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CCLD Applies Anti-Reliance Provisions, Dismisses Buyer’s Fraud Claims

Posted In CCLD, Fraud Claims, M&A

Infomedia Group, Inc. v. Orange Health Solutions Inc., C.A. No. N19C-10-212 AML CCLD (Del. Super. Ct. July 31, 2020)

This case is a strong reminder that Delaware will enforce anti-reliance clauses to bar claims for fraud where sophisticated parties voluntarily agree to the anti-reliance clauses. Here, plaintiff Infomedia Group, Inc., d/b/a Carenet Health Services entered into an asset purchase agreement (the “Purchase Agreement”) with defendant Orange Health Solutions, Inc. (“Citra”). 

As per the Purchase Agreement, Carenet bought Citra’s rights and obligations for contracts relating to a Nurse Advice Line (the “Contracts”). Before the parties executed the Purchase Agreement, Citra represented to Carenet that it was not aware of any customers terminating their Contracts. In fact, however, one of Citra’s top customers gave Citra oral notice that it intended to terminate its Contract, which the customer said would be followed by written notice. Citra subsequently informed its employees not to disclose the customer’s intention to terminate its Contract to anyone else. Citra then represented in the Purchase Agreement that it had not received written notice from any of its customers of an intention to terminate their Contracts. Citra disclaimed any representations to Carenet other than those explicitly stated in the Purchase Agreement, and Carenet agreed not to rely on any extra-contractual statements made by Citra. In bringing this suit, Carenet alleged that Citra engaged in fraud by intentionally concealing the customer’s intention to terminate its Contract.

The Court found that the anti-reliance clauses here made clear that Citra was not making any extra-contractual representations, Carenet was only relying on its own due diligence and the contractual representations, Citra contractually disclaimed that the information provided was valid and complete and the Purchase Agreement reflected all of the terms of the parties’ agreement. The Court, therefore, followed precedent such as Abry Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), and held that allowing Carenet’s claim for fraud to proceed on a motion to dismiss would create a “double liar” problem. As the Court had explained in Abry, allowing the claim to proceed would “excuse a lie made by one contracting party in writing – the lie that it was relying only on contractual representations and that no other representations had been made – to enable it to prove another party lied orally or in a writing outside the contract’s four corners.” The Court opined that Carenet could not escape the anti-reliance clause simply by arguing that the disclosures were incomplete or misleading, or that Citra engaged in fraudulent concealment. In enforcing the Purchase Agreement as written, the Court emphasized that the parties to this contract were highly sophisticated, were assisted by industry experts and experienced legal counsel in negotiating the Purchase Agreement, and had engaged in months of due diligence. Accordingly, the Court granted Citra’s motion to dismiss Carenet’s claims for fraud.

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