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CCLD Offers Guidance on the Application of Tolling Doctrines to M&A Agreement Clauses Modifying the Statute of Limitations for Representations and Warranties Claims

AssuredPartners of Virginia, LLC v. Sheehan, C.A. No. N19C-02-175 AML CCLD (Del. Super. Ct. May 29, 2020)

A disgruntled buyer brought suit against its seller for breaches of representations and warranties four years after the execution of the applicable asset purchase agreement (“APA”). The APA contained a clause providing that certain representations and warranties survived for two (2) years post-closing except for those fraudulently given, which survived from closing until sixty days after expiration of the applicable statute of limitations. The defendant-sellers sought dismissal of the breach claims as untimely, requiring Judge Abigail M. LeGrow of the Superior Court of Delaware to determine whether the doctrine of tolling applied to the APA’s survival clause and if the parties intended to contractually extend the statute of limitations for fraudulent representation claims under 10 Del. C. § 8106(c).

After acknowledging that there was no dispute that claims arising from representations and warranties regarding pre-closing obligations accrue at the time of closing, the Court turned to tolling. Under Delaware law, there is no special rule requiring parties to utilize “clear and explicit” language to contractually shorten the statute of limitations. Delaware interprets survival clauses reducing the time to assert a claim as evidencing an intent to shorten the period of time in which a breach claim may be brought. Whether the contract adopts tolling turns on the language chosen by the parties. Relying upon reasoning of the Court of Chancery in GRT, Inc. v. Marathon GTF Tech, Ltd., 2011 WL 2682898 (Del. Ch. July 11, 2011) and Kilcullen v. Spectro Sci., Inc., 2019 WL 3074569 (Del. Ch. July 15, 2019) interpreting similarly worded survival clauses, the Court concluded that, because the APA did not expressly or impliedly eliminate tolling, tolling doctrines continued to apply.       

Applying a similar analysis, the Court found that the APA’s survival clause for fraudulent representations also permitted tolling. In doing so, it rejected the defendant-sellers’ contentions that it contravened Delaware law to extend the time to assert claims for fraudulent representation beyond the three year statute of limitations to account for any tolling plus the sixty additional days provided for in the APA. Section 8106(c) permits contract parties to extend the statute of limitations to up to twenty years if the claims are based on a written contract involving at least $100,000 and a “period specified” for claims to accrue. The Court concluded that the APA’s express reference to the “applicable statute of limitations” adequately specified a period for purposes of 10 Del. C. § 8106(c). Similar to the Court of Chancery’s analysis in Bear Stearns Mortg. Funding Tr. 2006-SL1 v. EMC Mortg. LLC, 2015 WL 139731 (Del. Ch. Jan. 12, 2015), the Court reasoned that the parties properly invoked 10 Del. C. § 8106(c) and intended to lengthen the statute of limitations with a combination of a survival clause providing for a sixty day extension and an accrual provision in the APA incorporating the applicable statute of limitations by reference. Because the doctrine of tolling defines when a claim accrues for statute of limitations purposes and the APA did not contain language evidencing an intent to alter that analysis, the Court also concluded that the contractually extended limitations period permitted tolling.          

  

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