Delaware Chancery Rejects Founder’s Post- Acquisition Earnout Claim and Awards $7.3 Million to Buyer
The Delaware Court of Chancery has delivered a landmark ruling in In re Saama Technologies Litigation¹ , denying a founder’s $67.5 million earnout claim and, in an unprecedented move, awarding the buyer $7.3 million in damages for the founder’s bad-faith conduct during the earnout period. This decision, reportedly the first of its kind in the Court of Chancery, sends a clear message: fiduciary duties persist post-closing, and aggressive earnout strategies pursued at a company’s expense will face serious consequences.
The Key Holding
Sellers who remain in management post-closing must balance earnout pursuit with their ongoing duty to act in the company’s best interests. The Saama Technologies decision is a gamechanger for earnout litigation. It establishes that sellers who remain in management post-closing cannot pursue earnouts at the company’s expense without facing serious consequences. For buyers, it provides a powerful new tool: the ability to recover damages, not just defeat earnout claims.
What Happened
The Carlyle Group acquired Saama Technologies in 2021 at a $435 million valuation, with a contingent earnout of up to $67.5 million tied to revenue and software subscription targets. After closing, Saama’s founder and CEO orchestrated an aggressive “72-27 campaign” to hit earnout metrics by:
Offering unprecedented discounts (up to 80% on implementation fees)
Manipulating contract language to reclassify services revenue as software subscriptions
Selling products that were still in development or did not yet exist
Rewriting accounting records to pull revenue forward into the earnout window
When Carlyle objected to the earnout calculation, Katta sued. Carlyle counterclaimed for damages. After a five-day trial, the court ruled decisively in Carlyle’s favor.
Key Takeaways
Fiduciary duties don’t stop at closing. Sellers who remain as CEO or in management continue to owe duties to the post-closing entity. Aggressive earnout pursuit must be balanced against the duty to act in the company’s best interests.
Good-faith objections are protected. Buyers may challenge earnout calculations aggressively, provided objections are grounded in legitimate factual and contractual bases. Reliance on professional accounting advice strengthens the defense.
Bad-faith earnout pursuit has serious, monetary consequences. This is the first time a buyer has won damages on a counterclaim in an earnout dispute in the Court of Chancery. Sellers face real financial exposure for misconduct.
Documentation matters. The court’s decision turned heavily on contemporaneous evidence,
including emails, meeting notes, and contract revisions. Both buyers and sellers should maintain
robust records of decision-making during the earnout period.
Deal structure can mitigate risk. Longer measurement periods, explicit conduct standards, and clear good-faith definitions can reduce the likelihood of disputes and provide clearer guidance if litigation arises.
In conclusion, whether you’re a seller planning to remain in management or a buyer concerned about post-closing conduct, this decision should inform your deal structure, documentation, and post-closing strategy. The era of unchecked aggressive earnout pursuit is over.
Disclaimer: This client alert is based on publicly available court documents and press reports. It is intended for informational purposes only and does not constitute legal advice.
¹ In re Saama Techs. Litig., C.A. No. 2022-1045-LWW (Del. Ch. Sept. 28, 2026)
