Bridging the GAAP: Contractual Interpretation Issues in 'Chicago Bridge & Iron'

On June 28, 2017, the Delaware Supreme Court reversed the Court of Chancery's prior ruling in Chicago Bridge & Iron v. Westinghouse Electric, 2016 WL 7048031 (Del. Ch. Dec. 5, 2016), rev'd, 2017 WL 2774563 (Del. June 28), holding that an independent auditor appointed to resolve purchase price adjustment disputes relating to a sale transaction was not empowered to decide challenges to the seller's compliance with GAAP in connection with a post-closing true up of net working capital.

Background

In 2015, Chicago Bridge & Iron, entered into a purchase agreement with Westinghouse Electric Co., pursuant to which Westinghouse purchased a subsidiary of Chicago Bridge (Stone). The parties were engaged in the construction of two nuclear power facilities, and frequent cost overruns led Chicago Bridge to exit the project. The purchase agreement provided that Westinghouse would acquire Stone for $0 in consideration, subject to a true-up calculation adjusting the final purchase price based on work undertaken by Chicago Bridge between signing and closing (the true up). The initial net working capital amount was set at $1.174 billion (the target), with Westinghouse owing Chicago Bridge the difference if the final net working capital amount exceeded the target, and Chicago Bridge owing Westinghouse the deficiency if the final net working capital amount was less than the target.