IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ARTHUR J. GALLAGHER & CO.; ) ARTHUR J. GALLAGHER RISK ) MANAGEMENT SERVICES, INC., ) ) Plaintiffs, ) ) v. ) C.A. No. 2024-0494-LWW ) JOSEPH A. AGIATO, JR. (individually ) and as Sellers’ Representative), ) ) Defendants. )
MEMORANDUM OPINION
Date Submitted: April 11, 2025 Date Decided: July 31, 2025
Blake Rohrbacher, Katharine L. Mowery & John M. O’Toole, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Stephen D’Amore, Michael Skokna & Christian Gray, WINSTON & STRAWN LLP, Chicago, Illinois; Angela Machala & Peyton Sherwood, WINSTON & STRAWN LLP, Los Angeles, California; Spencer Churchill, WINSTON & STRAWN LLP, Washington, D.C.; Counsel for Plaintiffs Arthur J. Gallagher & Co. and Arthur J. Gallagher Risk Management Services, Inc.
Brian E. Farnan & Michael J. Farnan, FARNAN LLP, Wilmington, Delaware; Vineet Bhatia & Armando Lozano, SUSMAN GODFREY LLP, Houston, Texas; Stephen Morrissey, SUSMAN GODFREY LLP, Seattle, Washington; Counsel for Defendant Joseph A. Agiato, Jr.
WILL, Vice Chancellor This dispute concerns the plaintiffs’ purchase of two companies for an upfront
cash payment plus contingent earnout payments. The earnouts were tied to the
acquired businesses meeting revenue thresholds in each of four years. Although the
first year’s threshold was met, the plaintiffs withheld the corresponding payment.
They assert that the sellers failed to uphold other terms of the deal on which the
earnout is purportedly conditioned, and seek indemnification for these alleged
breaches of contract.
The sellers’ representative has moved for partial judgment on the pleadings,
raising two key issues. First, he argues that the initial earnout payment is due. I
agree, as the sole condition for it has been satisfied. Second, he seeks the release of
escrowed shares, which were set aside as security for indemnity claims. Resolving
that issue is precluded by factual disputes.
The motion is therefore granted in part and denied in part.
I. FACTUAL BACKGROUND
The following description is drawn from undisputed facts in the pleadings and
documentary exhibits the parties submitted.1
1 Verified Compl. (Dkt. 1) (“Compl.”); Agiato’s Verified Answer and Countercls. to Gallagher’s Verified Compl. (Dkt. 4) 14-47 (“Answer”); Agiato’s Verified Answer and Countercls. to Gallagher’s Verified Compl. (Dkt. 4) 48-84 (“Countercls.”); Pls.’ Corr. Reply to Agiato’s Verified Countercls. (Dkt. 16) (“Reply”). Exhibits to Agiato’s Answer and Counterclaims are cited as “Agiato’s Ex. __.” Exhibits to the Complaint are cited as “Compl. Ex. __.” 1 A. The Asset Purchase Agreement
Defendant Joseph A. Agiato, Jr. is a North Carolina resident.2 He is the
founder and former CEO of Patent Insurance Underwriting Services, LLC (“PIUS”)
and Newlight Capital, LLC (with PIUS, the “Sellers”).3 The Sellers were involved
in originating, underwriting, structuring, and collecting loans to early-stage
companies collateralized by intellectual property.4 Before their sale, Agiato owned
78% of PIUS and 100% of Newlight.5
Arthur J. Gallagher Risk Management Services, Inc. is an Illinois corporation
providing risk management and insurance services.6 It is a subsidiary of defendant
Arthur J. Gallagher & Co., a Delaware corporation (with Arthur J. Gallagher Risk
Management Services, Inc., “Gallagher”).7
On November 8, 2022, Gallagher entered into an Asset Purchase Agreement
(the “APA”) with the Sellers and their members.8 Agiato signed the APA
individually as a member and as the “Sellers’ Representative.”9
2 Countercls. ¶ 11. 3 Answer ¶ 10; Countercls. ¶ 11. 4 Compl. ¶ 27; Answer ¶ 27; Countercls. ¶¶ 26-27. 5 Compl. Ex. 2 (Sellers’ Disclosure Sched.) ¶ 6(b). 6 Answer ¶ 9; Countercls. ¶¶ 12-13. 7 Answer ¶ 9; Countercls. ¶¶ 12-13. 8 Answer ¶ 2. 9 Compl. Ex. 1 (“APA”) 1; see also id. § 9(h) (appointing Agiato Sellers’ Representative). 2 1. Earnout Payments
Gallagher paid an upfront $50 million purchase price.10 It also agreed to make
up to $150 million in possible earnout payments.11 The earnout payments were
contingent on the “New PIUS Division”—PIUS and Newlight operating as a
division of Gallagher—achieving Net Commissions and Fee Income (“NCFI”)
thresholds detailed in Appendix I to the APA.12 NCFI is an “all agency bill”
including due diligence fees, origination fees, loan monitoring fees, and policy
commissions paid on policies placed by PIUS.13
The Addendum specified a “Base NCFI” for each of the four years.14 The
earnout payment would be equal to a 7.15 multiple on actual NCFI above the Base
NCFI, capped at $50 million per year (with an aggregate cap of $150 million).15
10 Id. § 4(a)(i) (providing for a total purchase price of $46,250,000.01 (divided into four components) plus the “Escrow Deposit”); id. § 1 (“‘Escrow Deposit’ means $3,750,000 of Gallagher Common Stock . . . .”). 11 Countercls. ¶ 32; APA § 4(b); APA Addendum I. 12 APA § 4(b); id. at Addendum I; see also id. (defining the “New PIUS Division” as “the Acquired Business operating as a division of Gallagher”); APA § 2(a)(i) (defining PIUS and Newlight as the “Acquired Business”). 13 Countercls. ¶¶ 33-34; APA Addendum I at 2. Addendum I explains that certain items— “[c]ontingent commissions, profit sharing, [and] supplemental, bonus commissions”—are to be accounted for on a cash basis in calculating NCFI. APA Addendum I at 2. 14 APA Addendum I at 1. 15 Id. at 1-2. The Base NCFI in Year 1 was $13 million, meaning the Sellers would receive a Year 1 earnout payment of 7.15 times each dollar earned above that amount, up to a maximum of $50 million. Id. 3 NCFI is recognized as cash is received.16 If NCFI exceeds a “Target NCFI” for any
given year, the excess is carried over into the next year.17
2. Sellers’ Representations and Warranties
Section 6 of the APA contains representations and warranties made to
Gallagher by the “Sellers and the[ir] [m]embers jointly and severally,” including
Agiato as a member of the Sellers.18 They include the following:
• § 6(g)(i): “Except as set forth in Paragraph 6(g) of the [d]isclosure [s]chedule, since December 31, 2021 . . . the business of the Sellers has been conducted only in the Ordinary Course of Business”;
• § 6(o): “Except as set forth in Paragraph 6(o) of the [d]isclosure [s]chedule, neither Sellers nor any manager or member of Sellers or any Associate of Sellers or of such persons have any direct or indirect interest in any firm, corporation, association or business enterprise which competes with, is a customer or sales agent of or is engaged in any insurance business of the kind being conducted by Sellers”; and
• § 6(o): “Except for employment relationships and compensation, benefits and travel advances in the Ordinary Course of Business, neither Sellers nor any manager or member of Sellers or any Associate of such persons have any interest, directly or indirectly, in any contract with, commitment or obligation of or to, or claim against Sellers.”19
16 Id. at 2. 17 Id. at 1. 18 APA § 6. 19 Id. §§ 6(g)(i), 6(o). “Ordinary Course of Business” means, “in respect of any Person, the ordinary course of such Person’s business as conducted by such Person in accordance with past practice and undertaken by such Person in good faith.” Id. § 1. 4 The Sellers and their members were to disclose any exceptions to these
representations and warranties in a formal disclosure schedule.20 The parties agreed
that the Sellers’ representations and warranties were “not affected by any
information” obtained or received outside of these formal disclosures.21 Neither the
Sellers nor their members (including Agiato) made any disclosures pertaining to
Sections 6(g)(i) or 6(o) in the accompanying disclosure schedule.22
Section 9(b) of the APA gives Gallagher a right to indemnification for the
“breach of, or the failure to fulfill, any representation, warranty, agreement, or
covenant” in the APA.23 To make an indemnification claim, the claimant must
“promptly” provide written notice to the indemnitor “setting forth all specifics of the
[c]laim then known by the [c]laimant.”24 Claims are subject to a threshold amount
($200,000 in the aggregate or $5,000 per claim) that must be exceeded for the
20 Id. §§ 6(g)(i), 6(o). 21 Id. § 9(a) (“The representations and warranties of a party hereto shall not be affected by any information furnished to, or investigations made by, the other party or any of its employees, attorneys, accountants or other representatives in connection with the subject matter of [the APA] . . . .”). 22 Compl. Ex. 2 ¶ 6. 23 APA § 9(b)(ii)(A). 24 Id. § 9(d)(i); Countercls. ¶ 74. 5 claimant to obtain indemnification or reimbursement of associated expenses.25
Indemnification is capped at the purchase price paid to the Sellers.26
3. Agiato’s Post-Closing Obligations
The APA imposed obligations related to the New PIUS Division’s operation.
For example, Section 4(b) includes an assurance that “[f]ollowing the [c]losing,
regardless of the effect on the [e]arnout, the continuing New PIUS Division . . . shall
conduct its business in accordance with Gallagher’s business practices, policies and
procedures.”27 It adds that the “New PIUS Division will be managed for the long-
term benefit of Gallagher’s shareholders.”28
B. The Escrow Agreement
Concurrent with the APA, Gallagher and Agiato (as Sellers’ Representative)
entered into an Escrow Agreement.29 The parties agreed that “Sellers shall deliver
$3,750,000 of Gallagher Common Stock” (the “Escrowed Shares”) to the escrow
agent “[a]s security for the indemnification obligations of Sellers and
[their m]embers.”30
25 APA § 9(g)(i)(A)-(B). 26 Id. § 9(g)(ii). 27 Id. § 4(b)(ix). 28 Id. § 4(b)(x). 29 Agiato’s Ex. 6 (“Escrow Agreement”). 30 Id. § 1; see also Countercls. ¶¶ 66-67. 6 If Gallagher became “entitled to indemnification pursuant to the provisions of
the [APA]” and “written notice” was given to the escrow agent and members as
“provided in Section 9 of the [APA],” the Escrowed Shares would be used to satisfy
the Sellers’ indemnification obligations to Gallagher.31 Otherwise, the Escrowed
Shares would be released to the Sellers “[i]f 18 months from the date hereof no notice
ha[d] been received by [the] [e]scrow [a]gent from Gallagher that the Escrowed
Shares are subject to an indemnification claim pursuant to the [APA] or that a dispute
has arisen with respect to the Escrowed Shares.”32
The Escrow Agreement requires that written notice be delivered to
Gallagher’s General Counsel if an indemnity claim is made against Gallagher, and
to Agiato if it is made against the Sellers.33 It further directs that the Sellers’
counsel—Kerry T. Smith, Esq. of M&H, LLP—be notified.34 According to
Gallagher, in March 2024, Smith asked that he and M&H be “removed from all
notice provisions in all agreements relating to Gallagher’s PIUS division.”35
31 Escrow Agreement § 3. 32 Id. 33 Id. § 7. 34 Id. 35 Agiato’s Ex. 7 (“Gallagher’s May 7 Letter”) 2 n.2. 7 C. The Employment Agreement
When the APA closed, Agiato signed an Employment Agreement with
Gallagher to manage the New PIUS Division.36 Agiato’s execution of the
Employment Agreement was “a condition to the consummation of the [t]ransaction”
contemplated by the APA.37
In the Employment Agreement, Agiato agreed to a four-year tenure “unless
earlier terminated by either party” with “21 days written notice to the other party.”38
The Employment Agreement allowed Gallagher to terminate Agiato “with no
liability” under certain conditions, including for “Cause.”39
Agiato was promised a $600,000 annual base salary plus up to $400,000 for
achieving specified “key strategic initiatives.”40 In return, the Employment
Agreement obligated Agiato to “devote his full energies, abilities, attention and
business time to the performance of his employment obligations and
responsibilities.”41 He was required to “comply with all [Gallagher] policies and
36 Agiato’s Ex. 2 Ex. A (“Employment Agreement”). 37 APA 1 (Recitals). 38 Employment Agreement §§ 1, 5(A). 39 Id. § 5(B). The Employment Agreement details the events which, if deemed in good faith by Gallagher to have occurred, would have constituted “Cause.” Id. § 5(B)(3). 40 Id. §§ 3(A)-(B). 41 Id. § 2(A). 8 procedures in effect and applicable to him.”42 He was also prohibited from
“engag[ing] in any aspect of the insurance business for or on behalf of any person or
entity other than [Gallagher] . . . [or] in any activity inimical to the best interests of
[Gallagher].”43
D. The Earnout Dispute
The “Year 1” earnout was based on NCFI earned between November 1, 2022
and October 21, 2023.44 Gallagher was to deliver an earnout statement for that
period within 90 days of the first anniversary of the transaction—by February 6,
2024.45
Gallagher did not deliver an earnout statement in February.46 On March 4, it
sent Agiato a letter purporting to fire him for cause.47 It explained that no earnout
payment would be made:
As to Year 1 [e]arnout payments specifically, the revenue, commissions, and fees derived from transactions involving [a third party] were not earned in compliance with your obligations under the APA and Employment Agreement and, thus, must be excluded from calculations of the New PIUS Division’s [NCFI]. After such exclusion, the New PIUS Division’s NCFI for Year 1
42 Id. 43 Id. 44 Countercls. ¶ 39; Reply ¶ 39; APA Addendum I at 1. 45 See APA § 4(b); APA Addendum I at 1. 46 Countercls. ¶ 41; Reply ¶ 41. 47 Agiato’s Ex. 2 at 1-2. 9 failed to meet necessary thresholds to trigger an [e]arnout payment.48
Gallagher also acknowledged its obligation to furnish an earnout statement and
attached calculations showing NCFI of $12,722,225, which excluded certain cash
payments it felt should not count toward the total.49
Agiato responded two days later in his capacity as Sellers’ Representative. He
wrote that “NCFI for Year 1 was in excess of $28.4 million,” meaning that “the
maximum [e]arnout of $50 million for Year 1 was earned by the Sellers and
members with a carryover to Year 2 of more than $8.4 million applicable to the
NCFI for Year 2.”50 He requested Gallagher’s “books, records, and work papers”
used to calculate NCFI and a detailed breakdown of the revenue received by the New
PIUS Division in Year 1.51
Gallagher ignored Agiato’s letter and a subsequent email.52 On March 19,
Agiato followed up through counsel to dispute Gallagher’s NCFI calculations and
again request books and records.53 His counsel demanded that Gallagher participate
48 Id. at 2. 49 Id. at 2, Ex. B. 50 Agiato’s Ex. 3 at 1. 51 Id. 52 See Agiato’s Ex. 4 at 1. 53 Id. at 1-2. 10 in the contractual dispute resolution process.54 Under this process, outlined in
Section 4(b) of the APA, if the parties could not resolve any disagreement on
Gallagher’s earnout statement within 60 days, either party could submit the dispute
to an accountant “for final resolution.”55
On April 3, Gallagher responded that the earnout dispute resolution process
in the APA was “inapposite” because Agiato’s alleged misconduct was at issue—
not “an accounting dispute over how [e]arnout payments (if owed) should be
calculated.”56 It claimed that one of the transactions it excluded when calculating
NCFI had been improperly omitted from the Sellers’ disclosure schedule.57 It
explained that it had “made the accounting decision to reverse the booking of
revenues associated with several of the transactions entered into by [] Agiato during
Year 1 of the [e]arnout period” because such transactions were, in its view, contrary
to Agiato’s obligations and “not reflective of the actual, long-term value of the
54 Id. at 2; see APA § 4(b)(i) (outlining the dispute resolution process). 55 APA § 4(b)(i)-(ii); see also id. § 1 (defining the “Accountants” as “Grant Thornton, LLP”). Agiato’s counsel followed up in writing and by phone on March 21. See Agiato’s Ex. 5 (“Gallagher’s Apr. 3 Letter”) 1. 56 Gallagher’s Apr. 3 Letter 1-2. 57 Id. at 2; see supra notes 18-20 and accompanying text (describing these representations and warranties). 11 acquired business.”58 It attached another spreadsheet showing NCFI of $12,722,225
based on the “revers[als]” described in its letter.59
E. The Escrowed Shares Withholding
The APA and Escrow Agreement require Gallagher to deliver notice of any
indemnification claim to the escrow agent and Agiato before May 8, 2024.60 The
Escrow Agreement explains that notice sent “after normal business hours” will be
considered sent the next day.61
On May 7, at 6:50 p.m. Central Time, Gallagher emailed the escrow agent and
Agiato a letter purportedly serving as “written notice to the [m]embers and escrow
agent pursuant to the terms of the Escrow Agreement as it relates to the
indemnification to which Gallagher is entitled under the APA.”62 Gallagher
58 Gallagher’s Apr. 3 Letter 3. 59 Id. at 5; see supra note 49 and accompanying text. 60 Escrow Agreement § 3 (requiring notice to the escrow agent within 18 months of November 8, 2022, when the Escrow Agreement was signed). 61 Countercls. ¶ 94; Escrow Agreement § 7 (requiring notice, if sent by email, to be “sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient”). 62 Gallagher’s May 7 Letter 2. Its indemnification claim was based on purported “adverse consequences” suffered because of (1) PIUS’s alleged breach of post-acquisition obligations; (2) the Sellers’ and members’ alleged breaches of representations and warranties; and (3) Agiato’s for-cause termination. Id. 12 requested the return of the full amount held in escrow as indemnification.63 As a
result, the Escrowed Shares were withheld from the Sellers.
F. This Litigation
Gallagher initiated this litigation on May 10, advancing breach of contract and
declaratory judgment claims against Agiato (both individually and as Sellers’
Representative).64 On June 7, Agiato answered the Complaint and brought
counterclaims against Gallagher for breach of the APA and the Escrow Agreement,
and for restitution.65
The dispute narrowed on November 27, when Gallagher stipulated that the
Year 1 NCFI threshold was met.66
On January 10, 2025, Agiato moved for partial judgment on the pleadings.67
The motion was fully briefed as of February 27,68 and I held argument on April 11.69
63 Id. at 2-4. 64 Compl. ¶¶ 59-86. 65 See Countercls. ¶¶ 104-59. 66 Stip. and Order Resolving Defs.’ Mot. to Compel Earnout Dispute Resolution Process (Dkt. 53) (“NCFI Stip.”) ¶ 1.a-b; see infra notes 88-89 and accompanying text. Agiato’s Opening Br. in Supp. of Mot. for Partial J. on the Pleadings (Dkt. 60) (“Agiato’s 67
Opening Br.”). 68 Pls.’ Answering Br. in Opp’n to Def.’s Mot. for Partial J. on the Pleadings (Dkt. 70) (“Gallagher’s Answering Br.”); Def.’s Reply Br. in Supp. of Mot. for Partial J. on the Pleadings (Dkt. 76) (“Agiato’s Reply Br.”). 69 Tr. of Apr. 11, 2025 Oral Arg. on Def.’s Mot. for Partial J. on the Pleadings (Dkt. 100) (“Oral Arg. Tr.”). 13 II. ANALYSIS
Agiato’s motion for partial judgment on the pleadings centers on two main
issues.
The first issue is whether Gallagher must make the Year 1 earnout payment.70
It implicates Gallagher’s Count III (whether Agiato’s conduct relieved Gallagher of
its obligation to pay the earnout) and Agiato’s Count II (whether Gallagher breached
the APA by failing to make earnout payments).71
The second issue is whether Gallagher must immediately release the
Escrowed Shares—either because Gallagher failed to provide timely notice of
indemnity claims or because those claims lack merit.72 It implicates Gallagher’s
Counts I and II (whether Agiato breached the APA by failing to comply with
representations and warranties and to manage the business as required) and Agiato’s
Count V (whether Gallagher breached the Escrow Agreement by failing to release
the Escrowed Shares).73
The court may grant judgment on the pleadings “only when, accepting as true
all of the nonmoving party’s well-pleaded factual allegations, ‘there is no material
70 Agiato’s Opening Br. 24. 71 Compl. ¶¶ 73-79; Countercls. ¶¶ 122-32. 72 Agiato’s Opening Br. 29. 73 Compl. ¶¶ 59-72; Countercls. ¶¶ 151-59. 14 fact in dispute and the moving party is entitled to judgment as a matter of law.’”74
Although inferences are drawn in favor of the non-movant, the court “need not
blindly accept as true all allegations, nor must it draw all inferences . . . in [the
non-movant’s] favor unless they are reasonable inferences.”75 “On a Rule 12(c)
motion, the Court may consider documents integral to the pleadings, including
documents incorporated by reference and exhibits attached to the pleadings, and
facts subject to judicial notice.”76
“The proper interpretation of language in a contract, while analytically a
question of fact, is treated as a question of law both in the trial court and on appeal.”77
Thus, “judgment on the pleadings . . . is a proper framework for enforcing
unambiguous contracts.”78
The APA is governed by Delaware law.79 “Delaware law adheres to the
objective theory of contracts,” meaning that “a contract’s construction should be that
74 Interactive Corp. v. Vivendi Universal, S.A., 2004 WL 1572932, at *8 (Del. Ch. June 30, 2004) (citation omitted). 75 Id. at *8 (citing Werner v. Miller Tech. Mgmt., L.P., 831 A.2d 318, 327 (Del. Ch. 2003)). 76 Jiminez v. Palacios, 250 A.3d 814, 827 (Del. Ch. 2009), aff’d, 237 A.3d 68 (Del. 2020). 77 Klair v. Reese, 531 A.2d 219, 222 (Del. 1987) (citing Restatement (Second) of Contracts § 212, cmt. d (1981); 4 Williston on Contracts § 616 (3d ed. 1961)). 78 Standard Gen. L.P. v. Charney, 2017 WL 6498063, at *10 (Del. Ch. Dec. 19, 2017). 79 APA § 19(a). 15 which would be understood by an objective, reasonable third party.”80 “When
interpreting a contract, [the] Court ‘will give priority to the parties’ intentions as
reflected in the four corners of the agreement.’”81 The court must construe the
contract “as a whole and will give each provision and term effect, so as not to render
any part of the contract mere surplusage.”82 It will not look outside an agreement’s
plain terms, so long as they are unambiguous.83 Ambiguity exists if “the provisions
in controversy are fairly susceptible of different interpretations.”84
The Escrow Agreement is governed by Illinois Law.85 “The rules governing
Illinois contractual interpretation generally track those of Delaware.”86
80 Salamone v. Gorman, 106 A.3d 354, 367-68 (Del. 2014) (quoting Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010)). 81 Id. at 368 (quoting GMG Cap. Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012)). 82 Osborn, 991 A.2d at 1159 (quoting Kuhn Constr., Inc. v. Diamond State Port Corp., 2010 WL 779992, at *2 (Del. Mar. 8, 2010)). 83 Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997) (“Contract terms themselves will be controlling when they establish the parties’ common meaning so that a reasonable person in the position of either party would have no expectations inconsistent with the contract language.”); Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006) (“Clear and unambiguous language . . . should be given its ordinary and usual meaning.”). 84 Eagle Indus., 702 A.2d at 1232. 85 Escrow Agreement § 8. 86 Am. Bottling Co. v. BA Sports Nutrition, LLC, 2021 WL 6068705, at *8 (Del. Super. Dec. 15, 2021). 16 A. Earnout Payments
The APA provides that an earnout payment is due to the Sellers and “Key
Employees” if the New PIUS Division achieves over $20,000,000 in NCFI during
Year 1.87 Gallagher has stipulated that “the amount of cash generated and received
by the New PIUS Division equaled or exceeded $20,000,000” during that period.88
It has also stipulated that “[a]t least $20,000,000 of Year 1 [c]ash [r]eceipts fell into
the six categories comprising NCFI, as set forth in Addendum I to the APA.”89
Still, Gallagher insists that it is excused from paying the Year 1 earnout. It
grounds this argument in three APA provisions that: (1) confirm the New PIUS
Division will be run according to Gallagher’s practices and policies and for the
benefit of Gallagher’s shareholders;90 (2) condition the transaction on Agiato’s
execution of the Employment Agreement;91 and (3) contain representations and
warranties by the Sellers in Section 6.92
None of these provisions bear on whether Gallagher owes the Year 1 earnout.
Although Gallagher requests I imply conditions to payment of the earnout, Delaware
87 APA § 4(b); APA Addendum I at 1; Reply ¶ 10. 88 NCFI Stip. ¶ 1.a. 89 Id. ¶ 1.b. 90 Compl. ¶ 31. 91 Id. ¶ 47. 92 Id. ¶¶ 20-30. 17 courts “cannot rewrite contracts or supply omitted provisions.”93 The APA places
no conditions on payment of the earnout once the NCFI threshold is achieved.
Because it is undisputed that the NCFI threshold for Year 1 was met, the
corresponding earnout payment is past due and owed to the Sellers.
1. Post-Closing Operations Under Section 4(b)
Gallagher asserts that “Agiato failed to conduct the business of the New PIUS
Division in accordance with Gallagher’s business practices, policies, and procedures
and failed to manage the New PIUS Division for the long-term benefit of Gallagher’s
shareholders.”94 In its view, Agiato’s purported mismanagement “represents a
failure of a condition precedent to [the] [e]arnout payments.”95
Gallagher’s argument rests on APA Sections 4(b)(ix) and 4(b)(x), which
Gallagher reads as imposing on Agiato “obligations related to the post-acquisition
operation[] of . . . [the] New PIUS Division.”96 Section 4(b)(ix) states that
“[f]ollowing the [c]losing, regardless of the effect on the [e]arnout, the continuing
New PIUS Division . . . shall conduct its business in accordance with Gallagher’s
business practices, policies and procedures . . . .”97 Section 4(b)(x) states that the
93 Murfey v. WHC Ventures, LLC, 236 A.3d 337, 355 (Del. 2020). 94 Compl. ¶ 35. 95 Id. ¶ 75. 96 Id. ¶ 31. 97 APA § 4(b)(ix). 18 “New PIUS Division will be managed for the long-term benefit of Gallagher’s
shareholders.”98
Neither Section 4(b)(ix) nor Section 4(b)(x) creates a condition precedent to
the earnout payment. Although “‘[t]here are no particular words that must be used
to create a condition precedent,’ a condition precedent must be expressed clearly and
unambiguously.”99 “Parties’ intent to set a condition precedent to performance may
be evidenced by such terms as ‘if,’ ‘provided that,’ ‘on condition that,’ or some other
phrase that conditions performance” connoting “an intent for a condition rather than
a promise.”100 APA Section 4 lacks this conditional language.101
Instead, Sections 4(b)(ix) and 4(b)(x) unambiguously address how Gallagher
will manage the New PIUS Division after closing. The Sellers bargained for some
limited protections, including that Gallagher must “operate [PIUS and Newlight] in
a manner not intentionally designed for the purpose of avoiding or reducing any
98 Id. § 4(b)(x). 99 Aveanna Healthcare, LLC v. Epic/Freedom, LLC, 2021 WL 3235739, at *25 (Del. Super. July 29, 2021) (citation omitted). 100 Murphy Marine Servs. of Del., Inc. v. GT USA Wilm., LLC, 2022 WL 4296495, at *12 (Del. Ch. Sept. 19, 2022) (cleaned up) (citing 13 Williston on Contracts § 38.16, Westlaw (database updated May 2022)). 101 In fact, the language in Section 4 of the APA is permissive. It states that “regardless of the effect on the [e]arnout . . . the . . . New PIUS Division . . . shall conduct its business “in accordance with [its] business practices, policies, and procedures . . . .” APA § 4(b)(ix) (emphasis added). 19 [e]arnout payments” and refrain from performing certain actions.102 But Sections
4(b)(ix) and 4(b)(x) balance these protections by ensuring that Gallagher has
discretion to run the business consistent with its own policies and for the “long-term
benefit of Gallagher’s shareholders,” “regardless of the effect on the [e]arnout.”103
Gallagher’s reading of the APA is inconsistent with this structure.104 Nothing
in the APA grants Agiato authority to direct the New PIUS Division’s operations
after closing. Agiato was never an officer or director of Gallagher or its affiliates.
The APA lets Gallagher run the New PIUS Division to serve Gallagher’s interests—
even if the earnout is affected—so long as it does not “intentionally” avoid or reduce
the earnout.105
Gallagher’s argument is further belied by other APA provisions. When the
parties wanted to impose obligations on Agiato, the APA refers to him by name or
as the Sellers’ Representative.106 Section 4(b)(ix) and 4(b)(x), by contrast, make no
102 Id. § 4(b)(viii). 103 Id. § 4(b)(ix)-(x). 104 See Chi. Bridge & Iron Co. v. Westinghouse Elec. Co., 166 A.3d 912, 927 (Del. 2017) (“The basic business relationship between parties must be understood to give sensible life to any contract.”); see also Fortis Advisors LLC v. Johnson & Johnson, 2024 WL 4048060, at *22 (Del. Ch. Sept. 4, 2024) (explaining that “[a] key point of tension in negotiating an earnout structure is allocating post-closing operational control”). 105 APA § 4(b)(viii). 106 See, e.g., id. § 5(b)(iii) (“Joseph A. Agiato, Jr. shall have entered into a four-year employment agreement with Gallagher . . . .”); id. § 1 (“‘Sellers’ Representative’ means Joseph A. Agiato, Jr.”); id. §§ 4(b), 4(b)(iii), 4(b)(vii)-(viii), 4(d), 8(h), 9(d)(iv), 9(h), 10(c), 20 reference to Agiato or the Sellers’ Representative in addressing how the New PIUS
Division “shall conduct its business” or “will be managed.”107 They refer only to
the management of New PIUS in the passive voice. That omission is presumably
intentional and suggests the parties had no intention of imposing obligations on
Agiato in Sections 4(b)(ix) and 4(b)(x).108
2. Provisions Related to Agiato’s Employment
Gallagher next maintains that Agiato’s compliance with his Employment
Agreement is a condition precedent to payment of the earnout. It asserts that “one
of the conditions of the transaction agreed to . . . was that Agiato would offer his
services and connections to Gallagher as an employee pursuant to the terms of his
Employment Agreement.”109 And it notes that the Employment Agreement
“requires that Agiato comply with Gallagher’s business practices, policies, and
procedures.”110 Gallagher reads these provisions together to mean that its refusal to
15 (describing the rights and obligations of the Sellers’ Representative); id. § 8(f)(i) (describing Agiato’s personal noncompete requirement). 107 Id. § 4(b)(ix)-(x). 108 Amkor Tech., Inc. v. Motorola, Inc., 2007 WL 3360039, at *6 (Del. Super. Nov. 14, 2007) (“The law does not favor including terms in a contract by implication. To the contrary, it presumes that terms that would have been easy to include in a contract but were not, were intentionally omitted by the parties.”), aff’d, 958 A.2d 852 (Del. 2008); see also supra note 82 and accompanying text (explaining that the court must read the contract “as a whole” in interpreting a specific provision). 109 Compl. ¶ 41. 110 Employment Agreement § 2(A); see supra note 42 and accompanying text. 21 pay the earnout is justified by Agiato’s purported breaches of his Employment
Agreement and firing for (purported) cause.111
This argument finds no support in the APA. The APA merely required, “as a
condition to the consummation of the [t]ransaction,” that Agiato “execute” his
Employment Agreement.112 The Employment Agreement similarly specifies that
the “execution of this Agreement is a condition to the effectiveness” of the APA.113
It is undisputed that Agiato executed the Employment Agreement.114 The APA is
not conditioned on Agiato satisfying the terms of the Employment Agreement itself
or on his continued employment.115
Gallagher posits that the coterminous four-year terms of the Employment
Agreement and earnout create “deliberate alignment underscor[ing] that the
[e]arnout was directly tied to Agiato’s continued employment.”116 It highlights
APA Section 5(b)(iii)—providing that Agiato “shall have entered into a four-year
111 Compl. ¶¶ 41-44, 47-48, 69, 75. 112 APA 1 (Recitals); see also supra note 37 and accompanying text. 113 Employment Agreement 1. 114 See Compl. ¶ 38 (“On the same day that they entered the APA, Gallagher and Agiato entered an Employment Agreement pursuant to which Gallagher hired Agiato to continue for four years in his role managing PIUS and Newlight following execution of the APA.”); Countercls. ¶ 15 (“Agiato admits that he entered into an Employment Agreement to work for Gallagher.”). 115 See supra notes 99-100 (explaining that conditionality must be expressed unambiguously). 116 Gallagher’s Answering Br. 44. 22 employment agreement with Gallagher”—as evidence of the “unique, [e]arnout-
linked nature” of the APA and the Employment Agreement.117 But neither contract
draws this link explicitly. For example, Section 5(b)(iii) falls within a section
addressing deliverables and requires that Agiato must “have entered” into the
Employment Agreement by closing.118 That condition was met: the Employment
Agreement was signed, and the transaction was consummated. The earnout is
unmentioned.119
3. Representations and Warranties in Section 6
Gallagher argues that in “addition to Agiato’s failure to satisfy the express
contractual conditions for receipt of the [e]arnout, any earnout is independently
barred by Agiato’s other material breaches of the APA.”120 It alleges violations of
three representations and warranties in APA Section 6: (1) that “the business of the
Sellers ha[d] been conducted in the “Ordinary Course of Business”; (2) that Sellers
117 Id. at 43. 118 APA § 5(b)(iii). 119 Gallagher also argues that a breach of the Employment Agreement is equivalent to a breach of the APA, since the agreements were executed contemporaneously. For the two agreements to be read together, Gallagher would need to show that the parties “intended the[] documents to ‘operate as two halves of the same business transaction.’” See Segovia v. Equities First Hldgs., LLC, 2008 WL 2251218, at *9 (Del. Super. May 30, 2008) (quoting E.I. duPont de Nemours and Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1115 (Del. 1985)). But even if Gallagher had shown that the agreements were meant to be read together, a breach of the Employment Agreement would not justify withholding the Year 1 [e]arnout. See infra Section II.A.3. 120 Gallagher’s Answering Br. 34. 23 and their members had no “direct or indirect interest” in competitors, customers, or
agents of “any insurance business of the kind being conducted by Sellers”; and (3)
that neither the Sellers nor their managers or members had “any interest, directly or
indirectly, in any contract with, commitment or obligation of or to, or claim against
Sellers.”121
I need not resolve whether Gallagher identified a viable breach of the APA.
Such a breach would provide it with grounds to seek indemnification—not to
withhold the earnout.
The APA sets out an intricate process for one party to obtain renumeration
from another for “breach of, or . . . failure to fulfill, any representation, warranty,
agreement, or covenant” in the APA.122 It describes the process for making a written
claim, and sets both a base amount required to seek indemnification and a cap.123
The Escrow Agreement facilitates the APA’s indemnification process by ensuring
that funds are set aside to compensate Gallagher for a valid indemnification claim.124
The APA’s earnout provisions omit any reference to indemnification process.
The APA also does not condition earnout payments to the Sellers on their fulfillment
121 Id. at 34-36 (citing Compl. ¶¶ 25-30); see APA §§ 6(g), 6(o); see also supra note 19 (defining “Ordinary Course of Business”); supra notes 18-20 and accompanying text (detailing the relevant representations and warranties). 122 APA § 9(b)(ii)(A); see supra note 23 and accompanying text. 123 See supra notes 24-26 and accompanying text. 124 See Escrow Agreement § 1. 24 of the representations and warranties in Section 6. The sole condition to payment of
the Year 1 earnout is meeting the NCFI threshold, which has indisputably
occurred.125
Gallagher suggests that if Agiato’s breaches were sufficiently material,
Gallagher may be “excused from performance under [the APA].”126 And it argues
that the materiality of Agiato’s breaches cannot be determined on a motion for
judgment on the pleadings. But Gallagher cannot argue that its performance under
the APA is excused while invoking the contractual indemnification process in
Section 9.127 Its pursuit of indemnification “indicates a desire to continue to accept
125 See supra note 66 and accompanying text. 126 Gallagher’s Answering Br. 38 (citing Biolife Sols., Inc. v. Endocare, Inc., 838 A.2d 268, 278 (Del. Ch. Oct. 1, 2003)); see also id. (citing SphereCommerce, LLC v. Caulfield, 2022 WL 325952, at *7 (Del. Ch. Feb. 3, 2022) (defining a material breach as one that “goes to the root or essence of the agreement between the parties or touches the fundamental purpose of the contract and defeats the object of the parties in entering into the contract”)). At oral argument, Gallagher’s counsel clarified that it was not “rely[ing] on [a] separate breach” by Agiato or asserting material breach that would excuse it from performing the “rest of the contract.” Oral Arg. Tr. 67. It was only arguing that “the earnout obligations were breached, and that’s why the earnouts do not come due.” Id. I rejected that argument above where I held that the earnout payments were not contingent on obligations imposed on Gallagher in APA Sections 4(b)(ix) and 4(b)(x). See supra Section II.A.1. 127 See supra Section I.E (describing Gallagher’s withholding of the Escrowed Shares based on indemnification claims). 25 the benefits of the [APA] after the Sellers’ alleged material breach.”128 Thus, it
cannot avoid its own contractual responsibilities.129
* * *
The APA entitles the Sellers to an earnout payment if an annual NCFI
threshold is met. Because that target was met for Year 1, and nothing in the APA or
related agreements places other conditions on the earnout, Agiato is entitled to
judgment in his favor on Agiato’s Count II and Gallagher’s Count III. The Sellers
must make the $50 million Year 1 earnout payment.130 Agiato is also entitled to
prejudgment interest on this amount, compounded quarterly.131
B. Escrowed Shares
In the Escrow Agreement, the Sellers agreed to deliver the Escrowed Shares
to an escrow agent as security for their indemnification obligations in the APA.132
The escrow agent was to release the Escrowed Shares after 18 months absent a valid
128 Post Hldgs., Inc. v. NPE Seller Rep LLC, 2018 WL 5429833, at *5 (Del. Ch. Oct. 29, 2018). 129 Id. at *5 (holding that buyers had to perform and remit tax refunds to the sellers, “irrespective of whether the [s]ellers materially breached the [a]greement,” since the buyers were pursuing a contractual indemnification process). 130 See APA Addendum I (providing that a $50 million earnout payment is owed in Year 1 if the New PIUS Division generates at least $20 million in NCFI, as stipulated). 131 See Citadel Hldg. Corp. v. Roven, 603 A.2d 818, 826 (Del. 1992) (“In Delaware, prejudgment interest is awarded as a matter of right.”); ITG Brands, LLC v. Reynolds Am., Inc., 2025 WL 670818, at *13 n.117 (Del. Ch. Mar. 3, 2025) (collecting cases supporting the norm of quarterly compounded interest). 132 See supra note 30 and accompanying text. 26 indemnification claim and accompanying written notice by Gallagher “in the manner
provided in Section 9 of the [APA].”133
Agiato seeks an order compelling Gallagher to release the Escrowed Shares.
He offers two grounds for that relief. First, he asserts that Gallagher failed to provide
timely and proper notice of indemnification.134 Second, he argues that Gallagher’s
indemnification claims fail as a matter of law.135 Neither theory entitles Agiato to
judgment in his favor; both raise material factual disputes.
1. Timely and Proper Notice
Under the Escrow Agreement, notice “shall be deemed duly given . . . on the
date sent . . . if sent during normal business hours of the recipient, and on the next
business day if sent after normal business hours of the recipient.”136
The parties entered into the Escrow Agreement on November 8, 2022,
meaning that notice to the escrow agent was required on or before May 8, 2024 to
prevent release of Escrowed Shares. Gallagher’s counsel sent notice of its
indemnifications claims at 6:50 p.m. Central Time on May 7, 2024, when it was
133 See supra notes 31-34 and accompanying text. 134 Agiato’s Opening Br. 24. 135 Id. 136 Escrow Agreement § 7; see also supra note 61 and accompanying text. 27 received by the escrow agent.137 Agiato, who lives in North Carolina, received the
email at 7:50 p.m. Eastern Time.138
Agiato believes that 6:50 and 7:50 p.m. are after “normal business hours,” so
the notice must “be deemed duly given” on “the next business day.”139 He reads the
requirement that notice be within 18 months to mean by 12:00 a.m. on the
deadline.140 He further extrapolates that the phrase “next business day” means
“during business hours” on that day.141 As such, he submits that Gallagher’s notice
was untimely because it was due by midnight but not technically received “until
business hours on May 8, 2024.”142
The meaning of “normal business hours of the recipient” is fact specific.143
Agiato’s and the escrow agent’s typical business hours are unknown to me. Agiato
might work 9:00 a.m. to 5:00 p.m. Monday to Friday, or he might keep flexible
hours, or perhaps some other industry-specific shift. Even if 7:50 p.m. were after
hours for Agiato, the Escrow Agreement does not explicitly state that notice is due
137 Reply ¶ 79; see also supra note 62 and accompanying text. 138 Agiato’s Opening Br. 26. 139 Id.; see supra note 136 and accompanying text (explicating the contractual language). 140 See Agiato’s Opening Br. 7 n.7, 25. 141 Id. at 26. 142 Agiato’s Reply Br. 31. 143 Escrow Agreement § 7 (emphasis added); see supra note 136 and accompanying text. The Escrow Agreement specifies that the recipient’s normal business hours are the measure—not the commonly accepted meaning of business hours. 28 before 12:00 a.m. on the deadline. An equally reasonable reading is that “18 months
from the date hereof” includes the entirety of Agiato’s business hours that day.144 In
that case, notice sent any time on May 7 would be timely.
Agiato also contends that Gallagher’s notice was deficient because it did not
copy Smith, as required by Section 7 of the Escrow Agreement.145 Gallagher’s May
7 notice stated that Smith had asked to be removed from all correspondence going
forward.146 Whether Smith had, in fact, waived notice is not in the record, leaving
me unable to resolve the effect of any waiver.
2. Viability of Indemnity Claims
Agiato maintains that he is entitled to judgment in his favor on the Escrowed
Shares because Gallagher’s indemnity claims fail as a matter of law.147 But resolving
whether Agiato breached the APA presents factual issues not properly resolved on
the pleadings.
For example, Gallagher alleges that Agiato breached the representation in
APA Section 6(g) that the Sellers’ business was operated in the ordinary course
because he failed to disclose the “development of a new deal structure” closing
144 Escrow Agreement § 3. 145 Agiato’s Opening Br. 32; see Escrow Agreement § 7; see also supra note 34 and accompanying text (explaining the requirement); supra note 62 and accompanying text (noting Gallagher’s address to the escrow agent and Agiato). 146 See supra note 35 and accompanying text. 147 Agiato’s Opening Br. 24, 27. 29 shortly after the APA’s execution.148 It is unclear if the “new deal structure” was a
significant diversion from the Sellers’ normal business, and if it was solidified
enough to be mentioned in their disclosure schedule.
Gallagher also contends that the representation in APA Section 6(o) requiring
disclosure of conflicts of interest was breached because Agiato neglected to raise
“interests in at least one customer of the Sellers.”149 It further claims that Agiato
violated Gallagher’s policies and procedures and placed his interests above those of
Gallagher’s stockholders.150 Resolving these issues necessitates the presentation of
evidence outside the pleadings.
C. Attorneys’ Fees
Agiato seeks an award of attorneys’ fees if the earnout payment dispute is
decided in his favor.151 He invokes the fee shifting provision in APA Section 20:
In the event of an action at law or in equity between the parties hereto to enforce any of the provisions hereof, the unsuccessful party to such litigation or proceeding shall pay to the successful party all costs and expenses, including reasonable attorneys’ fees, incurred therein by such successful party on trial and appeal as adjudged by the court, and if such successful party or parties shall recover judgment in any such action or proceeding, such
148 Compl. ¶ 28; id. ¶ 63 (“Agiato breached the APA by failing to . . . disclose that PIUS and Newlight were branching into a new and untested line of business . . . .”); see APA § 6(g); see also supra note 19 (defining “Ordinary Course of Business”). 149 Compl. ¶¶ 21, 63; see APA § 6(o). 150 Compl. ¶¶ 32-35; see APA § 4(b). 151 Agiato’s Opening Br. 2, 24; Oral Arg. Tr. 27. 30 costs, expenses and attorneys’ fees may be included as part of such judgment . . . .152
This request is premature. Agiato has prevailed, in part. But his motion was
denied on some claims, and others are not implicated in the motion. I cannot yet
conclude that Agiato is the “successful party” in this litigation.
III. CONCLUSION
Agiato’s motion for partial judgment on the pleadings is granted in part and
denied in part. Judgment is entered for Agiato and against Gallagher on Agiato’s
Count II and Gallagher’s Count III. Agiato, as Sellers’ Representative, is entitled to
a $50 million Year 1 earnout payment plus prejudgment interest at the legal rate,
compounded quarterly. His motion is otherwise denied as to Agiato’s Count V and
Gallagher’s Counts I and II.
152 APA § 20. 31