The Court of Chancery dismissed claims of fraud in connection with the sale of a portfolio company from one private equity firm to another. The buyer claimed that the seller made extra-contractual false representations in both oral and written communications. The court determined that, notwithstanding the validity of the fraud claims, such claims were foreclosed by the exclusive representations clause found in the Stock Purchase Agreement. The provision read, in pertinent part:
“[THE] REPRESENTATIONS AND WARRANTIES [FOUND WITHIN THIS AGREEMENT] CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES . . . TO THE BUYER IN CONNECTION WITH THE TRANSACTION, AND THE BUYER UNDERSTANDS, ACKNOWLEDGES, AND AGREES THAT ALL . . . REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESS OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY RELATING TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS OR LIABILITIES OR PROSPECTS [OF SELLER]) [NOT EXPRESSLY SET FORTH HEREIN] ARE SPECIFICALLY DISCLAIMED BY THE [SELLER] PARTIES.”
Bottom Line: Contractual freedom trumps misrepresentations. Parties can foreclose extra-contractual fraud claims by negotiating for an exclusive representations clause. Delaware courts will uphold an unambiguous exclusive representations clause accompanied by an integration clause, even if fraudulent misrepresentations are sufficiently alleged.