Court Holds Earnout Amount Cannot Be Negative Based On Extrinsic Evidence Of Contractual Intent, So Sellers Owed No Payment

Posted: July 20, 2026 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Contract Interpretation, Summary Judgment, Breach of Contract

Court Holds Earnout Amount Cannot Be Negative Based On Extrinsic Evidence Of Contractual Intent, So Sellers Owed No Payment

On July 2, 2026, in Tromer v. PEAK6 Insurtech Holdings LLC, Index No. 653530/2023, Justice Andrew Borrok of the New York County Commercial Division granted plaintiff’s renewed motion for partial summary judgment, holding that the “Earnout Amount” under the parties’ Unit Purchase Agreement could not be a negative number and that the plaintiff therefore did not owe the defendant any negative earnout. The agreement provided that “in no event shall the Earnout Amount be less than zero dollars,” but the defendant counterclaimed that two components later added to the formula could drive the Earnout Amount below zero, entitling it to a payment from the sellers. In a prior order, the Court had denied summary judgment to both sides and permitted limited discovery of the transaction counsel who drafted the agreement as to the clause's meaning.

On the supplemented record, the Court resolved the interpretation question as a matter of law based on extrinsic evidence of the parties' intent. Plaintiff’s drafter testified that the clause reflected the parties’ shared understanding that the Earnout Amount could never fall below zero, and that the two added components were inserted “as a matter of expediency” without intent to change the deal. The defendant’s drafter, by contrast, conceded that he could identify no contemporaneous document or communication supporting a negative earnout. Finding the extrinsic evidence undisputed, the Court dismissed the defendant’s declaratory-judgment and breach-of-contract counterclaims. In rejecting the defendant’s reading, the Court explained:

In its opposition papers, the Defendant relies on Mr. Vance’s after-the-fact assertion that the zero-floor applies only to prongs (i) through (iii), and that prongs (iv) and (v) may drive the Earnout Amount below zero. However, as discussed above, Mr. Vance concedes that he could not identify a single document, draft, markup, email, or conversation contemporaneously expressing such an understanding, nor any instance in which it was communicated to Plaintiff or his counsel . . . . Mr. Vance also could not point to any document or evidence to substantiate his assertion that the purpose of adding prongs (iv) and (v) were to provide the Defendant with full downside protection.

The attorneys at Schlam Stone & Dolan LLP have significant experience litigating disputes over the interpretation and enforcement of commercial contracts. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.

To read more about the interpretation of earnout provisions in merger-and-acquisition agreements, see Schlam Stone & Dolan's related Commercial Division Blog posts on a decision enforcing an earnout dispute-resolution clause and a decision rejecting a mutual-mistake challenge to an earnout payment provision.