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Superior Court Allows Fraudulent Inducement and Breach of Contract Claims to Proceed in Parallel Based on Rescissory Damages Request

Posted In CCLD, Fraud

Firmenich Inc. v. Natural Flavors, Inc., C.A. No. N19C-01-320 MMJ [CCLD] (Del. Super. Apr. 7, 2020).

Fraud claims that overlap with breach of contract claims often are subject to dismissal under Delaware law. Sometimes, however, fraud and contract claims may proceed in parallel, as the Complex Commercial Litigation Division of the Superior Court determined in Natural Flavors. Here, the Superior Court declined to dismiss a fraudulent inducement claim seeking rescissory damages notwithstanding an alternatively-pled breach of contract claim. The litigation concerned an Asset Purchase Agreement and allegations of fraud arising from a former employee’s whistleblowing. After the plaintiff-buyer’s initial fraud claim was dismissed as impermissibly bootstrapped to its breach of contract claim, the plaintiff filed an amended complaint for rescissory damages as compensation for alleged fraudulent inducement to enter into the APA, while alternatively seeking relief for alleged breach of the APA. The defendant-seller, again, sought dismissal of the fraud claim as duplicative of the breach of contract count.

The Superior Court had posited that Delaware precedent, such as ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), JCM Innovation Corp. v. FL Acquisition Holdings, Inc., 2016 WL 5793192 (Del. Super. Sept. 30, 2016), and ITW Global Investments Inc. v. American Industrial Partners Capital Fund IV, L.P., 2015 WL 3970908 (Del. Super. June 24, 2015), might establish whether or not fraud damages can be legally distinguished from breach of contract damages based on the actual method of calculation, or a difference in actual recoverable damages. While the Court was unable to distill a distinct line of reasoning from precedent to support its proposition, it determined dismissal was inappropriate. The Court’s analysis discussed several Delaware decisions seemingly standing for the proposition that requesting rescission or rescissory damages may distinguish fraud claims from contract claims. Here too, the Court found that plaintiff’s request for rescissory damages sufficiently distinguished its fraud claim from its alternatively-pled contract claim such that they could proceed in parallel.          

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