## Facts

- A private-equity buyer agreed to acquire a publishing company in a leveraged transaction for approximately $500 million under a stock purchase agreement (SPA).
- The SPA contained extensive representations and warranties by the company and seller regarding the business and financial statements.
- The SPA included a clear non-reliance provision stating the buyer was not relying on representations outside the SPA and that no extra-contractual representations were made.
- The SPA established an indemnity fund of $20 million (about 4% of the purchase price) and made an arbitration-based indemnity claim against that fund the buyer’s exclusive remedy for misrepresentation, purporting to bar rescission and other relief.
- After closing, the buyer alleged that financial and operating information used to value the company had been intentionally falsified and that contractual representations were knowingly false, causing overpayment.
- The buyer sued in the Delaware Court of Chancery seeking rescission (or rescissory damages) and related relief based on fraudulent inducement.
- The seller moved to dismiss, relying on the SPA’s exclusive-remedy/cap provisions and the non-reliance clause.

## Issues

1. Whether sophisticated parties may, by contract, cap and channel remedies for unintentional contractual misrepresentations through an exclusive indemnification scheme.
2. Whether a clear non-reliance clause may bar claims based on alleged extra-contractual misrepresentations.
3. Whether Delaware law permits parties to contractually eliminate or cap liability and remedies for knowing falsity in representations contained in the SPA itself.
4. Whether the buyer’s pleading of intentional contractual fraud was sufficient to avoid dismissal and permit pursuit of rescission or uncapped damages notwithstanding the contractual limitations.

## Decision

- The court denied the motion to dismiss to the extent the complaint alleged knowing falsity in representations made within the SPA and sought rescission or uncapped damages on that basis.
- The court held that contractual caps, exclusive-remedy provisions, and indemnity funds are generally enforceable to limit remedies for innocent or negligent misrepresentations in the contract.
- The court held that a properly drafted non-reliance clause can bar claims premised on extra-contractual statements by negating justifiable reliance.
- The court held that Delaware public policy does not permit a seller to use contractual limitations to insulate itself from liability for its own knowing contractual fraud.

## Legal Principles

- Delaware generally enforces freedom-of-contract risk allocations in negotiated acquisition agreements between sophisticated parties, including exclusive remedies, caps, baskets, survival limits, and indemnity funds, for nonintentional misrepresentations.
- A clear contractual non-reliance provision can preclude fraud claims based on extra-contractual statements because justifiable reliance is contractually negated.
- Contract provisions cannot be enforced to bar or cap claims where the seller knowingly makes false representations within the contract; public policy forbids contractual immunity for intentional contractual fraud.
- When intentional contractual fraud is adequately pled and later proven, equitable rescission or rescissory damages may be available despite an exclusive-remedy and capped-indemnity structure.

## Conclusion

The court enforced the SPA’s negotiated limits on extra-contractual fraud theories and on remedies for nonintentional inaccuracies, but refused at the pleading stage to apply those limits to bar claims seeking rescission or uncapped relief for alleged knowing falsity in the SPA’s own representations.


ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006)