Delaware Supreme Court Reverses Chancellor's Chicago Bridge Ruling
Authority of Independent Auditor to Resolve Purchase Price Adjustment Disputes Limited in Scope under Purchase Agreement
In a much-anticipated decision, on June 27, 2017, the Supreme Court of Delaware reversed the Chancery Court's ruling in Chicago Bridge v. Westinghouse. The Delaware Supreme Court determined that an independent auditor appointed to resolve purchase price adjustment disputes did not have a "wide-ranging brief to adjudicate all disputes" under the Purchase Agreement but, rather, "one confined to a discrete set of narrow disputes." Specifically, the Court held that the Independent Auditor could not hear the seller's arguments that the purchase price should be reduced because historical financial statements and accounting practices were not compliant with generally accepted accounting principles. The decision represents an important statement on the limits of authority of Independent Auditors acting "as an expert, not an arbitrator."