Prosser v. Pharmalogic Holdings Corp.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE RODNEY PROSSER, individually ) and as Sellers’ Representative, ) FRANK RUDDY, and KOK ) C.A. No. N25C-08-284 MAA CCLD WAYNE WONG, ) ) Plaintiffs, ) ) v. ) ) PHARMALOGIC HOLDINGS ) CORP., ) ) Defendant. ) Submitted: April 22, 2026 Decided: July 7, 2026 Defendant’s Motion to Dismiss the Amended Complaint: GRANTED in part; DENIED in part. MEMORANDUM OPINION John H. Newcomer, Jr., Esquire, Kirsten A. Zeberkiewicz, Esquire, Barnaby Grzaslewicz, Esquire (Argued), Alena Smith, Esquire, MORRIS JAMES LLP, Wilmington, DE. Attorneys for Plaintiffs. Ryan D. Stottmann, Esquire, Cassandra L. Baddorf, Esquire, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, DE; Joseph P. Rockers, Esquire (Argued), Brendan Blake, Esquire, GOODWIN PROCTER LLP, Boston, MA. Attorneys for Defendant PharmaLogic Holdings Corp. Adams, J.  INTRODUCTION This action concerns a dispute between the buyer and sellers of a business over a post-closing earnout scheme. The sellers contend the buyer changed the operations of the business to reduce EBITDA and avoid an earnout payment, in violation of the parties’ contract. The buyer moved to dismiss, contending the sellers’ breach of contract claim is subject to an alternative dispute resolution provision which requires resolution of the claim before an independent auditor, is time barred, and fails to state a claim for which relief can be granted. For the reasons explained herein, the Court disagrees with the buyer and denies the motion as to the breach of contract claim. Separately, the sellers bring a declaratory judgment claim seeking a declaration that the buyer materially breached the parties’ contract and therefore the sellers are excused from bringing their breach of contract claims before the independent auditor. The buyer contends the sellers waived this argument by continuing to perform under the contract after the purported material breach. The Court agrees with the buyer but finds the relevant breach claim was nonetheless not subject to the independent auditor’s review. Finally, the sellers contend that the business sold to the buyer received tax refunds for pre-closing tax payments and that the sellers are entitled to those refunds because the business was treated a pass-through entity for taxation purposes. 1 Because the parties’ contract does not explicitly address this issue, sellers contend their claims for the tax refund are viable pursuant to the implied covenant of good faith and fair dealing’s gap-filling capabilities or the doctrine of unjust enrichment. The buyer contends the existence of a contract which comprehensively addresses tax issues precludes these claims. For the reasons explained herein, the Court agrees with the buyer. This Memorandum Opinion resolves the buyer’s motion to dismiss. FACTS The factual background outlined herein is drawn from the Amended Complaint, 1 accepting all well-pled allegations as true only for purposes of this Motion, as is required for a Rule 12(b)(6) motion to dismiss.2 The Court will not necessarily use terms like “alleged” throughout. The Court intends to convey no agreement with the truth of the matters asserted in the Complaint. The veracity of the Complaint’s allegations can be resolved after discovery. I. The Parties Plaintiffs Rodney Prosser, Frank Ruddy, and Kok Wayne Wong (“Plaintiffs”) are individuals residing in New Jersey.3 Defendant PharmaLogic Holdings Corp. is a Delaware Corporation (Defendant).4 Plaintiffs founded and developed a nuclear 1 D.I. 13. Citations to the Amended Complaint are in the form of “AC ¶ X.” Citations to exhibits to the Amended Complaint are in the form of “AC Ex. X.” 2 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011). 3 AC ¶¶ 8-10. 4 Id. ¶ 11. 2 pharmacy business (the “Business”), which they sold to Defendant pursuant to the Parties’ Securities Purchase Agreement (“SPA”).5 Under the SPA, Plaintiffs are the “Sellers,” and Defendant is the “Buyer.”6 II. Plaintiffs sell the Business. Plaintiffs operated the Business out of two pharmacy locations in New Jersey and one in New York. 7 In 2015, Plaintiffs began contemplating retirement and sought to sell the Business. 8 Plaintiffs and Defendant commenced negotiations regarding a potential sale, ultimately culminating in the execution of the SPA on March 20, 2020.9 The sale of the business closed on January 6, 2021.10 Under the SPA, Plaintiffs sold the Business for $30,000,000 plus an earnout payment.11 Pursuant to the Earnout Provision, the SPA provides that, if the business hit certain earnings before interest, taxes, depreciation, and amortization (“EBITDA”) levels by a certain date (an earnout target), Plaintiffs would be entitled to an additional payment. 12 Specifically for purposes of this action, the earnout 5 Id. ¶ 2. 6 Id. ¶¶ 8-11. 7 Id. ¶ 17. 8 Id. ¶ 18. 9 AC ¶ 22. 10 Id. 11 Id. ¶ 23; AC Ex. 1 (“SPA”) at 1. 12 SPA § 2.6. Section 2.6 provides, in part: if, during the Earnout Period, the Company achieves EBITDA greater than or equal to $7,000,000, but less than or equal to $7,499,999, Buyer shall pay to the Sellers’ Representative, for further distribution by the Sellers’ Representative to the Sellers in accordance with the allocations set forth on Schedule 2.3(c), $6,600,000, as an additional purchase price payment, pursuant to the procedures set forth in this 3 provision provided that, if the Business’s EBITDA, at the assessment date, lay between $7 million and $7.5 million, Plaintiffs would be entitled to a earnout payment of $6.6 million. 13 Pursuant to an amendment to the SPA, the relevant earnout period after which the EBITDA would be assessed was defined as the twelve months following July 1, 2021.14 During this earnout period, Defendant’s authority to manage the Business was restricted, as they promised “to act in good faith and operate the Business in a manner that is not designed or intended to impede or interfere with EBTIDA and not take, or cause to be taken, any action intended to decrease EBITDA.”15 Pursuant to the SPA, after the earnout period closed, Defendant was to present an EBITDA calculation, “prepared in good faith,” to Plaintiffs “together with reasonably detailed supporting documentation” (the “Earnout Statement”). 16 Plaintiffs would have the opportunity to dispute the Earnout Statement via a notice of non-acceptance, potentially triggering resolution via an independent auditor. 17 Section 2.6;… if, during the Earnout Period, the Company achieves EBITDA greater than or equal to $7,500,000, but less than or equal to $7,999,999, Buyer shall pay to the Sellers’ Representative, for further distribution by the Sellers’ Representative to the Sellers in accordance with the allocations set forth on Schedule 2.3(c), $9,900,000, as an additional purchase price payment, pursuant to the procedures set forth in this Section 2.6;…et cetera. 13 SPA § 2.6(a)(i). 14 AC Ex. 2. 15 SPA § 2.6(e) (citation modified). 16 Id. § 2.6(b). 17 Id. § 2.6(c). 4 During the earnout period, Defendant was to provide Plaintiffs with (at least) quarterly reports, including “a written statement showing an estimated calculation of EBITDA based on the period beginning on the day after the Closing Date through the date such quarterly estimate is provided, along with reasonable supporting financial statements and…quarterly financial statements within twenty (20) Business Days of quarter’s end.”18 If Plaintiffs disputed the EBITDA calculation and resulting earnout payment proposed by Defendant, an independent auditor (the “Auditor”) would be employed to resolve “any remaining disagreements in respect of the [Earnout] Statement” not resolved by the Parties.19 Specifically, the Auditor would “act as an arbitrator to determine…only the amounts of each component on the [Earnout] Statement disputed” by Plaintiffs.20 The SPA also addressed issues regarding taxation of the Business. The SPA contains a robust provision concerning “Tax Matters,”21 and contains a provision requiring Plaintiffs to indemnify Defendant in the event the government concluded Plaintiffs’ pre-closing tax payments on behalf of the business were deficient and required a further payment.22 The Business, an S-corporation, operated as a pass- 18 Id. § 2.6(b). 19 Id. § 2.4(d). 20 Id. § 2.4(d)(iii). 21 SPA § 7.2 22 Id. § 9.2(a)(iii). 5 through entity for purposes of taxation, with the Plaintiffs being financially responsible for the Business’s taxes before the sale.23 III. Defendant delivers the Earnout Statement, and disputes ensue. On August 31, 2022, Defendant delivered its Earnout Statement, calculating the Business’s EBITDA at $6.8 million—$200,000 short of the target which would have qualified Plaintiffs to a $6.6 million earnout payment.24 The Earnout Statement provided was a single-page document unaccompanied by analysis.25 Plaintiffs responded by requesting financial information for each of the Business’s three locations.26 Prior to the sale, Plaintiffs had maintained financial records such as balance sheets and general ledgers at the pharmacy site level for the Business.27 The Parties commenced months of dialogue in which Plaintiffs sought further information underlying the conclusions of the Earnout Statement and Defendant failed to satisfy.28 On February 9, 2023, Defendant provided a spreadsheet supporting Defendant’s Earnout Statement which revealed changes implemented during the earnout period.29 Specifically, the data provided on February 9, 2023 showed that 23 AC ¶ 75. 24 AC Ex. 3. 25 Id. 26 AC ¶ 32. 27 Id. ¶ 61. 28 Id. ¶¶ 33-37. 29 Id. ¶¶ 38-39 6 the bad debt provided on the Business’s books was significantly higher than prior years, that the Business had incurred expenses implementing a new 401K matching program and bonuses for sales personnel, and had incurred over $170,000 of additional expenses by changing to a new product supplier.30 Plaintiffs ultimately determined that the increased bad debt was the result of a shift in the way bad debt was accounted for on the Business’s books. 31 Plaintiffs requested site-specific financial information, and were informed that the Business no longer maintained site-specific balance sheets.32 Plaintiffs’ request for site-specific general ledgers was ignored.33 After this exchange, Plaintiffs sent two letters to Defendant, explaining they did not accept the Earnout Statement provided (the letters, together, the “Notice of Non-Acceptance”).34 The Notice of Non-Acceptance identified specific issues with the Earnout Statement, including those articulated above regarding the bad debt accounting, 401k matching, sales personnel bonuses, change in supplier. 35 The Notice of Non-Acceptance further reiterated the request for site-specific financial records.36 30 Id. 31 Id. ¶¶ 65-66. 32 AC ¶ 40. 33 Id. 34 Id. ¶¶ 41-42. 35 AC Ex. 14. 36 Id. 7  The Parties attempted to resolve the dispute for more months and, ultimately, years.37 During this period, Plaintiff Wong, who had stayed on as an employee of the Business after closing, attempted to investigate the issues highlighted by Plaintiffs. 38 Wong’s post-closing role in the Business’s sales department was “strictly transitional,” and he was not provided with financial records pursuant to his role.39 Wong was able to reconcile some of the Plaintiffs’ highlighted discrepancies by investigating sales data.40 The Business incurred tax refunds related to tax overpayments made by Plaintiffs before closing.41 Defendant retained these tax refunds, an act to which Plaintiffs object.42 IV. Procedural History On August 29, 2025, Plaintiffs filed the instant action.43 On October 27, 2025, Defendant filed a motion to dismiss Plaintiffs’ Complaint.44 On November 19, 2025, Plaintiffs filed an Amended Complaint, claiming Defendant breached Section 2.6(e) of the SPA (the provision providing that 37 See generally AC ¶¶ 44-55. 38 AC ¶ 49. 39 Id. 40 Id. 41 AC ¶¶ 77-96. 42 Id. ¶¶ 80, 87, 95-96. 43 D.I. 1. The initial complaint is dated August 29, 2025, but the online docket shows a filing date of September 8, 2025. The August 29, 2025 date is operative. 44 D.I. 9-10. 8 Defendant would operate the business in good faith and not take action to interfere with the Business’s EBITDA) by (1) failing to maintain site-specific financial records and (2) changing the Business’s “historical business, operations and accounting practices to decrease the Company Group’s EBITDA” (Count I). 45 Plaintiffs further seek a declaratory judgment that (1) Defendant materially breached the SPA by breaching Section 2.6(b) (which required Defendant to provide the Earnout Statement in good faith and with “reasonably detailed supporting documentation”); (2) Defendant’s material breach relieved Plaintiffs of the obligation to follow the resolution via independent auditor provision in the SPA; and (3) that Defendant needed to provide site-specific financial information in order to comply with Section 2.6(b) (Count II).46 Finally, Plaintiffs claimed Defendant either violated the SPA’s implied covenant of good faith and fair dealing (Count III) or was unjustly enriched (Count IV) in retaining tax returns for pre-closing overpayments.47 Defendant moved to dismiss the Amended Complaint, contending Count I must go before the Auditor pursuant to the SPA and that Counts I-IV fail to state a claim for which relief can be granted. 48 Defendant’s motion to dismiss is fully briefed.49 The Court heard oral argument on the motion to dismiss on March 23, 45 AC ¶ 101. 46 Id. ¶ 109. 47 Id. ¶¶ 110-141. 48 D.I. 16. 49 D.Is. 16, 18, 21. Citations to Defendant’s opening brief are in the form of “OB at X.” Citations to Plaintiffs’ answering brief are in the form of “AB at X.” Citations to exhibits to Plaintiffs’ 9 2026.50 On April 22, 2026, the Court received the transcript of the March 23, 2026 oral argument, and took the matter under advisement.51 LEGAL STANDARD Defendant moves to dismiss the Amended Complaint pursuant to Rule 12(b)(1) and Rule 12(b)(6). 52 The “pleading standards governing the motion to dismiss stage…are minimal.” 53 The court must “accept all well-pleaded factual allegations in the [complaint] as true.”54 The court also must “read the complaint generously” and construe all such allegations “in a light most favorable to the [plaintiff].”55 The court “credits even vague allegations, so long as they provide the opposing party notice of the claim;…gives the non-movant the benefit of all reasonable factual inferences; and…denies the motion if recovery on the claim is reasonably conceivable.”56 Dismissal pursuant to Rule 12(b)(6) is appropriate only where a complaint is so deficient that the plaintiff “could not recover under any reasonably conceivable set of circumstances susceptible of proof.”57 answering brief are in the form of “AB Ex. X.” Citations to Defendant’s reply brief are in the form of “RB at X.” 50 D.I. 26. 51 D.I. 27 52 D.I. 16. 53 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011) (citation omitted). 54 Id. 55 Aramark US Offshore Servs., LLC v. Amity Lodges LTD, 2022 WL 17087052, at *1 (Del. Super. Nov. 21, 2022) (citing In re Tri-Star Pictures, Inc., Litig., 634 A.2d 319, 326 (Del. 1993), as corrected (Dec. 8, 1993)). 56 Agahi v. Kelly, 2024 WL 1134048, at *7 (Del. Super. Mar. 15, 2024). 57 Cent. Mortg., 27 A.3d at 536 (citation omitted). 10  Motions to dismiss in favor of alternative dispute resolution are commonly addressed as motions to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1).58 In resolving such a motion, the court may consider documents outside of the complaint.59 The court will dismiss a complaint in favor of alternative dispute resolution if the dispute, on its face, falls within the alternative dispute resolver’s authority as provided in the relevant agreement between the parties.60 ANALYSIS I. Count I is not dismissed. Defendant argues Plaintiffs’ breach of contract claim should be dismissed in favor of the SPA’s alternative dispute resolution provision.61 The SPA states that an independent Auditor has the authority to resolve “only the amounts of the Earnout Statement disputed” by Plaintiffs.62 The relevant alternative dispute resolution provision is not a true arbitration provision, even though it refers to the Auditor acting as an “arbitrator.”63 Regardless of the “label the parties use” for the Auditor, the Auditor’s role here is “far enough 58 See, e.g. Behm v. Am. Int’l Gp., Inc., 2013 WL 3981663, at *4 (Del. Super. July 30, 2013). 59 Id. (citation omitted). 60 Schwaber v. Margalit, 2022 WL 2719952, at *2 (Del. Ch. July 13, 2022) (citation omitted). 61 OB at 16. 62 SPA §§ 2.4(d)(iii), 2.6(c) (citation modified). 63 Id. § 2.4(d)(iii). 11 along the spectrum” of alternative dispute resolution provisions “that it is not legal arbitration.”64 In arguing the instant breach of contract claim should be dismissed in favor of resolution by the Auditor, Defendant highlights the two categories of issues raised by Plaintiffs. 65 The first category is the “Books-and-Records Issue,” in which Plaintiffs contend Defendant provided inadequate information supporting Defendant’s Earnout calculation because the appropriate records did not exist.66 The second category, in which Plaintiffs contend that Defendant improperly altered the Business’s “historical business, operations, and accounting practices to decrease the [Business’s] EBITDA,”67 is defined as the “Earnout Statement Issues.”68 1. The Books-and-Records Issue falls outside of the Auditor’s Authority. Defendant contends the Auditor has the authority to resolve the Books-and- Records Issue, as a dispute over the documents providing the basis for an EBITDA calculation falls within both the Auditor’s contractual authority and professional expertise.69 Defendant further contends Plaintiffs are engaging in artful pleading, attempting to circumvent the Auditor by arguing Defendant failed to maintain 64 ArchKey Intermediate Holdings Inc. v. Mona, 302 A.3d 975, 994 (Del. Ch. 2023). 65 OB at 17. 66 Id. 67 AC ¶ 101. 68 OB at 17. 69 Id. at 18. 12 certain documentation instead of arguing Defendant failed to provide that documentation.70 Plaintiffs contend the Books-and-Records Issue falls outside of the Auditor’s limited contractual authority, which enables the Auditor to resolve “only the amounts” in dispute.71 The Auditor’s authority is defined using “contract interpretation principles.”72 Accordingly, while the Auditor may have expertise in resolving issues over what accounting documentation must be maintained by the Business, the language of the SPA governs the Court’s analysis of this issue. Both parties reference Katz v. Infusion Services Management, LLC,73 in which this Court dismissed a post-closing “True-Up” dispute in favor of an independent auditor.74 The Court has examined the SPA’s alternative dispute resolution provision against that in Katz, and the two are very similar. In Katz, this Court sent disputes regarding which records the buyer kept after closing to an independent auditor.75 The Katz provision, however, provided the auditor with the enumerated authority to 70 Id. at 20. 71 AB at 17. 72 Lytle v. Lytle Intermediate, LLC, 2026 WL 50135, at *5 (Del. Ch. Jan. 7, 2026) (citing Terrell v. Kiromic Biopharma, Inc., 297 A.3d 610, 619 (Del. 2023)). 73 2025 WL 2979825 (Del. Super. Oct. 22, 2025). 74 OB at 20; AB at 25. 75 2025 WL 2979825, at *2. 13 resolve disputes about what financial records should have been provided by the buyer.76 This enumerated power is not provided to the Auditor in the SPA. Defendant attempts to parry this point by noting that the Court did not rely on this provision in resolving Katz.77 While it is true that this Court did not reference (in its brief order) the Katz auditor’s enumerated authority to resolve disputes about which records the buyer provided, the Court does not agree with Defendant’s reasoning. Defendant essentially asks the Court to declare that two contracts—one of which explicitly sends disputes about record keeping to an independent auditor while the other does not—command the same result. Such an argument renders the additional provision present in Katz but absent here redundant and superfluous.78 Accordingly, Katz is distinct from the instant case insofar as it allocates disputes over record-keeping to an auditor, and reliance on Katz does not resolve the issue of where the Books-and-Records Issue must be heard. 76 AB at 24 n. 64 (first citing AB Ex. A at 6-7 (the motion to dismiss answering brief prepared by the plaintiff in Katz, providing the language of the relevant provision from the Katz contract: “The Auditor shall have the authority (i) to determine if a party has complied with its obligations to provide access to the financial information required pursuant to this Section 2.9(d) and to order that a party comply with any such obligations, and (ii) to allow a party the right to amend any prior objection notice where it finds that such party had been prejudiced by the failure to have been provided access to such financial information.”); then citing AB Ex. B at 12:6 (from the hearing transcript from Katz, in which counsel paraphrased the language quoted above)). 77 RB at 4 n. 3. 78 Johnson & Johnson Fortis Advisors LLC, 352 A.3d 229, 265 (Del. 2026) (noting that the Court avoids interpretations of contracts which render terms superfluous (citations omitted)). 14  Defendant contends the SPA enables the Auditor to resolve “all such disagreements” raised regarding the Earnout Statement and unresolved by the Parties, not just the “amounts” in dispute.79 The Court instead agrees with Plaintiffs that the SPA provides the Auditor with the authority to resolve “only the amounts” disputed in the Earnout Statement.80 “Specific language in a contract controls over general language, and where specific and general provisions conflict, the specific provision ordinarily qualifies the meaning of the general one.”81 Defendant cites to the broad, general language articulating the authority of the Auditor, but Plaintiffs trump this by highlighting the more specific rule articulated in the alternative dispute resolution provision. The Auditor here has the authority to resolve only the amounts of the Earnout Statement which are disputed. “Thus, the [SPA] only contemplates the [Auditor] performing certain calculations and not an investigation into whether the parties otherwise complied with the [SPA].”82 The open question regarding the Books-and-Records Issue is whether said Issue concerns a calculation problem or some other issue. The Books-and-Records Issue concerns Defendant’s decision to cease maintaining accounting records for each site after acquiring the business to reduce 79 RB at 3 (citing SPA § 2.6(c)). 80 AB at 16 (citing SPA § 2.4(d)(iii) (which is incorporated by reference into SPA § 2.6(c)). 81 DCV Hldgs., Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005). 82 Lytle, 2026 WL 50135, at *7. 15 the Business’s EBITDA.83 The issue presented here is not a calculation matter: it concerns the factors which underly the EBITDA calculation inputs. Were the Court to send this issue to the Auditor, the instant dispute would not be resolved, as the Auditor would only be empowered to conduct an EBITDA calculation using the records in existence, not ascertain whether a party otherwise breached the SPA by failing to maintain those records in the first place. That question is a legal issue suited for resolution by the Court and is not delegable because the parties did not specifically allocate it to the Auditor, unlike in Katz. This case is analogous to Bonola v. N. Am. Dental Mgmt., LLC.84 In Bonola, the court explained that an alternative dispute resolution provision which allocated calculation disputes to a neutral accountant did not enable the accountant to resolve disputes concerning the provision of proper documentation. 85 This case is also analogous to Lytle v. Lytle Intermediate, LLC.86 In Lytle, the court concluded that the relevant alternative dispute resolution provision authorized the neutral accountant to determine only the applicable earnout amount, which barred the court from sending claims concerning the provision of proper documentation to the accountant. 87 In both cases, as here, the relevant alternative dispute resolution 83 AB at 22. 84 2025 WL 3677422 (Del. Ch. Dec. 8, 2025) 85 Id. at *6 86 2026 WL 50135. 87 Id. at *7 16 provision enabled the accounting expert to resolve issues regarding the numerical amount of the earnout, not ancillary disputes regarding one party’s provision of proper documentation in support of their earnout calculation. Defendant’s remaining arguments on this point are unavailing. Defendant argues the Auditor is well suited to ascertain which financial records should have been maintained and provided by Defendant, but this expertise does not override the fact cont the SPA does not allocate the issue to the Auditor.88 While the Auditor is an accounting expert, the Court is capable of resolving this legal issue.89 Defendant also argues the Books-and-Records Issue was raised in Plaintiffs’ Notice of Non-Acceptance and therefore should go to the Auditor.90 For this point Defendant again cites Katz. 91 While this Court in Katz noted that the relevant disputes were raised in the formal objection to the buyer’s true-up calculation, Katz does not provide that the presence of an issue on such an objection is dispositive. 88 While in Katz the Court noted that the issues regarding which records were kept were “technical issues” in the auditor’s bailiwick, the scope of the auditor provision there was broader than here, as noted above. The mere presence of a technical issue is not sufficient to defeat the Court’s subject matter jurisdiction if the contract does not allocate that issue to alternative dispute resolution. 89 Defendant’s reliance on Dolce v. WTS Int’l, LLC is likewise unpersuasive. OB at 19 (citing 2024 WL 714128 (Del. Ch. Feb. 20, 2024)). Dolce did not address a situation in which a party allegedly breached the relevant contract by failing to keep proper records in the first instance. Instead, the Court only addressed a party’s failure to provide such records during the alternative dispute resolution process and held that failure did not preclude the applicability of said process “after [the defendant] provides the required information.” Dolce, 2024 WL 714128, at *3. The issue here is not whether Defendant’s failure to cooperate with the alternative dispute resolution process should excuse Plaintiffs from following that process (as in Dolce), it is that Defendant allegedly chose certain accounting practices to reduce EBITDA, an issue outside of the Auditor’s authority. 90 OB at 18-19. 91 OB at 19 (citing 2025 WL 2979825). 17 The Court looks to the language of the SPA itself to ascertain what issues go to the Auditor, not the way Plaintiffs articulated their objection to the Earnout Statement.92 Regardless of which issues Plaintiffs identified in their Notice of Non-Acceptance, the disputes in question must be subject to resolution by the Auditor to go the Auditor. The Court will not use the Notice of Non-Acceptance’s text as grounds to send additional disputes to the Auditor where the Parties contracted otherwise. Plaintiffs’ Books-and-Records Issue is not mere pleading around the scope of the Auditor’s authority.93 The SPA does not provide that issues regarding records maintenance go to the Auditor, and the Court will not send said issue to the Auditor for resolution.94 2. The Earnout Statement Issues fall outside of the Auditor’s authority. Defendant argues resolution of the Earnout Statement Issues falls within the exclusive authority of the Auditor.95 The Earnout Statement Issues refer to various operational changes implemented after Defendant acquired the Business: (1) 92 Lytle, 2026 WL 50135, at *5 (citing Terrell, 297 A.3d at 619). 93 Stone v. Nationstar Mortg. LLC, 2020 WL 4037337, at *8 (Del. Ch. July 6, 2020) (“Delaware courts have rejected contractual parties’ efforts to plead around the scope of a third-party decision- maker's authority by couching delegable disputes in questions of law.” (citation omitted)). 94 AM Buyer LLC v. Argosy Inv. P’rs IV, L.P. is inapplicable. 2024 WL 4024980 (Del. Super. Sept. 3, 2024), aff’d sub nom. AM Buyer LLC v. Argosy Inv. P’rs IV, L.P, 345 A.3d 958 (Del. 2025). In AM Buyer, the court determined the independent accountant had authority to resolve “all disputes” concerning the earnout, not merely the amounts in question. Id. at *11. The independent accountant’s authority was thus broader than here, allowing for the resolution of broader ancillary issues. 95 OB at 20. 18 changing the Business’s bad debt policy, (2) offering the Business’s employees a 401K match, (3) paying sales personnel bonuses, and (4) switching to a new, more expensive supplier.96 Plaintiffs contend these issues fall outside of the Auditor’s authority.97 As already articulated, the language of the contract governs the scope of the Auditor’s dispute resolution authority. 98 Here, the SPA enables the Auditor to resolve “only the amounts” in dispute from the Earnout Statement.99 Defendant stretches the SPA’s alternative dispute resolution provision too far. First, Defendant contends the SPA enables the Auditor to resolve all disputes regarding the Earnout, not just the amounts in question, which the Court already rejected above.100 Second, Defendant again highlights Plaintiffs’ identification of the Earnout Statement Issues in Plaintiffs’ Notice of Non-Acceptance, but that is not dispositive, as articulated above.101 Third, Defendant argues issues such as the bad debt policy concern technical accounting issues suited to the Auditor’s expertise.102 The Court already explained that the contract, not the Auditor’s expertise, governs the allocation of disputes. 96 Id. at 17. 97 AB at 16. 98 Lytle, 2026 WL 50135, at *5 (citing Terrell, 297 A.3d at 619). 99 SPA § 2.4(d)(iii). 100 OB at 21. 101 Id. 102 Id. 19 Further, Defendant misapprehends the allegation regarding the bad debt policy. As Plaintiffs explain, the issue is not that the change to the bad debt policy violated an accounting standard prescribed by the SPA.103 The issue is that, regardless if the acceptability of the new policy under accounting principles, the change in policy was implemented in order to reduce EBITDA and prevent an earnout payment, in violation of the SPA’s mandate that Defendant not do so. 104 The reason for Defendant’s conduct is operative here. Here, Katz is again distinct, as the guardrails set to guide the buyer’s post- closing conduct were limited to specifically required or prohibited actions.105 In Katz, the relevant contract enabled the buyer to operate the business in its sole discretion, without obligation to operate in such a way as to facilitate an earnout beyond following the specific mandates on conduct outlined in the agreement.106 Plaintiffs’ claims do not target the specific misconduct—accounting or otherwise—employed by Defendant: they target the reason that conduct was implemented. The focus on the why driving Defendant’s actions takes this case beyond the purview of the Auditor, unlike in Katz. In Katz, specific accounting 103 AB at 25. 104 Id. (citing SPA § 2.6(e)). 105 2025 WL 2979825 at *1. 106 AB Ex. A at 7 (briefing from Katz which quotes the relevant contract and identifies the broader discretion granted to the buyer: “Finally, the Purchase Agreement expressly afforded Vivo Infusion ‘the right to operate the Target Business in any way that [it] deems appropriate in [its] sole Discretion’ and made clear that it had ‘no obligation to operate the Target Business in order to achieve any payment of the True-Up Amount.’”). 20 practices were allegedly taken in direct violation of the guardrails established by the contract, which dictated the appropriate accounting practices. 107 In Katz, the conduct itself constituted the purported breach. Here, the contract does not identify the specific actions allegedly taken by Defendant as wrongdoing. Instead, the SPA says Defendant cannot take these actions to prevent an earnout payment, no matter how facially valid the conduct may be. The intent behind Defendant’s actions gives rise to the purported breach, not just the conduct. This distinction reveals why the Auditor is not suited to resolve these issues, as the Auditor could conclude the actions taken by Defendant were satisfactory as a matter of accounting, but the Auditor would not have resolved the state of mind issues underlying Defendant’s decisions and Plaintiffs’ breach claim. To the extent Defendant asks the Court to dismiss the case so the Auditor can ascertain whether Defendant took certain actions in bad faith, Defendant asks the Court to stretch the alternative dispute resolution provision concerning “only the amounts” in dispute beyond the breaking point.108 107 2025 WL 2979825. 108 The Court notes that the provision in Katz likewise gave the auditor authority to resolve “only the amounts” in dispute (alongside issues surrounding proper records production as discussed above). 2025 WL 2979825. There, the disputed conduct which the Court directed should go before the auditor concerned accounting philosophy and record keeping practices which allegedly directly violated the relevant agreement’s post-closing guardrails. See id. at *2. Accounting philosophy is not disputed here: Plaintiffs do not contend the accounting methodology was faulty, instead essentially contending that Defendant chose an accounting methodology which, while potentially valid, was chosen because it reduced EBITDA. Record keeping is disputed, but the special 21  Defendant’s decisions to offer the Business’s employees a 401K match, to pay sales personnel bonuses, and to switch to a new supplier are not accounting issues. True, these decisions influence the Business’s books (and Plaintiffs contend that effect was the motivation which drove these decisions), but that does not change their status as issues concerning the operation of the business rather than issues concerning accounting methodology. In Katz, the Court held that the issues to be sent to the auditor concerned “accounting practices”—not so with these issues.109 The real issue raised by the Earnout Statement Issues does not involve accounting expertise or accounting calculations: it involves an analysis into the state of mind of the Defendant in making certain operational decisions. This legal issue is not suited for resolution by the Auditor, who is only allocated issues regarding the amounts of the Earnout Statement. The Court cannot dismiss the breach of contract claim, insofar as it concerns the Earnout Statement Issues, in favor of alternative dispute resolution. 3. Count I states a claim for which relief can be granted. Defendant argues Count I fails to state a claim for which relief can be granted.110 This argument is brought pursuant to Rule 12(b)(6).111 provision enabling the auditor to resolve that issue in Katz is absent here. The difference in the alleged misconduct and distinct differences in the contracts distinguishes the two cases. 109 2025 WL 2979825 at *2. 110 OB at 22. 111 Id. 22  In Count I, Plaintiffs allege Defendant breached the SPA by taking actions “designed or intended to decrease EBITDA,” further alleging the same actions “are [not] actions taken in good faith.”112 The thrust of Plaintiffs’ complaint is the reason Defendant took certain actions constitutes a breach of contract. This invokes the even more limited pleading standard for intent and state of mind. Intent and state of mind need only be averred generally,113 and bad faith can be alleged by showing “facts related to the alleged act taken in bad faith, and a plausible motivation for it.”114 Defendant argues the Books-and-Records Issue and Earnout Statement Issues do not amount to breaches of the SPA.115 First, Defendant argues the Books-and- Records Issue is based on the unreasonable conclusion that Defendant does not maintain any balance sheets or general ledgers because it does not maintain such records at the site-level.116 As Plaintiffs explain, they do not contend Defendant fails to maintain any balance sheets or general ledgers, instead only arguing Defendant fails to keep site-level financial records, as Plaintiffs did before the sale of the Business.117 Crediting Plaintiffs’ clarification and the allegations in the Amended 112 AC ¶ 101 113 Del. Sup. Ct. Civ. R. 9(b). 114 Coca-Cola Beverages Fla. Hldgs., LLC v. Goins, 2019 WL 2366340, at *3 (Del. Ch. 2019) (quoting Clean Harbors, Inc. v. Safety-Kleen, Inc., 2011 WL 6793718, at *7 (Del. Ch. 2011)). 115 OB at 23. 116 Id. at 24. 117 AB at 27-29. 23 Complaint that Defendant admitted to not maintaining site-specific balance sheets and ignored the request for site-specific general ledgers,118 the Court do