The Delaware Chancery Court in The Anschutz Corporation et. al. v. Brown Robin Capital, LLC[1] ruled against dismissing several of Buyer’s claims in a dispute involving the $106 million acquisition of OnRamp Access, LLC (“Target”) by LightEdge Holdings, LLC (“Buyer”).  Among other claims, Buyer alleged fraud, fraudulent inducement and breach of contract by the owners of Target (“Sellers”) due to breach of several representations and warranties in the unit purchase agreement to purchase Target (the “UPA”) and fraudulent prospective sales information provided to Buyer outside of the UPA.  Specifically, Buyer claimed that Sellers (i) did not disclose that a major client had repeatedly notified the Target in writing of its plan to significantly reduce its purchases from Target by over $600,000 per year, (ii) provided falsified information regarding the Target’s potential pipeline of new business adding more than $6 million in illusory projected annual revenue and (iii) provided falsified interim financial statements including accounts receivable known to the Sellers to be uncollectible.

In their motion to dismiss, Sellers sought to rely on (i) anti-reliance language in the UPA to defeat Buyer’s fraudulent inducement claim that Buyer relied on extra-contractual representations in entering into the UPA and (ii) the “bootstrap” rule under Delaware law, which can prohibit a party from advancing a fraud claim based on the same allegations giving rise to a breach of contract claim. The court’s analysis of these claims is discussed below.

Fraudulent Inducement Claim Gets Green Light Due to Failed Anti-Reliance Language

Buyer argued that it was fraudulently induced to buy the Target by extra-contractual representations by the Target’s insiders about its pipeline of prospective business. The court recited Delaware’s long-standing  policy established in Abry P’rs V, L.P. v F & W Acquisition LLC[2]that fraud claims that are premised on extra-contractual representations will be dismissed when the contract contains an unambiguous statement that the buyer did not rely on promises outside the contract in connection with the transaction.  The court stated that anti-reliance language need not have “magic words” but must contain language which is “explicit and comprehensive” and shows that the parties “forthrightly affirm that they are not relying upon any representation or statement of fact not contained [in the contract].” A standard integration clause, without more, is insufficient to disclaim all reliance on extra-contractual statements.

The UPA stated that “[e]xcept for the representations and warranties contained in this Article II . . . none of the [Target] nor any Person on behalf of the [Target] makes any other express or implied representation or warranty with respect to the [Target], and the [Target] disclaims any other representations or warranties. . . .”  Buyer also agreed that it had made its own investigation into and had formed an “independent judgement” regarding the Target and had been provided with such information about the Target as it had requested.

The court found that what was missing from the UPA was a disclaimer by Buyer of reliance on extra-contractual representations. The court further found that the UPA’s language implied that Buyer was provided extra-contractual information by Sellers that it did in fact rely on in deciding to enter into the UPA.  For those reasons, the Sellers’ motion to dismiss was denied.

Bootstrap Rule Does Not Apply in this Case to Deny Fraud Claim

The court rejected Sellers’ invocation of the bootstrap rule to dismiss the fraud claim.  The bootstrap rule established in Abry is to prevent fraud claims from being bootstrapped to breach of contract claims.  Citing Abry, the court discussed that the bootstrap rule was not absolute, and where as here the plaintiff seeks rescission as its remedy for fraud, rather than compensatory damages, a fraud claim may be pled in addition to a breach of contract claim if it is pled “(1) that the seller knew that the company’s contractual representations and warranties were false; or (2) that the seller itself lied to buyer about a contractual representation and warranty”.  The court found that Buyer’s fraud claims fall into the Abry exception to the bootstrap rule since the Buyer contended in its suit that Sellers knew that the contractual representations that the Sellers made were false when given.

Key Takeaways

M&A practitioners should take note of the need for anti-reliance language in a purchase agreement governed by Delaware law to include an affirmative statement by the buyer that the buyer did not rely on any representations, warranties or statements that are not contained in the purchase agreement.  Merely including a disclaimer by the seller that no representations and warranties are given other than those set forth in the purchase agreement or a standard integration clause will be insufficient to satisfy the Abry standard and prevent extra-contractual representations in support of a fraudulent inducement claim.

Practitioners should also be aware of the the ability of a plaintiff to bring claims for fraud based in rescission rather than compensatory damages side by side with a breach of contract claim if the pleadings reflect that the seller knew that the purchase agreement’s representations and warranties were false.


[1] C.A. No. 2019-0710-JRS, memorandum opinion (Del. Ch. June 11, 2020), found here.

[2] 891 A.2d 1032 (Del. Ch. 2006)

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Photo of Nancy B. Bostic Nancy B. Bostic

Nancy Bostic is the Practice Group Leader for Mergers and Acquisitions and Private Equity and also serves on Gray Reed’s CARES Act Task Force.

Photo of Austin C. Carlson Austin C. Carlson

As a business lawyer and CPA, Austin helps domestic and international companies, small businesses and individuals structure corporations, LLCs, partnerships and nonprofit entities, achieve their tax planning goals and successfully resolve tax controversies with the IRS and state taxing authorities.