Delaware Supreme Court Concludes Out-of-Pocket Damages Are the Default Remedy for Fraudulent Misrepresentation Absent an Enforceable Agreement

Morris James LLP

LCT Capital, LLC v. NGL Energy Partners, LLP, App. Nos. 565,2019 & 568,2019 (Del. Jan. 28, 2021)

Delaware law recognizes both benefit-of-the-bargain damages and out-of-pocket damages as remedies for fraudulent misrepresentation, but the law was unsettled whether benefit-of-the-bargain damages were available absent an enforceable agreement. Here, the Delaware Supreme Court confirms that out-of-pocket damages are the default remedy in the absence of an agreement.

LCT aided NGL’s acquisition of a subsidiary, but the acquisition occurred before LCT and NGL agreed on LCT’s fee. Although LCT and NGL tried to negotiate the fee after the fact, a dispute arose as to whether they reached an agreement and, if so, what that agreement contained. The Delaware Superior Court concluded there was no agreement and dismissed LCT’s breach of contract claim, but a jury ruled in LCT’s favor on its claims of quantum meruit and fraudulent misrepresentation.

Although LCT presented a unitary theory of damages for the two claims, the jury verdict sheet contained separate damages lines, and the jury separately awarded $4 million for quantum meruit and $29 million for fraud. The Superior Court ordered a new trial on both sets of damages. For fraud, the trial court concluded that the jury had improperly awarded benefit-of-the-bargain damages since LCT had not presented any evidence that the fraud caused out-of-pocket damages.

On appeal, after surveying case law from Delaware and other states, the Supreme Court concluded that benefit-of-the-bargain damages are unavailable absent a written agreement between the parties. The Court reasoned that the purpose of tort damages is to compensate the injured party for the harm proximately caused by the tortfeasor’s conduct. Thus, when a defendant’s fraud does not induce a plaintiff to enter a contract, there is no bargain from which a benefit could spring. In that situation, the default remedy is out-of-pocket damages, except in the rare case, not present here, when out-of-pocket damages would not make a plaintiff whole.

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