Two recent post-trial decisions from the Delaware Court of Chancery illustrate the contractual and fiduciary-duty risks associated with earnout provisions in M&A transactions. In In re Saama Technologies Litigation and ACON Igloo Holdings, LLC v. Dometic Corp., Vice Chancellor Lori Will considered disputes arising from efforts to achieve post-closing financial targets. Read together, the decisions offer clear lessons on allocating post-closing control, drafting enforceable earnout covenants, and managing executives whose pay depends on the outcome.

In re Saama Technologies Litigation: Earnout Incentives and Fiduciary-Duty Exposure

In In re Saama Technologies Litigation, Consol. C.A. No. 2022-1045-LWW (Del. Ch. Sept. 28, 2026), The Carlyle Group acquired a controlling stake in Saama Technologies, a healthcare data analytics company. To bridge a valuation gap, the parties agreed to an earnout if Saama hit specified revenue and annual recurring revenue targets. Founder Suresh Katta stayed on as CEO and stood to gain substantially if the targets were met.

As the deadline neared, Katta undertook extreme measures to meet the target. The Court found that he manipulated customer contract language to accelerate revenue recognition and signed steeply discounted, money-losing deals that qualified for the earnout on paper only. Some of those agreements carried negative margins and saddled Saama with significant obligations. When Carlyle refused to pay the earnout, Katta sued to enforce the earnout. Carlyle and the company countersued Katta for breach of fiduciary duty.

After trial, the Court rejected Katta’s earnout claim and held that he breached his fiduciary duties by knowingly putting his own payout ahead of Saama’s long-term interests. The Court held that taking business risk to achieve an earnout is permissible, but acting in bad faith to secure a personal benefit at the company’s expense is not. Because Katta’s conduct amounted to willful misconduct, the exculpation provision in the Company’s bylaws did not protect him. The Court entered judgment against him for approximately $7.3 million.

ACON Igloo Holdings, LLC v. Dometic Corp.: Contractual Limits on Earnout-Driven Operating Decisions

In ACON Igloo Holdings, LLC v. Dometic Corp., C.A. No. 2022-1057-LWW (Del. Ch. Sept. 30, 2026), Dometic acquired cooler manufacturer Igloo from an affiliate of private equity firm ACON Investments. The purchase agreement promised a substantial earnout if Igloo achieved at least $75.25 million in 2022 EBITDA. Dometic had to run Igloo in the ordinary course, consistent with past practice, while leaving reasonable day-to-day authority with Igloo’s CEO, David Allen. Dometic also could not act with the intent to avoid or reduce the earnout.

When Igloo fell behind the target, Allen, working with ACON, proposed aggressive fourth-quarter discounting and other measures to boost short-term EBITDA. Dometic questioned whether the earnout plan fit Igloo’s historical operations in the ordinary course, as required by the parties’ agreement. ACON sued, claiming Dometic breached its ordinary-course and no-avoidance covenants by blocking management’s path to the earnout.

After trial, the Court rejected ACON’s claims. The earnout-driven plan departed from Igloo’s ordinary course business practices, and Dometic was within its contractual rights to insist that Igloo not deviate from its historical practices. Nor did the evidence show that Dometic acted in bad faith avoid the earnout. The Court found that weighing potential earnout liability and consulting legal and financial advisors regarding the seller’s plans for reaching earn-out targets did not constitute evidence of an improper purpose. Finally, consistent with well-established Delaware law, the Court declined to use the implied covenant of good faith and fair dealing to add obligations in the parties’ agreement, because the agreement already allocated operational discretion and limited it through negotiated covenants.

Why These Decisions Matter

First, the decisions illustrate the importance of clearly allocating operational control during the earnout period. Earnouts frequently require continued involvement by seller-side management, whose financial incentives may not align with those of the buyer or acquired business. Saama demonstrates the potential consequences when executives exercise that authority to pursue personal financial interests at the company’s expense. ACON Igloo confirms that a buyer may enforce negotiated ordinary-course limitations even when doing so prevents the seller from achieving an earnout. Transaction documents should therefore expressly address management authority, pricing and discount discretion, operating restrictions, and the circumstances in which buyer approval is required.

Second, earnout disputes are not just contract cases. Saama shows that the same conduct can expose continuing management to personal fiduciary-duty liability. Contractual authority to pursue a target does not shield an executive who knowingly sacrifices the company’s interests to maximize contingent pay. Buyers and sellers should build post-closing governance that addresses these conflicts, including oversight procedures, approval requirements, and careful treatment of management incentives.

Third, both decisions underscore the importance of contemporaneous evidence in post-closing disputes. In each case, the Court closely examined internal communications, financial projections, pricing decisions, and management’s stated reasons for pursuing or rejecting particular business strategies. Those records were central to determining whether the conduct reflected legitimate business judgment, compliance with contractual limitations, or an improper attempt to influence the earnout. For litigators, the decisions underscore importance of obtaining evidence concerning management’s motivations and the economic consequences of challenged decisions. Transactional counsel should carefully establish clear decision-making procedures and document the business rationale for material operating decisions during the earnout period.

Opinions:

• In re Saama Technologies Litigation, Consol. C.A. No. 2022-1045-LWW (Del. Ch. Sept. 28, 2026)
• ACON Igloo Holdings, LLC v. Dometic Corp., C.A. No. 2022-1057-LWW (Del. Ch. Sept. 30, 2026)