A CEO directed his team to manipulate revenue bookings and sign unprofitable deals in order to qualify for an earnout. When the buyer balked, the seller sued… and lost.
In In Re Saama Technologies Litigation, decided on September 28, 2026, Delaware Vice Chancellor Will granted Carlyle a declaratory judgement and ordered the former CEO of Saama, Suresh Katta, to pay $7.3MM+ in damages.
In 2021, The Caryle Group (“Carlyle”) purchased a control position in clinical data platform technology company Saama Technologies, Inc (“Saama”) via a combination of $435MM in cash and a maximum $67.5MM earnout to bridge a valuation gap. The earnout required Saama achieving $72MM in 2021 revenue, based on a multiple of software ARR signed by end of 2021. Saama’s ARR was $15MM, but adding an additional $12MM would trigger the max earnout of $67.5MM.
Post-closing, Katta ordered the team to pursue sales contracts with abandon, offering steep discounts, waiving implementation fees, and selling unfinished products. Many of these contracts had negative margins and were unprofitable. He also ordered the team to rewrite contracts so that custom projects became software license agreements.
In January 2022, Saama sent Carlyle an earnout statement with 2021 revenue of $73.1MM and ARR of $32.3MM. However, Carlyle audited the earnout statement according to GAAP, finding revenue was closer to $71MM and ARR was closer to $2.7MM. Manipulation was confirmed, and Carlyle filed a formal objection.
Katta argued in his suit that Carlyle acted in bad faith. The court remarked:
⚖️ Delaware law does not require a buyer to hope that a seller achieves an earnout. If Carlyle believed Saama was unlikely to hit the earnout targets, that was Carlyle’s commercial prerogative. Carlyle had no obligation to disclose its internal probability assessments. Saama, having greater visibility into its own capabilities, had the prerogative to negotiate for targets it deemed appropriate and realistic.
⚖️ In the earnout context, a [seller] does not act in bad faith merely by pursuing a risk-bearing strategy to maximize the contingent payment, provided she genuinely believes the strategy also benefits the company. But that dual role does not grant the [seller] license to knowingly harm the company to increase the sellers’ payout. Katta crossed that line and engaged in willful misconduct for which he is not exculpated.
When a buyer gives control to the seller for the means to trigger an earnout, the seller is obligated to benefit the company it its pursuit of the earnout. Second, a buyer’s motive to not pay an earnout is not per se misconduct; the seller must negotiate targets it can hit.
The seller erred here in its negotiations. It should have aggressively negotiated the earnout toward realistic projections rather than aggressively pursued it in bad faith.
Jerome Fogel is a founding partner of Fogel & Potamianos LLP, a firm recognized by Chambers & Partners’ California Spotlight Guide for excellence in corporate law. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He serves as a general counsel to privately held companies with a specialty in mergers and acquisitions.
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