Litigation

Court of Chancery Explains Scope of Exculpation Clause

By Morris James LLP

Addy v. Piedmonte, C.A. 3571-VCP (Del. Ch. March 18, 2009)

It is now common to include a clause in contracts that asserts a buyer has not relied on anything she was told and instead has only relied on her own investigation and the promises contained in her written contract. Sellers then seek to defeat fraud claims by arguing that the buyer is barred from showing reliance on anything not exactly in the contract between the parties. Courts do enforce these provisions as they have a legitimate place in private ordering.

Here the Court explains the limits of these exculpation clauses. Even sophisticated parties dealing with a purely commercial matter with the time to investigate may be able to state a claim for fraud despite such an exculpation clause. Briefly, it depends on how bad the lying seems to the court. This case reeks of a scheme to defraud an investor and the Court was concerned that it would further the scheme if it dismissed the claim because of the exculpation clause. Note, however, that the plaintiff still has to prove he relied on what he claims was a false statement in the face of language in the contract that he was not relying on matters outside the contract itself. Somehow it seems if he got past the motion to dismiss he has a good shot at prevailing.

Full post as published by Delaware Business Litigation Report on March 18, 2009 (boomark / email).