Delaware Supreme Court Reinforces the Importance of Precision in Drafting ADR Provisions in Merger Agreements
In Fortis Advisors, LLC v. Stillfront Midco AB, No. 162, 2025 (Del. Feb. 13, 2026), the Delaware Supreme Court reaffirmed that Delaware courts will strictly enforce the dispute resolution framework chosen by the parties. The decision highlights the need to draft ADR provisions with precision—clearly identifying the decision-maker, the types of disputes to be delegated, and the scope of that delegation.
The case arose out of Stillfront’s 2019 acquisition of Kixeye, an online video game company. In addition to a $90 million purchase price, the merger agreement provided for a post-closing earnout bonus if Kixeye’s 2019 adjusted EBITDA exceeded $15 million. The parties agreed to exclusive Delaware federal and state court jurisdiction for any action or proceeding concerning the merger agreement. However, the agreement’s ADR provision separately required that disputes concerning the calculation of the earnout amount be submitted to an accounting-firm arbitrator.
Following Stillfront’s determination that no earnout payment was owed, Fortis, as Kixeye’s seller representative, filed suit in the Delaware Court of Chancery. Fortis asserted breaches of the merger agreement and the implied covenant of good faith and fair dealing, alleging that Stillfront manipulated Kixeye’s 2019 adjusted EBITDA in bad faith to avoid paying an earnout. In response, Stillfront moved to compel arbitration under the ADR provision. Fortis opposed, arguing that the ADR provision was a narrow accounting carve-out and that its bad faith claims did not require any calculation.
The Court of Chancery granted Stillfront’s motion to compel arbitration. The court held that Fortis’s bad faith claims were covered by the scope of the ADR provision because they were, at bottom, a dispute about the calculation of the earnout. In the court’s view, Fortis was merely alleging that the earnout had been calculated incorrectly as a result of Stillfront’s bad faith conduct.
The Delaware Supreme Court affirmed, holding that the bad faith claims were arbitrable. At the outset, the Delaware Supreme Court rejected Fortis’s argument, raised for the first time on appeal, that the ADR provision called for an expert determination rather than an arbitration. Binding Fortis to its concession below, the Delaware Supreme Court noted that Fortis was “emphatic” before the Court of Chancery that the ADR provision was an arbitration clause.
Turning to the merits, the Delaware Supreme Court agreed with the Court of Chancery that the bad faith claims fell squarely within the ADR provision. Under both courts’ reading of that provision, calculation disputes were not strictly limited to mere arithmetic disagreements; they also encompassed disputes over the “accuracy” of an earnout determination—including the kind of bad faith claims Fortis pressed. The Delaware Supreme Court relied on Viacom International, Inc. v. Winshall, 72 A.3d 78 (Del. 2013), in which it had explained that “if the subject matter to be arbitrated is the calculation of an earn-out, . . . all issues as to what financial or other information should be considered in performing the calculation are decided by the arbitrator.”
In the Delaware Supreme Court’s reasoning, Stillfront’s challenged conduct “had a direct bearing” on determining the earnout amount, and the bad faith claims were simply Fortis’s theory as to why Stillfront’s determination was wrong. Treating such claims as beyond the arbitrator’s remit would improperly “slice[] the question of ‘why’ the calculation of the earnout is wrong out of the arbitration clause.”
This decision serves as an important reminder to dealmakers and litigators alike that Delaware courts will give effect to the parties’ negotiated dispute resolution process. Like federal law, Delaware law favors the enforcement of valid agreements to submit disputes to arbitration and other ADR mechanisms. And, the Delaware Supreme Court’s focus on the substance of a claim and not the label in reaching its conclusion that Fortis’s bad faith claims were covered by the ADR provision further underscores its nod to ADR.
Accordingly, parties need to consider their goals and be exacting at the drafting table. When an ADR provision is ambiguous about the disputes within its scope and the decision-maker charged with resolving them, it invites the kind of costly threshold litigation this case illustrates.
Drafters should therefore be precise about the intended scope of ADR provisions, clearly delineating which disputes are subject to ADR and which are reserved for judicial resolution. If the parties intend for bad faith or other breach claims to be resolved by a court and not an accounting-firm arbitrator or expert, the merger agreement should say so expressly. Conversely, if the parties intend a broad delegation, the ADR provision should be drafted with care to ensure that the full range of anticipated disputes is captured.
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