Judge Johnston Grants Defendant’s Motion to Dismiss and Partially Grants, Partially Denies Plaintiff’s Motion to Dismiss Counterclaims in Dispute over Earn Out Payments
November 7, 2019
In Collab9, LLC v. En Pointe Technologies Sales, LLC, C.A. No. N16C-12-032-MMJ-CCLD, Judge Johnston granted the defendant’s motion to dismiss and partially granted the plaintiff’s cross motion to dismiss counterclaims. Judge Johnston dismissed the plaintiff’s claims for breach of the implied covenant of good faith and fair dealing (Court II) and fraud (Count III), and dismissed the defendant’s counterclaim for fraud in the inducement while retaining its breach of contract claim.
In ruling on the motion, Judge Johnston found that the implied covenant of good faith and fair dealing claim was duplicative of the plaintiff’s breach of contract claim. Judge Johnston determined that the implied covenant was not a catchall claim, but must be applied conservatively so as not to upend the reasonable expectations of the parties. Further, the court found that the plaintiff’s claim for fraud was indistinct from its contract claim, warranting dismissal.
In considering the defendant’s fraud in the inducement counterclaim, the court determined that the claim related back to the amended answer, but was nevertheless barred by an anti-reliance clause in the underlying contract. Accordingly, the contract claim stood, but the fraudulent inducement claim was dismissed.
Analysis: M&A cases are common in the CCLD. In this case, Judge Johnston reinforced the settled rule in Delaware that implied covenant claims cannot be used to override the express terms of a contract. Agreements cannot be judicially revised to assist parties who later discover that they have made a disadvantageous deal. TWA Resources v. Complete Prod. Servs., Inc., 2013 WL 1304457, at *9 (Del. Super. Mar. 28, 2013). Judge Johnston also dismissed a fraud claim based on an anti-reliance provision. Clear anti-reliance clauses can prevent parties from claiming justifiable reliance on any extra-contractual representations. ChyronHego Corp. v. Wight, 2018 WL 3642132, at *4 (Del. Ch. Jul. 31, 2018). Anti-reliance provisions are becoming common in merger agreements and, as demonstrated in this case, can be effective at precluding fraud claims.