Victory for Nextpower in $48.5 million breach of contract action

On January 21, 2026, Davis Polk secured a complete dismissal of all claims against its clients Nextracker Inc. (now Nextpower Inc.), Nextracker LLC, Yuma Acquisition Sub LLC, and Yuma Subsidiary Inc. (collectively, “Nextpower”) in a breach of contract action before Chancellor Kathaleen St. J. McCormick in the Court of Chancery of the State of Delaware, in which the plaintiffs had sought $48.5 million in damages plus interest.

The case arose from the January 2, 2024, spinoff of Nextracker LLC by plaintiffs Flex Ltd. and Flextronics International USA Inc. (collectively, “Flex”). Following the spinoff, pursuant to the terms of its LLC agreement, Nextpower made a quarterly tax distribution to its members, including the two Yuma entities that had previously been owned by Flex but were spun out with Nextpower. Flex demanded that the portion of the tax distribution paid to the Yuma entities be transferred to Flex even though Flex was never a member of Nextracker LLC and even though Flex had already relinquished its ownership interest in the Yuma entities prior to the payment of the distribution. Flex argued, among other things, that it had a right to the payment under various provisions in a separation agreement governing the terms of Nextpower’s spinoff because the quarterly tax distribution was intended to cover the payment of taxes owed on income allocated to the Yuma entities at a time when Flex still owned the Yuma entities, and Flex was ultimately responsible for the payment of any taxes owed for that period. Nextpower refused Flex’s demand, on the grounds that the distribution was made in accordance with the terms of the LLC agreement, and nothing in the parties’ agreements required Nextpower to turn over tax distributions post-spinoff to Flex. Although Flex controlled Nextpower prior to the spinoff and could have, among other things, caused Nextpower to make the tax distribution prior to the spinoff or otherwise delayed the spinoff until after the tax distribution was made, Flex failed to take any such steps. On the contrary, as Nextpower explained to Flex, a tax matters agreement entered into between the parties at the time the spinoff occurred expressly provided that, after the spinoff, Flex would be solely responsible for all tax payments related to income earned by or allocated to any member of the Flex group (including the Yuma entities) prior to the spinoff, and the tax matters agreement superseded all prior tax-related agreements between the parties.

Flex filed a complaint on February 21, 2025, asserting claims for breach of contract against Nextpower under the parties’ separation agreement, as well as claims in the alternative for breach of the implied covenant of good faith and fair dealing against Nextracker Inc., reformation of the separation agreement based on theories of unilateral and mutual mistake against Nextracker Inc. and Nextracker LLC, and unjust enrichment against all the defendants. Nextpower moved to dismiss on March 25, 2025, and oral argument took place on October 20, 2025.

On January 21, 2026, the Court of Chancery granted Nextpower’s motion to dismiss, dismissing Flex’s claims in their entirety. Chancellor McCormick agreed with Davis Polk’s argument that the tax matters agreement controlled the dispute and precluded the breach of contract claim because Flex could not claim entitlement to payment for a liability it expressly allocated to itself under the tax matters agreement. Chancellor McCormick also agreed with Davis Polk that the parties’ contractual scheme left no gap for the implied covenant to fill, as the plain language of the contracts covered the issue of whether Flex was entitled to the quarterly distribution. The court further held that Flex’s mistake claim failed because, as Davis Polk argued, there were no particularized allegations indicating that the contractual scheme was the product of mutual mistake. Finally, Chancellor McCormick agreed with Davis Polk that Flex failed to state an unjust enrichment claim because Nextpower’s payment of the tax distribution to the Yuma entities was justified under the LLC agreement and the tax matters agreement.

The Davis Polk litigation team included partner Brian M. Burnovski (who argued the motion), counsel Caroline Stern and associates Allie (Allison) Siesser and Samantha Stroman. Partner Patrick E. Sigmon provided tax advice. Partner Emily Roberts and associate Brendon S. Brown provided corporate advice. Members of the Davis Polk team are based in the New York, Northern California and Washington DC offices.