In recent years, litigation over financial projections has increased in frequency. These claims, sometimes involving allegations of fraud, are typically decided by the Delaware Court of Chancery or the Delaware Superior Court’s Complex Commercial Litigation Division. In In re P3 Health Group Holdings, C.A. No. 2021-0518-JTL (Del. Ch. Oct. 28, 2022), Vice Chancellor J. Travis Laster issued an opinion that addresses several issues that often arise in motion practice at the pleading stage in such cases.

In the P3 litigation, stockholder-plaintiff Hudson Vegas Investment SPV, LLC (Hudson), asserted a series of claims relating to its investment under a unit purchase agreement against P3 Health Group Holdings (P3 or the company), the co-founders of the company (the co-founders), and the company’s controlling investor, Chicago Pacific Founders Fund, L.P. (Chicago Pacific). One of Hudson’s claims was for fraudulent inducement related to what it characterized as “materially incorrect financial information” provided to Hudson by the co-founders and unnamed members of Chicago Pacific. In the complaint, Hudson alleged that a representation was made in the materials provided during the diligence phase that P3’s EBITDA for 2020 would exceed $12.7 million. However, the complaint continued, P3’s actual EBITDA for 2020 ended up being negative $40 million—a difference of over $52 million. According to Hudson, this discrepancy was not the result of ambitious projections. The only allegedly fraudulent statement identified in the complaint was the company’s projected EBITDA for 2020, and so, the sole basis for inferring falsity was the difference between the projection and the company’s actual EBITDA for 2020.