DealLawyers.com Blog

Last week, the Chancery Court issued its post-trial opinion in Camaisa v. Pharmaceutical Research Associates, (Del. Ch.; 10/25), which involved fraud claims arising out of alleged oral statements made by a buyer’s representative concerning the autonomy of an acquired business. When the business subsequently failed to achieve contractual earnout milestones, the plaintiff sued, raising the alleged oral statements in support of fraudulent inducement allegations.

Vice Chancellor Cook was unimpressed. In light of explicit contractual language giving the buyer broad discretion to run the business as it saw fit, the parties post-closing conduct and other evidence impugning the credibility of the allegations, he ruled in favor of the defendants. However, the key takeaway from the opinion was the consequences of the failure to include anti-reliance language in a merger agreement, which converted a case that could have been resolved at the pleading stage into one requiring a full-blown trial.

The Vice Chancellor pointed out that the merger agreement not only didn’t include an anti-reliance clause, but that Section 6.13 of the agreement provided that “[n]otwithstanding anything to the contrary contained in this Agreement, none of the provisions set forth in this Agreement shall be deemed a waiver or other limitation by any Party of any right or remedy which such Party may have at Law or in equity against a Person based on any fraud.”  In concluding his opinion, Vice Chancellor Cook pointed out the significant consequences of that choice of language:

This case presents a pointed example of why it is important for transactional parties to draft contractual language concerning fraud carefully. The parties here failed to include an anti-reliance clause in the Agreement. Instead, they bargained for an unusual provision, Section 6.13, which expressly disclaims waiver or “other limitation” of “any fraud” claim “[n]otwithstanding anything to the contrary contained” in the Agreement, including Sections 2.7(h) and 6.6.

When drafters include phrases like “notwithstanding anything to the contrary,” they should perhaps do so with pause and certainly in full awareness of such phrases’ powerful effect.  Here, a fraud claim that could otherwise have been resolved at the pleading stage with a handful of drafting changes became something else entirely.

– John Jenkins