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Lies, Damn Lies And M&A Fraud

By Todd E. Lenson and David I. Schultz

In ABRY Partners V, L.P. v. F&W Acquisition LLC, et al. (ABRY), Vice Chancellor Strine of the Delaware Court of Chancery addressed the circumstances in which a seller may contractually insulate itself in a purchase agreement from claims by the buyer for rescission and post-closing damages due to intentional misrepresentations concerning the business or assets being sold. The court held that 'when a seller intentionally misrepresents a fact embodied in a contract ' that is, when a seller lies,' Delaware public policy compels Delaware courts to disregard provisions of a contract that purport to eliminate certain remedies, including the remedy of rescission. In limiting the holding to intentional misrepresentations within the agreement, Vice Chancellor Strine also noted that Delaware courts will enforce provisions in contracts between sophisticated commercial parties that purport to limit a seller's liability if: 1) the buyer's claim is based on contractual misstatements that were not intentionally made; or 2) the buyer's claim is based on extra-contractual misrepresentations (regardless of whether they were intentional) and the parties disclaimed reliance on extra-contractual statements.

This article examines Vice Chancellor Strine's decision in ABRY and highlights some of its implications for buyers and sellers in M&A transactions.

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