May 23, 2023

Post-Closing Disputes: Beware Derivative Unjust Enrichment Claims

One consequence of the limitations that Delaware courts have imposed on reliance disclaimers in the context of contractual fraud allegations is the potential exposure of innocent selling stockholders to derivative unjust enrichment claims.  That topic is addressed in a recent Mayer Brown memo, and this excerpt provides an overview of the basis for such claims:

The ever-present availability of fraud claims does more than just prevent parties from contractually insulating allegedly intentional wrongdoers from suit. One less-discussed consequence of the ABRY Partners doctrine is that it also frequently permits buyers to maintain unjust enrichment claims against “innocent” shareholders and other seller affiliates who are alleged to have benefitted from the sale but may have had no role in perpetrating the alleged fraud. This result is troublesome because it can lead to unsuspecting parties being dragged into protracted and expensive litigation from which the purchase
agreement purports to insulate them.

In general, an unjust enrichment claim accuses the defendant of benefitting from wrongful conduct to the plaintiff’s detriment, but does not require the defendant to have participated in the wrongful conduct. While the existence of an express contract governing the subject matter of the claim typically precludes a party from asserting an unjust enrichment claim, there is a key exception to that rule: if the contract itself allegedly arose from wrongdoing (as in the case of a fraudulent inducement claim based on false representations and warranties), the contract’s existence will not preclude unjust enrichment claims against beneficiaries of a transaction.

The memo notes that it has become common for buyers to assert these unjust enrichment claims against selling stockholders, and that Delaware courts have been hesitant to dismiss them at the pleading stage. It also suggests some specific language for inclusion in acquisition agreements to help reduce the risk of derivate unjust enrichment claims agains innocent stockholders.

John Jenkins