The Delaware Supreme Court's recent decision in Chicago Bridge & Iron v. Westinghouse Electric, resolved a $2 billion post-closing dispute about the interplay between common features of acquisition agreements: sellers' representations of the accuracy of the target's financial statements, and so-called “true up” provisions for purchase price adjustments for working capital changes between signing and closing. The Supreme Court harmonized the provisions by addressing, among other things, the limited purpose of true up provisions. It accordingly rejected the acquirer's attempt to raise longstanding accounting issues to obtain a large price adjustment through the true up process, when the purchase agreement barred the acquirer from any post-closing relief for breach of a similar warranty.

Background

Appellant/plaintiff-below Chicago Bridge & Iron is a construction contractor that built nuclear power plants through its subsidiary, CB&I Stone Webster (Stone). Appellee/defendant-below Westinghouse Electric Co. (Westinghouse) designs nuclear power plants. In 2008, Stone and Westinghouse were hired to build two plants. After years of delays and cost overruns resulting in disputes between the parties, in 2015 they agreed that Chicago Bridge would sell Stone to Westinghouse and exit the project.

The governing purchase agreement (the purchase agreement) was unusual in some respects. Chicago Bridge accepted a price of $0, with the possibility of future consideration pursuant to earn-out provisions. Also, Westinghouse was required to indemnify Chicago Bridge for any claims arising before or after the closing. Relatedly, Chicago Bridge's obligation to close was conditioned upon its receipt of liability waivers from the power plants' owners.

In addition, a provision the Supreme Court dubbed the “liability bar” stated that none of Chicago Bridge's representations and warranties “shall survive the closing (and there shall be no liability for monetary damages after the closing in respect thereof) …” Thus, while Chicago Bridge represented that Stone's financial statements “have been prepared in accordance with GAAP,” in the event of a breach Westinghouse could refuse to close but could not bring a post-closing claim.