DealLawyers.com Blog

Earlier this week, in Trifecta Multimedia Holdings, Inc., et al. v. WCG Clinical Services LLC, (Del. Ch.; 6/24), the Chancery Court held that a standard integration clause was insufficient to bar claims against a buyer premised on its alleged assurances to assist in growing the target’s business post-closing. Vice Chancellor Laster’s decision represents a departure from prior Chancery Court decisions to the contrary.

The case arose as these cases usually do – a buyer allegedly made all sorts of promises about the great things it would do for the target post-closing in order to achieve earnout milestones. When that didn’t happen, the sellers sued and asserted fraud claims.  In response, the defendants pointed to the purchase agreement’s integration clause and, citing the Chancery Court’s decisions in Shareholders Representative Services v. Albertsons, (Del. Ch.; 6/21) and Black Horse Capital v. Xstelos Holdings, (Del. Ch.; 9/14), argued that the clause precluded claims based on extra-contractual future promises.  Vice Chancellor Laster disagreed:

Both decisions relied on Abry Partners. There, the parties to an acquisition agreement disclaimed reliance on any extra-contractual representations or warranties. When the buyer sued for fraud and sought to rescind the agreement, then-Vice Chancellor Strine enforced the anti-reliance provision. At the same time, he observed that Delaware law has “not given effect to so-called merger or integration clauses that do not clearly state that the parties disclaim reliance upon extra-contractual statements.” He later stated that “[i]f parties fail to include unambiguous anti-reliance language, they will not be able to escape responsibility for their own fraudulent representations made outside of the agreement’s four corners.”

The Albertsons and Black Horse decisions thus relied on Abry Partners for a proposition that Abry Partners rejects. The assertion that an integration clause standing alone bars a fraud claim is also contrary to the Kronenberg decision, also written by then-Vice Chancellor Strine, where he observed that “many learned authorities state that typical integration clauses do not operate to bar fraud claims based on factual statements not made in the written agreement.

The Vice Chancellor went on to say that the majority rule, which Abry Partners embraced, does not distinguish between misrepresentations of fact and other types of misrepresentation. Accordingly, he concluded that the integration clause was insufficient to preclude claims based on expressions of future intent or future promises.

– John Jenkins