Background
Refinitiv US LLC acquired market-data company MayStreet, Inc. in May 2022 for approximately $275 million upfront plus up to $175 million in earnout consideration. Patrick Flannery, MayStreet’s former CEO and co-founder, sued as the securityholders’ agent for the earnout recipients. He alleged that London Stock Exchange Group PLC, Refinitiv, and Latitude Merger Sub induced MayStreet’s owners to reject available Series B financing and sell the company by representing that they could promptly integrate hundreds of global data feeds into MayStreet’s products and deploy extensive sales and marketing resources.
Flannery further alleged that the promised integration proved technologically infeasible, no new feeds were added during the first 19 months after closing, and planned marketing efforts were not performed. MayStreet consequently fell substantially short of the annualized-revenue targets underlying the earnout. The amended complaint asserted fraud based on pre-closing representations and breach of contract based on defendants’ post-closing conduct. Defendants moved to dismiss both claims and argued that the contract claim was not yet ripe because the earnout period continued through 2027.
The Court’s Holding
The Court of Chancery denied the motion to dismiss in full. It held that Flannery adequately pleaded actionable misrepresentations that defendants could integrate content immediately or within the specified 19-month period. The complaint also supported a reasonable inference of scienter, including through allegations that LSEG’s global head of real-time market data later said the Business Plan was impossible to implement on the proposed schedule. The fraud claim was not impermissibly bootstrapped because it concerned pre-closing inducement, while the contract claim concerned post-closing performance, and the claims sought different forms of relief.
The court also held that the complaint stated a breach-of-contract claim under the Merger Agreement’s good-faith and operational provisions. Although LSEG did not sign the agreement, it was reasonably conceivable that LSEG expressly and implicitly adopted it. The pleaded failure to implement key sales and integration measures, refusal to revise the earnout despite known obstacles, and Flannery’s alleged retaliatory termination supported an inference of bad faith. Competing interpretations of the commercially reasonable efforts provisions could not be resolved on a motion to dismiss. Finally, the claim was ripe because defendants’ own projections showed that five of six growth scenarios produced no earnout and the sixth produced only six percent, making nonachievement reasonably likely despite the earnout’s theoretical attainability.
Key Takeaways
- Specific statements about a buyer’s present technological capability to execute a post-closing integration may support a fraud claim even when they concern work to be performed later.
- A fraud claim based on pre-closing inducement is not duplicative of a contract claim based on distinct post-closing conduct and seeking different damages.
- A nonsignatory parent may be treated as having adopted a merger agreement when the agreement contemplates its participation and its words and conduct reflect acceptance of the agreement and its benefits.
- An earnout claim may be ripe before the earnout period ends when present evidence, including the buyer’s own forecasts, shows that milestone achievement is reasonably unlikely and ties that result to alleged past breaches.
Why It Matters
The decision permits sellers to pursue earnout-related claims before the measurement period ends when concrete evidence indicates that alleged implementation failures have already made payment unlikely. The mere theoretical possibility of later achieving the earnout does not necessarily require dismissal on ripeness grounds.
The opinion also underscores the pleading significance of detailed integration promises, internal feasibility evidence, and buyer-generated financial projections. Buyers and corporate parents may face litigation over those representations and projections even when the governing agreement contains efforts-based obligations and the parent did not formally sign it.