Background
Cogent Infrastructure acquired Sprint’s U.S. long-haul fiber-optic network under a Membership Interest Purchase Agreement with a $1 base price and a post-closing adjustment. The agreement provided a discount tied to short-term operating lease obligations. The principal dispute concerned a System Use and Service Agreement covering approximately 3,592 miles of fiber routes and requiring annual payments exceeding $50 million.
Cogent included the SUSA obligations in its lease-related adjustment calculation, but Sprint maintained that the SUSA was a service agreement involving owned fiber and therefore did not qualify. The parties submitted the calculation dispute to BDO USA, P.C., which excluded the SUSA payments and increased Cogent’s final purchase price by $24,195,122. Cogent then sued for fraudulent inducement, breach of contractual representations and warranties, and indemnification. Its contract claims also concerned approximately $2.35 million in unpaid vendor balances and approximately $2.61 million in undisclosed CPI increases under a Conrail right-of-way agreement.
The Court’s Holding
The Court of Chancery granted Sprint’s motion to dismiss Count I, the fraudulent-inducement claim, but denied dismissal of Counts II and III, the contract and indemnification claims. It held that the MIPA’s purchase-price dispute mechanism was an expert-determination provision, not an arbitration clause. BDO had narrowly delegated accounting authority and therefore did not conclusively resolve Cogent’s broader legal claims. The agreement’s anti-duplication provision also did not bar the suit because the disputed SUSA amount had been excluded, rather than actually incorporated, in calculating the final purchase price.
Cogent’s fraud claim was impermissibly duplicative because it rested on the same alleged misrepresentations and sought the same $24,195,122 as the contract claims. The contract claims survived, however, because the MIPA’s schedules and representations reasonably could be read as characterizing the SUSA fiber as leased or subject to a similar right-of-use arrangement. Cogent also adequately pleaded breaches involving the vendor balances and Conrail CPI adjustments, and the surviving SUSA claim removed Sprint’s asserted $5 million indemnification-threshold obstacle at the pleading stage.
Key Takeaways
- A purchase-price adjustment entrusted to an independent accountant is an expert determination when the accountant has only narrow authority to apply contractual definitions and correct calculations, rather than adjudicate legal claims.
- A provision barring double recovery for amounts actually included in a purchase-price calculation does not necessarily bar indemnification for an amount considered during the adjustment process but ultimately excluded.
- A fraud claim duplicating contractual duties and damages cannot proceed separately, even when the underlying contract and indemnification claims are adequately pleaded.
Why It Matters
The decision underscores that the scope of a transaction agreement’s delegated authority—not merely language making an accountant’s decision “final and binding”—determines whether a post-closing adjustment forecloses later litigation. Carefully separating accounting true-ups from representations-and-warranties remedies can preserve independent contract and indemnification claims.
It also illustrates Delaware’s limits on repackaging a contractual dispute as fraud. When the alleged wrongdoing and requested recovery are identical, the dispute belongs in contract, although competing reasonable interpretations of transaction documents may still proceed beyond the pleading stage.