The Delaware Court of Chancery recently upheld a buyer’s claim that a seller fraudulently and actively concealed material information, even though the buyer had agreed to an exculpation clause in the stock purchase agreement (SPA). The buyer contracted with the seller to purchase all the stock of two companies wholly owned by the latter. The buyer claimed that, despite targeted inquiries made during the due diligence process, the seller had failed to disclose that (i) a key customer of one of the purchased companies had threatened to move half of its business to a competitor and (ii) the same key customer had negotiated a five percent discount from the company, to take effect after the stock purchase transaction had closed. The seller countered that, because the SPA contained an express disclaimer of the buyer’s reliance on extra-contractual representations, the buyer was precluded from claiming reasonable reliance on such representations. The court denied the seller’s motion to dismiss the buyer’s concealment claim on the ground that the buyer had never agreed that the seller had made no representation as to the “accuracy and completeness” of the information provided to the buyer; nor had the buyer disclaimed reliance on extra-contractual omissions. However, the court granted the seller’s motion to dismiss the buyer’s fraudulent and negligent misrepresentation claims, as well as portions of its conspiracy claims, on the ground that the buyer had failed to prove that the seller’s representations were “half-truths” that constituted an actionable misrepresentation under Delaware law.
TransDigm Inc. et al. v. Alcoa Global Fasteners, Inc., C.A. No. 7135-VCP (Del. Ch. May 29, 2013).