In IAC Search, LLC, v. Conversant LLC (f/k/a ValueClick, Inc.), C.A. No. 11774-CB (Del. Ch. Ct. November 30, 2016) the Chancery Court granted the defendant’s motion to dismiss plaintiff’s fraud claim based on the inclusion of provisions in the purchase agreement that disclaimed reliance on extra-contractual statements that bar plaintiff’s fraud claim. The Court also granted defendant’s motion to dismiss one breach of contract claim, but denied the motion with respect to several other breach of contract claims.
In January 2014, IAC Search, LLC (“IAC”) acquired six subsidiaries of ValueClick, Inc. (“ValueClick”). The subsidiaries operated websites that generated revenue by selling and placing Internet advertisements. Subsequent to the closing of the transaction, IAC alleged that ValueClick had misrepresented certain performance metrics relating to the websites operated by Investopedia, one of the ValueClick subsidiaries that IAC acquired in the transaction. IAC asserted that it had relied on the alleged misrepresentations in concluding that it could increase future revenue flows from the Investopedia website by enhancing the websites performance, consistent with that of comparable IAC websites. According to IAC, ValueClick made the misrepresentations during the due diligence process in documents placed in an electronic data room and in statements ValueClick made in response to IAC’s diligence requests. As a result of receiving “false data relating to Investopedia’s…ad sales,” IAC asserted that it was fraudulently induced to “overpay” for Investopedia.
In addition to the fraud claim, IAC asserted that ValueClick breached various provisions of the Stock and Asset Purchase Agreement (the “Purchase Agreement”) relating to the other subsidiaries that it acquired.
IAC’s fraud allegation was premised on the accuracy of information provided to IAC during the due diligence process, and which was not incorporated into an express representation or warranty in the Purchase Agreement.
The Purchase Agreement contained three provisions that the court considered relevant in assessing IAC’s fraud claim. In addition to a provision in which ValueClick disclaimed making any extra-contractual representations to IAC, the Purchase Agreement included another provision, referred to as the “Buyer’s Acknowledgment Clause,” in which IAC represented that it was a sophisticated purchaser and acknowledged that ValueClick had not made any representation or warranty, including with respect to any information provided in data rooms or due diligence discussions, except as expressly included in the Purchase Agreement. The third provision relevant to the court’s analysis was a standard integration clause defining the universe of writings that made up the parties’ agreement by which IAC acquired the ValueClick subsidiaries.
After noting that a considerable body of Delaware case law exists with respect to the question of whether a purported disclaimer of extra-contractual representations may shield a seller from fraud, the Court cited Chief Justice Strine’s observation in Abry Partners V, L.P. v. F & W Acquisition LLC, that “murky integration clauses, or standard integration clauses without explicit anti-reliance representations, will not relieve a party of its oral and extra-contractual fraudulent representations.“
The Court explained further that, as held in Prairie Capital III, L.P. v. Double E Holding Corp., Delaware law “does not require magic words” to disclaim reliance, and the specific language may vary but nevertheless add up to a valid anti-reliance clause. However, as the court held in FdG Logistics LLC v. A&R Holdings, Inc., a disclaimer of reliance “must come from the point of view of the aggrieved party,” i.e., from the buyer who is asserting the fraud claim.
In the case at hand, the court found that the critical language in the Purchase Agreement came from IAC in the Buyer’s Acknowledgement Clause. In that provision, IAC expressly acknowledged that ValueClick was not “making, directly or indirectly, any representation or warranty” with respect to any information received in due diligence “unless such information is expressly included in a representation or warranty” in the Purchase Agreement. The Court determined that the Buyer’s Acknowledgement Clause defined “in precise terms from IAC’s perspective…the universe of information on which IAC relied and did not rely when it entered into the [Purchase] Agreement.”
Although the Buyer’s Acknowledgement Clause lacked a “release” by which IAC acknowledged that ValueClick would not be liable to IAC for misstatements made during due diligence – a provision that had been included in the purchase agreement at issue in Abry – the Court held that the combined effect of the Buyer’s Acknowledgement Clause and the integration clause of the Purchase Agreement nonetheless added up to a clear anti-reliance clause to bar fraud claims based on extra-contractual statements made during due diligence: “the integration clause defines the universe of writings reflecting the terms of IAC’s agreement to purchase the [ValueClick subsidiaries], and the Buyer’s Acknowledgement Clause explains in clear terms from the perspective of the buyer the universe of due diligence information on which IAC did and did not rely when it entered into the Agreement.”
The Court then considered ValueClick’s motion to dismiss the breach of contract claims asserted by IAC. In order to survive a motion to dismiss, IAC had to demonstrate (i) the existence of the contract, (ii) the breach of an obligation imposed by that contract, and (iii) the resultant damage.
In assessing IAC’s allegations, the Court concluded that IAC had failed to state a claim with respect to one breach of contract claim, but that four others – including a claim that ValucClick had breached its indemnification obligations under the Purchase Agreement – did state claims for relief that could not be resolved at the pleadings stage.