IAC Search, LLC v. Conversant LLC: Fraudulent Inducement Claim Dismissed on the Basis of Anti-Reliance Provisions in Asset Purchase Agreement
May 25, 2017
In IAC Search, LLC v. Conversant LLC, 2016 WL 6995363 (Del. Ch. Nov. 30, 2016), the Court of Chancery held that certain provisions in an asset purchase agreement collectively constituted a “clear disclaimer of reliance on extra-contractual statements” and barred plaintiff’s claim that defendant had fraudulently induced plaintiff to purchase one of its subsidiaries.
In 2013, IAC Search, LLC (“Buyer”) purchased six subsidiaries of ValueClick, Inc. (“Seller”). Following closing, Buyer alleged that Seller had misrepresented certain information to Buyer about its internet ad placing business, including by falsifying performance metrics concerning ad revenue for one subsidiary, Investopedia, and that Seller had omitted several material transactions from financial statements. The allegedly misleading information was shared with Buyer during the due diligence process but was not expressly incorporated into the contract. Buyer asserted that it had relied on this information when calculating the possible increases in traffic and revenue Buyer could generate, and so was fraudulently induced to purchase Investopedia. Unlike Buyer’s other claims, claims for fraud were not limited by the contractual indemnity cap. Seller moved to dismiss the fraud claim and several separate claims for alleged breaches of the asset purchase agreement.
In determining whether Buyer’s claim for fraud would survive the motion to dismiss, the Court examined the purchase agreement between the parties. The purchase agreement contained a standard integration clause, a disclaimer by Seller that it was not making any extra-contractual representations, and an acknowledgment by Buyer that Seller was not making any representations or warranties in respect of information provided during due diligence unless such information was expressly included elsewhere in the purchase agreement. The Court compared these three provisions to the anti-reliance language litigated in Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), and the more recent decisions in Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35 (Del. Ch. 2015), and FdG Logistics LLC v. A&R Holdings, Inc., 131 A.3d 842 (Del. Ch. 2016). In Abry Partners, the Court explained that “murky integration clauses, or standard integration clauses without explicit anti-reliance representations, will not relieve a party of its oral and extra-contractual fraudulent representation.” To bar such claims, the Abry Partners Court explained, would require an integration clause to “contain language that can be said to add up to a clear anti-reliance clause by which the plaintiff has contractually promised that it did not rely upon statements outside the contract’s four corners in deciding to sign the contract.” In Prairie Capital, however, the Court explained that no “magic words” are required to disclaim reliance, and the requisite anti-reliance language can be found by considering more than one provision in an agreement, such as “a standard integration clause and a clause representing ‘affirmatively’ what information a buyer relied on.” In FdG Logistics, the Court further clarified that in order to bar a fraud claim, a disclaimer of reliance “must come from the point of view of the aggrieved party,” meaning that the party asserting the fraud claim must be the one to have disclaimed reliance on extra-contractual representations.
The Court held that although the anti-reliance language contained in the purchase agreement was not as explicit as that encouraged in Abry Partners, the integration clause, Seller’s disclaimer, and Buyer’s acknowledgement could be viewed together as defining “the universe of information on which [Buyer] relied and did not rely when it entered into the [purchase] [a]greement.” The Court explained that “the critical language in the Agreement” was Buyer’s express acknowledgement that Seller was not making any representation with respect to information received in due diligence “unless such information is expressly included [in the Agreement] in a representation and warranty.” The Court found that this provision was “substantively identical” to the contract provision in Abry Partners that had defined the information upon which the buyer in that case had relied. The Court also noted that in its acknowledgment, Buyer had “represented that it is a ‘sophisticated purchaser’ that had made its ‘own independent investigation’…with the assistance of ‘expert advisors’ before entering into the Agreement,” and to allow Buyer to assert a fraud claim after making this representation would “excuse a lie made by [Buyer] in writing.”
The Court therefore granted the motion to dismiss as to the fraud claim. The Court separately considered and denied the motion to dismiss as to claims for breaches of the asset purchase agreement.