Delaware Court Of Chancery Reinstates CEO After AI-Aided Earnout Takeover

On March 16, 2026, Vice Chancellor Lori W. Will of the Delaware Court of Chancery held that a gaming conglomerate pretextually terminated three key executives of an acquired video game studio to avoid up to $250 million in contingent earnout payments, ordered reinstatement of the acquired company’s CEO, and extended the earnout measurement period.  Fortis Advisors LLC v. Krafton, Inc., 2026 WL 730977 (Del. Ch. Mar. 16, 2026).  In a post-trial decision, the Vice Chancellor cited extensive evidence generated by AI and ordered a remedy designed to return bargained-for operational control back to the CEO.

Defendant acquired the studio for $500 million in consideration and another $250 million in contingent earnout payments.  To induce the studio to sell, the purchase agreement (the “EPA”) guaranteed the studio executives (the “Key Employees”) continued operational control of the business and permitted their termination only “for cause,” as narrowly defined in the EPA.  The Court found that, when internal revenue projections showed the earnout would likely be triggered, defendant’s CEO—who viewed the EPA as a “pushover” contract and a “bad deal”—asked an AI chatbot how to avoid paying it (though he admitted during trial that he deleted this and other relevant chat logs).  The AI chatbot produced a detailed takeover playbook that the Court found the CEO largely implemented: forming an internal task force, posting a misleading message on the studio’s website, and blocking the studio from launching a much-anticipated new video game.  Having blocked the release, defendant then terminated the Key Employees for purportedly intending to proceed with the release.

The Court rejected this justification as pretextual and likewise rejected each of defendant’s post hoc justifications for the terminations, including that the Key Employees had assumed reduced roles, had engaged in “intentional dishonesty” by downloading data, and had forfeited operational control by breaching the EPA.  Finding that the Key Employees’ operational control rights were “crucial, bargained-for protection[s]” whose loss constituted irreparable harm, the Court granted specific performance under the EPA’s express clause.  It ordered reinstatement of the studio’s CEO as “a tailored solution,” restoring operational control without requiring reinstatement of the two founders who had stepped back from day-to-day operations before their terminations.  The Court also extended the earnout period by 258 days to mirror the length of the Key Employees’ ouster, preserved plaintiff’s option to further extend it, declared ineffective a board resolution blocking the game’s release, and enjoined defendant from using corporate levers to circumvent the studio CEO’s restored authority.

Phase two of the bifurcated trial will address whether defendant breached its contractual obligation not to take action with the primary purpose of depriving the sellers of the earnout, and whether plaintiff is entitled to monetary damages.