020-0710-MTZ

Background

Plaintiff SRS (stockholders’ agent) sued Albertsons after Albertsons acquired Plated in a 2017 merger that paid $175M up front plus up to $125M in post‑closing earnout tied to annual “Net Revenue.”
The Merger Agreement granted Albertsons "exclusive" post‑closing operational control but contained Section 2.9(h)(vii) prohibiting any action taken "with the intent of decreasing or avoiding any Earnout Issuance."
Pre‑closing, Albertsons allegedly represented it would support and grow Plated’s e‑commerce subscription business; plaintiff alleges Albertsons secretly planned to prioritize in‑store retail instead.
After closing, Albertsons allegedly shifted Plated’s resources to rapid retail rollout, cut e‑commerce investment, interfered with management and compensation, and ultimately shuttered the subscription business, leaving all earnout targets unmet.
SRS pleaded breach of contract (intent to avoid earnout; failure to provide 2019 earnout statement), breach of the implied covenant, fraudulent inducement (oral promises), and sought specific performance for the earnout statement; Albertsons moved to dismiss under Ch. Ct. R. 12(b)(6).
The Court denied dismissal of the breach‑of‑contract claim to the extent it alleged Albertsons acted with intent to avoid the earnout, but dismissed the implied covenant and fraudulent inducement claims and dismissed as moot the claim seeking the 2019 earnout statement.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Albertsons breached §2.9(h)(vii) by acting with intent to avoid the earnout	Albertsons concealed its intent pre‑closing and post‑closing reallocated resources in ways it knew would cause miss of earnout	Albertsons had sole contractual discretion to operate Plated and its conduct was permitted	Denied dismissal: plausible inference Albertsons acted, at least in part, with intent to avoid earnout (claim survives pleading stage)
Whether the implied covenant supplements the Agreement to restrict buyer discretion	Plated says buyer must exercise discretion in good faith and implied covenant fills gaps	Albertsons says parties bargained for express discretion subject only to the "intent" limitation, leaving no gap for implied covenant	Dismissed: no gap for implied covenant where contract expressly allocates discretion and limits it by an "intent" standard (Lazard controlling)
Whether fraudulent inducement based on pre‑closing oral promises survives	Plated relied on oral promises about post‑closing operations and retention measures	Albertsons points to an integrated written agreement that grants broad discretion and contradicts alleged future promises	Dismissed: fraud claim fails for lack of justifiable reliance because claims concern alleged false future intent contradicted by the integrated Merger Agreement
Whether the earnout statement claim and specific performance remain ripe	Plaintiff sought the 2019 earnout statement	Albertsons represented the statement was later produced	Dismissed as moot: relief (production) already furnished so no live controversy

Key Cases Cited

Lazard Tech. P’rs, LLC v. Qinetiq N. Am. Operations LLC, 114 A.3d 193 (Del. 2015) (parties’ bargained‑for limitation on buyer discretion can preclude independent implied covenant relief)
Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) (pleading standard on a motion to dismiss; court may accept well‑pled factual allegations)
Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (limits and application of the implied covenant of good faith and fair dealing)
Glaxo Grp. Ltd. v. DRIT LP, 248 A.3d 911 (Del. 2021) (characterizing implied covenant as a narrow, extraordinary remedy)
Abry P’rs V, L.P. v. F & W Acqs. LLC, 891 A.2d 1032 (Del. Ch. 2006) (elements of fraud/fraudulent inducement claims)
E.I. DuPont de Nemours & Co. v. Fla. Evergreen Foliage, 744 A.2d 457 (Del. 1999) (fraud elements and reliance principles)
Winshall v. Viacom Int’l, Inc., 55 A.3d 629 (Del. Ch. 2011) (implied covenant and reasonable expectations analysis)