Flex Ltd. v. Nextracker Inc.

Court of Chancery of Delaware·Decided January 21, 2026·No. C.A. No. 2025-0197-KSJM·Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

FLEX LTD. and FLEXTRONICS ) INTERNATIONAL USA, INC., )

)

)

Plaintiffs,

)

) C.A. No. 2025-0197-KSJM v.

)

)

NEXTRACKER INC., NEXTRACKER )

LLC, YUMA ACQUISITION SUB )

LLC and YUMA SUBSIDIARY, INC., )

)

Defendants.

)

MEMORANDUM OPINION

Date Submitted: October 20, 2025 Date Decided: January 21, 2026

Oderah C. Nwaeze, Angela Lam, FAEGRE DRINKER BIDDLE & REATH LLP, Wilmington, Delaware; Lawrence G. Scarborough, FAEGRE DRINKER BIDDLE & REATH LLP, New York, New York; Jacob A. Kramer, FAEGRE DRINKER BIDDLE & REATH LLP, Washington, D.C.; Desmonne A. Bennett, FAEGRE DRINKER BIDDLE & REATH LLP, Denver, Colorado; Counsel for Plaintiffs Flex Ltd. and Flextronics International USA, Inc.

Kevin M. Coen, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Brian M. Burnovski, DAVIS POLK & WARDWELL LLP, New York, New York; Counsel for Defendants Nextracker Inc., Nextracker LLC, Yuma Acquisition Sub LLC, and Yuma Subsidiary, Inc.

McCORMICK, C.

This dispute concerns tax liabilities incurred before the plaintiffs spun off Nextracker LLC. Before the spin-off, Nextracker made quarterly distributions under to the LLC agreement to its members in amounts calculated to cover the members’ tax liabilities. Flex Ltd. owned Nextracker’s members, and Flex would cause the members to transfer the quarterly distributions up the corporate chain to Flex. Flex incurred tax liabilities for Nextracker’s earnings during the quarter right before the spin-off. After the spin-off, Flex demanded payment from Nextracker to cover those liabilities. Nextracker refused. Flex filed this suit for breach of contract to force payment. Flex’s primary claim is that Nextracker’s refusal to pay amounts equal to Flex’s tax liabilities violates the wrong-pockets and retained-assets provisions of the separation agreement governing the spin-off. But Flex ignores the more specific language of a tax agreement entered to facilitate the spin-off, which allocates the tax liabilities at issue to Flex. The defendants have moved to dismiss the complaint based on the plain language of the suite of agreements, and this decision grants the motion. I. FACTUAL BACKGROUND The facts are drawn from the Verified Complaint (the “Complaint”) and the documents it incorporates by reference.1 A. Flex Acquires Nextracker.

Plaintiff Flex Ltd. is a Singaporean company. It owns plaintiff Flextronics International USA Inc. (“Flex USA” and with Flex Ltd., “Flex” or “Plaintiffs”). Flex USA is responsible for U.S. income taxes for itself and its subsidiaries.

1 C.A. 2025-0197, Docket (“Dkt.”) 1 (“Compl.”).

Flex acquired Nextracker in December 2015 for approximately $330 million.

Nextracker provides solar tracking and software solutions to utility-scale solar projects around the world. Its products allow solar panels to follow the sun’s movement, optimizing utility-scale plant performance.

B. Flex Prepares To Spin-Off Nextracker.

In 2021, Flex considered a full or partial separation from Nextracker through an IPO, sale, spin-off, or other transaction. On February 1, 2022, Nextracker and Flex entered into a Separation Agreement. At that time, Flex owned Yuma Acquisition Sub LLC and Yuma Subsidiary, Inc. (the “Yuma Members”). The Yuma Members held membership interests in an operating entity, Nextracker LLC (with Nextracker Inc. and the Yuma Members, “Defendants”). Nextracker LLC operates pursuant to a Third Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”). Nextracker Inc. was formed as a Flex subsidiary to serve as a publicly traded entity. Nextracker Inc. is also Nextracker LLC’s managing member.

In February 2023, Nextracker and Flex executed an Agreement and Plan of Merger and an Amended and Restated Separation Agreement (the “Separation Agreement”).2 The Separation Agreement governed the Nextracker spin-off. Under the Separation Agreement and related contracts, Flex had discretion to choose when to spin-off Nextracker.

2 Id. ¶ 26.

Two aspects of the Separation Agreement are relevant to the parties’ dispute.

Section 2.4(b) of the Separation Agreement is a “Wrong-Pockets Provision.”3 That provision requires that each party return any mistaken payments after the spin-off. Sections 2.2, 2.6, and 2.8 collectively establish “Retained-Assets Provisions” identifying the assets that Flex would retain after the spin-off.4 In 2022 and 2023, Flex executed several transactions to begin its divestment of Nextracker. In February 2022, it sold $500 million of convertible preferred equity in Nextracker LLC to a third party. In February 2023, it completed an IPO of its shares in Nextracker Inc. In July 2023, Nextracker Inc. completed a follow-on offering, leaving Flex with 51.5% of the total outstanding shares of Nextracker Inc. common stock.

C. Nextracker Makes Tax Distributions To The Yuma Members.

Meanwhile, Nextracker Inc. made tax distributions to the Yuma Members.

Nextracker LLC is treated as a partnership for federal income tax purposes, which means that its taxable income “passes through” to the Yuma Members. Flex USA, through its ownership of the Yuma Members, is ultimately responsible for paying taxes on Nextracker’s income.

3 Compl., Ex. A (Separation Agreement) § 2.4(b). 4 Id. §§ 2.2, 2.6, 2.8.

Both Nextracker and Flex operate with a fiscal year ending in March. 5 Each quarter, Nextracker LLC made tax distributions to the Yuma Members, and Flex USA caused the Yuma Members to transfer the funds to Flex USA, the entity responsible for U.S. tax payments. This procedure occurred in Q4 2023, Q1 2024, and Q2 2024.6 D. Flex Finalizes The Spinoff.

Flex spun-off Nextracker on January 2, 2024. The spin-off involved a two-step merger where (1) Yuma Inc. merged with a wholly owned corporate subsidiary of Nextracker (and Yuma Inc. survived), and then (2) Yuma Inc. merged into an LLC wholly owned by Nextracker (Yuma Acquisition Sub, which survived).

That same day, the parties executed a Tax Matters Agreement (the “Tax Agreement”).7 The Tax Agreement allocated tax responsibilities between Nextracker and Flex and contained provisions governing which party could receive refunds. It also protected the transaction’s tax-free status.

E. The Q3 2024 Tax Distribution The tax distribution for Q3 2024 was due on January 10, 2024, but Nextracker LLC delayed it until February 6, 2024, when it distributed $48.5 million to the Yuma

5 The first quarter ran from April 1 to June 30, the second quarter ran from July 1 to

September 30, the third quarter ran from October 1 through December 31, and the fourth quarter ran from January 1 to March 31. 6 Compl. ¶¶ 50, 125.

7 Dkt. 16, Ex. E (Tax Agreement). The court may consider the Tax Agreement because

it is incorporated by reference in the Complaint. See Compl. ¶ 45 n.1 (citing Nextracker Inc.’s Form S-4 dated October 25, 2023, which attaches as an exhibit a form of the Tax Matters Agreement that is materially identical to the final version of the agreement); Dkt. 16, Ex. A.

Members (the “Q3 Tax Distribution”). Because Flex no longer controlled the Yuma Members, it could not force those entities to send the payment up the corporate chain.

Flex thus demanded that Defendants pay it the Q3 Tax Distribution, which covered the period before the spin-off during which Flex earned approximately $167 million through its ownership of Nextracker LLC. Defendants refused to pay the Q3 Tax Distribution to Flex.

F. This Litigation Plaintiffs filed this action against Defendants on February 21, 2025, asserting four counts:

• In Count I, Plaintiffs claim that Nextracker Inc. breached the Wrong Pockets and Retained Assets Provisions of the Separation Agreement by failing to forward the Q3 Tax Distribution to Flex.

• In Count II, asserted in the alternative against Nextracker Inc., Plaintiffs claim breach of the implied covenant of good faith and fair dealing.

Free access — add to your briefcase to read the full text and ask questions with AI

Flex Ltd. v. Nextracker Inc., (Del. Ct. App. 2026).

Flex Ltd. v. Nextracker Inc. (Flex Ltd. v. Nextracker Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Related

Hob Tea Room, Inc. v. Miller
89 A.2d 851 (Supreme Court of Delaware, 1952)
Lorillard Tobacco Co. v. American Legacy Foundation
903 A.2d 728 (Supreme Court of Delaware, 2006)
Clinton v. Enterprise Rent-A-Car Co.
977 A.2d 892 (Supreme Court of Delaware, 2009)
Collins v. Burke
418 A.2d 999 (Supreme Court of Delaware, 1980)
Savor, Inc. v. FMR Corp.
812 A.2d 894 (Supreme Court of Delaware, 2002)
Estate of Osborn Ex Rel. Osborn v. Kemp
991 A.2d 1153 (Supreme Court of Delaware, 2010)
DCV Holdings, Inc. v. ConAgra, Inc.
889 A.2d 954 (Supreme Court of Delaware, 2005)
Price v. E.I. DuPont De Nemours & Co.
26 A.3d 162 (Supreme Court of Delaware, 2011)
VLIW TECHNOLOGY, LLC v. Hewlett-Packard Co.
840 A.2d 606 (Supreme Court of Delaware, 2003)
In Re Viking Pump, Inc. and Warren Pumps, LLC Insurance Appeals
148 A.3d 633 (Supreme Court of Delaware, 2016)
Ramsey v. Georgia Southern University Advanced Development Ctr
189 A.3d 1255 (Supreme Court of Delaware, 2018)
Martin Marietta Materials, Inc. v. Vulcan Materials Co.
56 A.3d 1072 (Court of Chancery of Delaware, 2012)
Martin Marietta Materials, Inc. v. Vulcan Materials Co.
68 A.3d 1208 (Supreme Court of Delaware, 2012)
Allen v. Encore Energy Partners, L.P.
72 A.3d 93 (Supreme Court of Delaware, 2013)