RAA Management, LLC v. Savage Sports Holdings, Inc.
2012 Del. LEXIS 271, 2012 WL 1813442, 45 A.3d 107 (2012)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A clear and unambiguous non-reliance disclaimer in a preliminary agreement between sophisticated parties, represented by counsel, is enforceable and bars claims for fraudulent inducement based on alleged extra-contractual misrepresentations made during due diligence.
Facts:
- RAA Management, LLC ('RAA'), an investment firm, entered into discussions to purchase Savage Sports Holdings, Inc. ('Savage'), a sports equipment manufacturer.
- To receive confidential information, RAA and Savage, both represented by experienced legal counsel, executed a Nondisclosure Agreement (NDA) on September 17, 2010.
- The NDA contained a non-reliance clause stating Savage made no representation as to the accuracy or completeness of the information provided and would have no liability for RAA's use of it, except for representations made in a final, executed Sale Agreement.
- The NDA also included a clause in which RAA waived any claims in connection with the potential transaction unless a definitive Sale Agreement was executed.
- RAA alleges that during due diligence, it discovered three significant undisclosed liabilities related to environmental issues, unionization efforts, and potential litigation, which Savage had allegedly misrepresented.
- Upon these discoveries, RAA terminated negotiations before any final Sale Agreement was signed.
- RAA then demanded that Savage reimburse its $1.2 million in due diligence costs, which Savage refused.
Procedural Posture:
- RAA Management, LLC sued Savage Sports Holdings, Inc. in the Delaware Superior Court (the trial court of first instance) for fraud.
- Savage filed a motion to dismiss the Complaint for failure to state a claim under Rule 12(b)(6).
- The Superior Court granted Savage's motion to dismiss with prejudice, finding the NDA's non-reliance clauses unambiguously barred RAA's fraud claim.
- RAA, as the appellant, appealed the Superior Court's final judgment to the Supreme Court of Delaware.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a non-reliance clause in a nondisclosure agreement, entered into by sophisticated parties, bar a claim for fraudulent inducement based on alleged misrepresentations made during the due diligence process when no final sale agreement is executed?
Opinions:
Majority - Holland, Justice
Yes, a non-reliance clause in a nondisclosure agreement, entered into by sophisticated parties, bars a claim for fraudulent inducement based on alleged misrepresentations made during the due diligence process. The court reasoned that the language of the NDA was unambiguous and did not distinguish between negligent misstatements and intentional fraud; it disclaimed liability for any inaccuracies or omissions in the information provided during due diligence. Citing precedents like Great Lakes and In re IBP, the court emphasized that sophisticated parties, represented by counsel, are expected to protect themselves contractually, and failing to enforce such clear non-reliance clauses would undermine the reasonable commercial expectations of contracting parties and eviscerate the utility of written agreements in M&A transactions. The court also rejected the 'peculiar-knowledge' exception, stating it does not apply where sophisticated parties can insist on contractual protections. Finally, the court found strong public policy reasons, articulated in Abry Partners, for enforcing these clauses to prevent a 'Double Liar' scenario where a party lies in writing about not relying on extra-contractual statements to prove another party lied orally.
Analysis:
This decision solidifies the enforceability of robust non-reliance and integration clauses in preliminary M&A agreements under both Delaware and New York law. It places a heavy burden on sophisticated buyers to conduct thorough due diligence and ensure that any representations they deem critical are explicitly included as warranties in the final purchase agreement. The ruling provides significant protection to sellers by allowing them to control their liability exposure during the pre-deal negotiation phase, thereby promoting a more efficient and predictable M&A market. Future litigants will find it extremely difficult to pursue fraud claims based on pre-contractual representations in the face of a clear non-reliance clause.
