DealLawyers.com Blog

In late March, when I blogged about Fortis Advisors LLC v. Krafton, Inc. (Del. Ch.; 3/26), I focused on the reasons the Chancery Court decided to extend the earnout window. I briefly noted that the Court’s factual findings significantly relied on a conversation between the buyer’s CEO and a chatbot, and this Mayer Brown alert expands on that aspect of the decision. The alert explains the related facts as follows:

After the Buyer’s own legal team warned him that a for-cause termination would not eliminate the earnout obligation and would expose the Buyer to legal and reputational risk, the CEO turned to an AI chatbot for help. When the chatbot told him the earnout would be “difficult to cancel,” the CEO complained to colleagues that the EPA was “a contract under which we can only be dragged around.” At the chatbot’s suggestion, the CEO formed an internal task force dubbed “Project X,” whose mandate was to either renegotiate the earnout or execute a full “takeover” of the Target. The AI chatbot furnished the CEO with a detailed “Response Strategy to a No-Deal’ Scenario,” which included a “pressure and leverage package,” strategic talking points for negotiating with the Key Employees, instructions to lock down the Target’s publishing platform and control publishing rights, directions to prepare systematic materials for legal defense, and a “two handed strategy” combining hardball legal and financial pressure with softer retention incentives. The CEO admitted at trial that he had deleted certain of the relevant logs from the AI platform.

The Buyer followed most of the chatbot’s recommendations. It locked the Target out of the publishing platform, effectively severing the studio’s ability to release Subnautica 2. It posted a message on the websites of the Target and Subnautica, which was drafted overnight and without the studio’s involvement, falsely claiming that the founders were considering an invitation from the Buyer to reengage with the project. When negotiations over the earnout stalled in late June 2025, the Buyer determined to execute its takeover strategy. On July 1, 2025, the Buyer sent termination letters to the Key Employees, citing a single ground for dismissal: their intention to proceed with a premature release of Subnautica 2. The Buyer simultaneously removed the Key Employees from the Target’s board, replacing them with Buyer representatives, and installed a part-time replacement CEO for the Target who had never played a Subnautica game and had no experience overseeing early access title development.

The chats were very instructive to the Court as evidence of the buyer’s intent — and that buyer’s proferred reasons for terminating the target’s founders were pretextual.

Perhaps the most striking feature of the opinion is that the court quoted at length from the Buyer CEO’s conversations with the AI chatbot and expressly relied on those exchanges to establish the pretextual nature of the Buyer’s conduct. The chatbot’s recommendations were treated as a window into the Buyer’s strategic intent. The court also noted that the Buyer’s CEO admitted at trial to deleting specific, relevant logs from the AI platform—a fact that may factor prominently in the second phase of the litigation, where money damages and potential earnout impairment are at issue.

The opinion does not establish new legal standards governing AI use, but it does carry a clear warning: communications with AI platforms may not be privileged, may be subject to discovery, and may be used against the party that generated them. Deleting them may compound the problem. Acquirers using AI tools for post-closing strategy or any deal-related purpose should treat those communications with the same discipline they would apply to other non-privileged communications, including applying an appropriate retention policy.

We’re posting related memos in our “Earnouts” Practice Area.

– Meredith Ervine