Earlier this month, I blogged about the Albertsons case, in which Vice Chancellor Slights held that allegations that the buyer had breached contractual obligations not to take actions intended to avoid payment of an earnout were sufficient to withstand a motion to dismiss. The plaintiff also brought a fraud claim premised on the buyer’s alleged assurances that it intended to grow the seller’s business, but that claim didn’t make the cut.
One of the interesting aspects of the Vice Chancellor’s decision to dismiss the fraud claim was the fact that the agreement did not include a reliance disclaimer, but only a standard integration clause. That kind of clause is generally insufficient to bar fraud claims based on oral misrepresentations made during the negotiation process, but as a recent Weil blog points out, the problem for the plaintiff here was that it didn’t allege any misrepresentations of fact. This excerpt explains:
The selling shareholders were not alleging that the buyer made any misrepresentations of fact, however, but instead alleged that the buyer had “lied” about the buyer’s future intent respecting the operation of the target post-closing. According to the Court of Chancery, “[w]hile anti-reliance language is needed to stand as a contractual bar to an extra-contractual fraud claim based on factual misrepresentations, an integration clause alone is sufficient to bar a fraud claim based on expressions of future intent or future promises.”
Indeed, “[a]s distinguished from a claim of extra-contractual fraud based on a statement of fact, the fraud claim based on a ‘future promise’ amounts to an improper attempt to introduce ‘parol evidence that would vary the extant terms in the subsequent integrated writing.’” As a result, the selling shareholders are free to attempt to prove a breach of the specific contractual commitment made by the buyer not to intentionally take action to avoid the payment of the earnout, “but [they] cannot claim fraud based on future promises [to continue to operate the target as an ecommerce business] not memorialized in the Merger Agreement.”
The blog notes that this position applies to claims made by both buyers and sellers, and is also consistent with cases holding that reliance on statements outside of the contract is not justifiable when they are directly contradicted by the language of the contract itself.
-John Jenkins, DealLawyers.com June 22, 2021