Chancery Court Finds Non-Reliance Language Insufficient to Bar Extra-Contractual Fraud Claims
By Lisa Stark and Mark Hammes
In FdG Logistics v. A&R Logistics, C.A. No. 9706-CB (Del. Ch. Feb. 23, 2016), the Court of Chancery held that a non-reliance provision contained in a merger agreement was ineffective to bar a buyer’s fraud claims based on extra-contractual statements made during the due diligence and negotiation process because the non-reliance provision was formulated solely as a limitation on the seller’s representations and warranties. According to the Court, for a non-reliance provision to be effective against a buyer, it must be formulated as an affirmative promise by the buyer that it did not rely on any extra-contractual statements made by the seller during the sales process. The decision clarifies the Court of Chancery’s 2015 decision in Prairie Capital III, L.P. v. Double E Holding Corp., C.A. No. 10127-VCL (Del. Ch. Nov. 24, 2015) in which the Court emphasized that “no magic words” are required for a non-reliance provision to be effective.