On January 29, 2019, the Delaware Court of Chancery addresses the scope of authority conferred under a clause in an Agreement and Plan of Merger (“Merger Agreement”) upon an independent accountant designated “an expert, not an arbitrator.”
Pursuant to the Merger Agreement, Plaintiff acquired ChanceLight, Inc. (ChanceLight) and Defendant, Trimaran Fund Management, L.L.C. (Trimaran). Plaintiff paid a base price of $125 million, $23.1 million of which was placed in escrow at closing.
The release of the escrowed funds depended on whether a ChanceLight subsidiary entered into a qualifying contract. The section of the Merger Agreement governing the release of the escrowed funds delegated certain matters to an independent accountant for resolution, specifying “an expert, not an arbitrator.”
The parties disagreed on whether a qualifying contract was ever executed. Also, they disagreed on whether the issue d should be referred to the independent accountant.
The Court of Chancery denied Plaintiff’s motion for judgment on the pleadings seeking to specifically enforce the dispute resolution provision. In particular, the decision found that the language called for “an expert determination, not an arbitration.”
“Expert determination provisions are fundamentally different from arbitration provisions. The former limit the scope of the third-party decision maker’s authority to factual disputes within the decision maker’s expertise. The latter typically confers upon the third-party decision maker broad authority similar to that of judicial officers.”
According to the court, the release of parties’ escrow wouldn’t fit within the independent accountant’s narrow authority since – to determine who is entitled to the escrow funds – the legal question of whether the contract is qualifying had to be answered. Accordingly, the Court deemed that Plaintiff was not contractually entitled to require Defendant to submit the dispute to the independent accountant.
Ray Beyond Corp. v. Trimaran Fund Management, L.L.C. and The Halifax Group, LLC, Memorandum Opinion, Civil Action No. 2018-0497-KSJM is available at https://courts.delaware.gov…
Originally published on CGC Firm on March 2019