S&C Partners Scott Crofton and Jacob Croke, along with associate Andrew Lin, co-authored an article for Law360 on the Delaware Supreme Court’s decision in Johnson & Johnson v. Fortis Advisors LLC, which vacated, in part, what had been the largest earnout-related damages award in the history of the state. The authors examine the decision’s reasoning and its implications for earnout drafting and regulatory risk allocation.
“The Supreme Court’s decision underscores the limits of the implied covenant of good faith and fair dealing,” the authors write. “When structuring earnouts, particularly in transactions in highly regulated industries, precision in drafting is critical. Delaware courts will not invoke the implied covenant to reallocate foreseeable regulatory risk, even if the parties believed that such risk was unlikely to materialize.”
Read: “Tips From Del. Decision Nixing Major Earnout Damages Award”