Delaware courts issued a series of significant decisions in the early parts of 2026 addressing post-closing earn-out disputes, with particular attention to the implied covenant of good faith and fair dealing and the limits of buyer discretion. These decisions provide critical guidance for dealmakers structuring contingent consideration and for parties navigating post-closing obligations. 

Key Highlights

• The implied covenant remains a narrow remedy, but bad-faith conduct will not be tolerated. The Delaware Supreme Court reaffirmed that the implied covenant cannot rewrite express contract terms or fill gaps where the risk was foreseeable and addressed in the agreement. However, the Delaware Superior Court in two cases allowed implied covenant claims to proceed where buyers allegedly took affirmative steps to undermine earn-out payments and used the discretion afforded to them under the agreement in bad faith.
• Broad discretion does not immunize opportunistic conduct. Even where a purchase agreement grants the buyer unfettered discretion over post-closing operations, courts will scrutinize whether that discretion was exercised in bad faith to deprive sellers of earn-out payments. As noted in a prior Reed Smith alert, "sole discretion" language does not displace implied covenant constraints.
• Affirmative acts to avoid earn-outs are distinguishable from mere inaction. Courts drew a sharp line between a buyer's failure to maximize revenue (generally not actionable absent an efforts clause) and a buyer's deliberate actions to push revenue outside the earn-out measurement period or dismantle the acquired business (potentially actionable even without an efforts clause).
• Express contractual protections remain the best defense for sellers. Sellers who fail to negotiate specific efforts clauses, operational covenants, or earn-out-protective provisions will find it difficult to invoke the implied covenant after the fact.
• Buyers that seek to avoid earn-out obligations face heightened judicial scrutiny—and potentially extraordinary remedies. In one case, the Court of Chancery reinstated a terminated CEO, extended the earn-out period, and enjoined the buyer from interfering with a product launch after finding the buyer terminated key employees and seized operational control to avoid a nine-figure earn-out payment. 

The Decisions

Monica v. Delta Data Software (Del. Superior Court, February 10, 2026)

The Delaware Superior Court denied a buyer's motion to dismiss implied covenant and prevention doctrine claims in connection with an earn-out dispute. The sellers of Phoenix Systems alleged that after closing, Delta Data deliberately undermined collection of a customer payment in order to prevent the revenue from counting toward the earn-out threshold. Specifically, the sellers alleged that Delta Data first invoiced the customer for payment due before the earn-out cutoff date, then told the customer it would void the invoice and that no payment was needed until after the cutoff.

The Court found that the purchase agreement contained a "gap" because it was silent on how the buyer was required to act regarding collection of payments—notably, the agreement contained no efforts clause. The Court held that the sellers reasonably expected that the buyer would not take affirmative steps to avoid receiving customer payments by the earn-out cutoff date.

The Court drew a critical distinction between a buyer's inaction—such as failing to pursue a business opportunity—and a buyer's deliberate acts to push revenue outside the earn-out period. The Court also allowed the sellers' breach of contract claim to proceed under the "prevention doctrine," which excuses the non-occurrence of a contractual condition where the obligor's own breach materially contributed to the condition not being satisfied.

The Court dismissed the sellers' fraud claim, however, finding that the complaint did not plead sufficient facts to establish that the buyer's principals had no intention of honoring their oral promise at the time it was made, as required for promissory fraud under Delaware law.

Jiggy Puzzles v. Steelhead Acquisition EE (Del. Superior Court, February 18, 2026)

The Delaware Superior Court denied summary judgment in favor of the buyer on the seller's implied covenant claim in an earn-out dispute arising from an asset purchase agreement. After acquiring substantially all of Jiggy Puzzles' assets, Steelhead agreed to pay earn-out payments if certain revenue thresholds were met. The asset purchase agreement contained no efforts clause governing how Steelhead was to operate the business post-closing.

The Court confirmed that the implied covenant applies even when a contract grants a party unfettered discretion. Although Steelhead had no contractual obligation to operate the business in any particular way, the Court held it could still breach the implied covenant if it acted in bad faith to ensure the acquired business would not qualify for an earn-out payment.

The seller presented evidence that Steelhead's senior leadership communicated plans to make "game time decisions" if the earn-out triggers were "too close," that Steelhead internally predicted the earn-outs would be missed, and that Steelhead then cut virtually all marketing during peak season, deprioritized the Amazon channel, destroyed inventory, rejected brand-building opportunities, and missed purchase order deadlines.

The Court emphasized that mere revenue-diminishing decisions alone would not breach the implied covenant—bad-faith intent to avoid the earn-out is required. But at summary judgment, the Court declined to weigh this evidence and allowed the claim to proceed to trial.

Fortis Advisors v. Krafton (Del. Court of Chancery, March 16, 2026)

In a post-trial decision, the Delaware Court of Chancery found that Krafton, a South Korean gaming conglomerate, breached its acquisition agreement by terminating key executives and seizing operational control of Unknown Worlds Entertainment—a studio it had acquired for $500 million upfront plus up to $250 million in contingent earn-out payments.

The acquisition agreement granted the studio's founders and CEO ("Key Employees") operational control over the business and limited Krafton's ability to terminate them to specified "for Cause" events. The Court of Chancery concluded that, as the studio's anticipated sequel, Subnautica 2, neared release, internal projections showed the earn-out would be triggered, and blocked the studio's access to its publishing platform, and ultimately terminated the three Key Employees.

The Court concluded that Krafton's justifications for the terminations were pretextual and were designed to avoid the earn-out. As a remedy, the Court reinstated the CEO with full operational authority, extended the earn-out measurement period by 258 days (the duration of the CEO's ouster), and enjoined Krafton from using any corporate mechanism to interfere with the new game's launch.

Practical Takeaways

For sellers: These decisions underscore the importance of negotiating express earn-out protections rather than relying on the implied covenant after the fact. Sellers should seek specific efforts clauses, operational covenants, anti-interference provisions, and contractual specific performance remedies. Protections that could have been easily drafted should be secured at the bargaining table rather than sought in the courtroom.

For buyers: Broad discretion clauses and the absence of efforts obligations do not provide a safe harbor for bad-faith conduct. Internal communications suggesting a plan to avoid earn-outs, combined with actions that reduce revenue during the measurement period, will create significant litigation risk. As we discussed in our prior alert on the Court of Chancery's treatment of discretionary contract rights, courts will look through "sole discretion" language to police opportunistic behavior.

For dealmakers generally: The 2026 decisions reinforce that Delaware courts will hold sophisticated parties to their bargains. Where the parties chose specific contractual language—whether tying milestones to a particular regulatory pathway or granting unfettered operational discretion—courts will enforce those choices. But where a contract is silent on how a party must exercise its authority, and evidence suggests that authority was exploited to deprive the counterparty of the fruits of its bargain, the implied covenant remains available as a limited but meaningful check on opportunistic conduct.