Chancery Applies Contractual Shortening of Limitations Period for Breaches of Representations, Finds it Inapt to Fraud Claims and Enforces Clear Anti-Reliance Clause

Morris James LLP

Pilot Air Freight, LLC v. Manna Freight Systems, Inc., C.A. No. 2019-0992-JRS (Del. Ch. Sept. 18, 2020)

In a familiar fact pattern, an acquirer of a business brought suit against sellers claiming, inter alia, that the representations and warranties in the asset purchase agreement were untrue and, indeed, fraudulent when made. The sellers moved to dismiss on the basis of a provision they claimed shortened the limitations period for breaches of representations and warranties and an anti-reliance clause they claimed eliminated any potential claims for misrepresentations or omissions outside of the written agreement.

The APA contained a provision that reduced the window of time for indemnification claims to fifteen (15) months, which read as follows:

[n]o claim for indemnification as to representations and warranties under this Agreement may be made after [15 Months] . . . and Seller and the Owners shall have no Liability for any claims made after the expiration of such applicable period for breach of or an inaccuracy when made of a representation or warranty

Because the buyer brought its claims after the fifteen-month period, its breach of contract claims were dismissed as untimely. 

The sellers also moved to dismiss the buyer’s fraud claims on the same timeliness grounds, and argued that the fraud claims also were subject to the contractual limitations period. The sellers conceded that no Delaware court has applied an indemnification contractual limitations period to a fraud claim. The Court rejected the sellers’ argument based on the plain language of the agreement, which expressly provided that none of the contractual limitations on indemnification claims applied to any action or claim based upon the sellers’ intentional fraud:

[n]othing in this Agreement shall limit or restrict any of Purchaser’s rights to maintain or recover any amounts at any time in connection with any action or claim based upon intentional fraud by Seller or Owner in this Agreement.

The Court observed that “[a]t some point, in another case, this court may be called upon to assess the enforceability of a party’s unambiguous promise to bring intentional fraud claims only within a contractual limitations period, but the APA does not call this question.” As such, the fraud claims were subject to Delaware’s default three-year statute of limitations and were timely filed. 

Finally, the Court dismissed certain of the purchasers’ claims based on alleged extra-contractual misrepresentations and omissions due to the contract’s clear anti-reliance clause. That clause also expressly provided for the buyer’s waiver of any claims relating to the “accuracy, completeness, or materiality” of any statements made or information provided to the buyer prior to signing. The Court reasoned this language in particular sufficiently addressed omissions as well as affirmative misstatements. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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