## Facts

- Chronicle Publishing Company (Chronicle) owned MBI Publishing Company (MBI Publishing), a Wisconsin corporation.
- In 1999, MBI Acquisition Partners, L.P. (MBI Acquisition) bid to buy MBI Publishing for approximately $46 million.
- During negotiations, Chronicle represented that it had disclosed all real estate leases to which MBI Publishing was a party.
- Chronicle did not disclose a warehouse lease for a facility that contained roughly $1 million in unprocessed customer returns.
- MBI Acquisition alleged that the undisclosed warehouse and returns made MBI Publishing appear more valuable than it was, inflating value by about $10 million.
- MBI Acquisition purchased MBI Publishing and entered into a written purchase agreement with Chronicle.
- The purchase agreement included (i) an integration clause stating that the parties relied only on representations contained in the agreement and (ii) a choice-of-law clause providing that the agreement would be interpreted under California substantive law.
- After the transaction closed, MBI Acquisition learned of the warehouse lease and the unprocessed returns and sued in the Western District of Wisconsin, asserting violations of federal securities law and Wisconsin law based on nondisclosure and alleged inflation of MBI Publishing’s value.
- Chronicle moved to dismiss, arguing that the choice-of-law clause required dismissal of Wisconsin-law claims and that the integration clause barred claims premised on nondisclosure of the warehouse and returns.

## Issues

1. Whether the purchase agreement’s California choice-of-law provision required dismissal (or displacement) of MBI Acquisition’s Wisconsin statutory claims at the pleading stage.
2. Whether the agreement’s integration clause barred MBI Acquisition’s claims based on alleged nondisclosure or misstatements about the warehouse lease and unprocessed returns.
3. Whether MBI Acquisition adequately stated securities-based claims premised on alleged omissions and valuation inflation in connection with the stock purchase.

## Decision

- The court declined to dismiss MBI Acquisition’s Wisconsin-law claims solely because the purchase agreement selected California law for interpreting the contract.
- The court did not treat the integration clause as an automatic bar to claims alleging that Chronicle induced the transaction through nondisclosure or misrepresentation.
- The court allowed the action to proceed past the motion-to-dismiss stage on the pleaded securities-related theories arising from the alleged failure to disclose the warehouse lease and the unprocessed returns.

## Legal Principles

- A contractual choice-of-law clause directed to interpretation of an agreement does not necessarily determine the governing law for all related statutory or tort claims; its scope depends on the clause’s wording and the forum’s choice-of-law rules.
- An integration clause may limit contract-based reliance on extra-contract statements, but it does not automatically extinguish claims that a party was induced to enter the deal through fraud or unlawful nondisclosure.
- At the pleading stage, securities-fraud and state securities claims based on alleged omissions commonly turn on whether the complaint plausibly alleges a material nondisclosure in connection with the purchase or sale of securities; contractual disclaimers may be considered later on issues such as reliance and causation rather than used to end the case at the outset.

## Conclusion

MBI Acquisition alleged that Chronicle failed to disclose a warehouse lease and substantial unprocessed customer returns, inflating the value of MBI Publishing in a stock-sale transaction. On Chronicle’s motion to dismiss, the court did not end the case based on the agreement’s California choice-of-law or integration provisions and permitted MBI Acquisition’s securities-centered claims and related Wisconsin theories to go forward beyond the pleading stage.


MBI Acquisition Partners, L.P. v. Chronicle Publishing Co., 2001 U.S. Dist. LEXIS 15387 (2001)