Post-closing purchase price adjustment provisions are among the most heavily negotiated – and frequently litigated – terms in M&A agreements. These provisions typically establish a multi-step process by which a buyer delivers a closing statement containing its calculation of the purchase price, the seller disputes the statement or calculation, and, if the parties cannot resolve their differences, an independent expert (usually an accountant) renders a final determination. Central to this framework is a deceptively simple question: Is the “expert” acting as an expert? Or does the agreement, either intentionally or unintentionally, confer upon the expert such authority that it is acting as an arbitrator? As a recent Delaware Court of Chancery decision in Driven Intermediate Holdings, Inc. v. Jimenez demonstrates, the answer can determine not only how disputes are resolved, but whether a court has jurisdiction to hear them at all.

A $103 million e-discovery acquisition

The dispute in Driven Intermediate Holdings arose from the post-closing true-up following the $103 million sale of an e-discovery company. On September 23, 2021, Driven Intermediate Holdings, Inc. (Driven) entered into a Stock Purchase and Exchange Agreement (SPEA) to acquire all issued and outstanding stock of Driven Holdings Corp. from its stockholders.

Section 2.3 of the SPEA governed the post-closing purchase price adjustment process following a structure familiar to M&A practitioners: The buyer would deliver a closing statement within 90 days of closing, the seller could dispute the statement, and, if the parties could not resolve their differences, the disputed unresolved items would be submitted to an “independent accountant” of nationally recognized standing whose determinations would be “final and binding.”

The parties engaged an accounting firm as the independent accountant to resolve three specific accounting disagreements that remained after months of negotiations. When the independent accountant issued its determination in February 2023, the parties disagreed over the baseline calculations to which the independent accountant’s determinations should be applied, with Driven arguing it was owed over $1.5 million and the sellers contending that they were owed a balance. 

The court’s analysis: Expert determination vs. arbitration

Driven filed suit in the Court of Chancery, alleging a claim to confirm the independent accountant’s determination as an arbitral award under the Delaware Uniform Arbitration Act and a claim for specific performance to compel the release of escrowed funds. Before addressing the merits of Driven’s claim, however, Vice Chancellor Lori Will sua sponte raised a threshold issue of subject matter jurisdiction. Specifically, the court framed the central inquiry as whether the parties agreed to arbitration or an expert determination because the characterization would determine whether the Delaware Uniform Arbitration Act conferred statutory jurisdiction. Unlike an arbitrator, who has broad authority to decide all legal and factual issues and award a remedy, an expert has limited authority to decide “a specific factual dispute concerning a matter within [their] special expertise.”

Critically, section 2.3(d) of the SPEA contained contradictory language: It stated that the “Independent Accountants shall act as an arbitrator to calculate the components of the Closing Statement” and that the independent accountant’s determinations “shall be final and binding upon the parties and may be entered and enforced in any court having jurisdiction.” Despite the use of the word “arbitrator,” the court found the narrow authority granted to the independent accountant was dispositive. The court found compelling that the independent accountant could only “calculate the components of the Closing Statement” and “make a determination with respect to any unresolved [d]isagreement” submitted by the parties.

The court characterized section 2.3(d) as a “run-of-the-mill Accountant True-Up Mechanism,” a “beefed-up expert determination” commonly used in private company sale agreements. It emphasized that the use of the word “arbitrator” was not controlling, particularly absent any reference to an arbitral organization or arbitral rules within the provision itself. As the court explained, “the fact that the drafters used the word ‘arbitrator’ is not dispositive. The remainder of the language and structure of the provision establishes an intent to provide for an expert determination, not an arbitration. The provision as a whole is what controls.”

The jurisdictional consequences

Having determined that the independent accountant acted as an expert rather than an arbitrator, the court concluded that the Delaware Uniform Arbitration Act did not apply and Count I – seeking confirmation as an arbitral award – failed as a matter of law. With statutory jurisdiction defeated, the court then considered whether equitable jurisdiction could be established through Driven’s specific performance claim.

The court found that the remaining claims – breach of contract, breach of the implied covenant, and declaratory judgment – were quintessential legal claims remediable by money damages. Driven’s request for specific performance to compel the release of escrowed funds was insufficient to confer equitable jurisdiction. A declaratory judgment from a court of law would satisfy this requirement, making the equitable remedy superfluous. As Vice Chancellor Will concluded, “a post-closing true-up dispute cannot be transformed into an equitable one simply by requesting an injunction to release escrowed funds when the agreement honors a final judicial order.” Ultimately, the court dismissed the complaint and the counterclaim without prejudice for lack of subject matter jurisdiction.

Accordingly, practitioners should: 1) use consistent terminology when describing the independent expert’s role, and 2) carefully consider whether the provision genuinely confers the desired level of arbitral authority. Parties who fail to take these drafting considerations seriously risk not only prolonged and costly litigation, but the very unintended consequences that careful drafting is designed to prevent.