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IAC Search, LLC v. Conversant LLC, C.A. No. 11774-CB (Del. Ch. Nov. 30, 2016) (Bouchard, C.)

November 30, 2016

In this memorandum opinion, the Court of Chancery dismissed pursuant to Rule 12(b)(6) Plaintiff IAC Search, LLC’s (“IAC”) claim against Defendant Conversant LLC, formerly known as ValueClick, Inc. (“ValueClick”), that it fraudulently induced IAC to enter into a Stock and Asset Purchase Agreement (the “Agreement”) by providing IAC with false information during the due diligence process, holding that certain provisions of the Agreement added up to a “clear disclaimer of reliance on extra-contractual statements” that barred the claim.

Pursuant to the Agreement, dated December 8, 2013, IAC paid $90 million to purchase six subsidiaries of ValueClick (the “Transferred Group”). Following the closing of the transaction in January 2014, IAC asserted that ValueClick fraudulently induced it to overpay for one of the subsidiaries, Investopedia, by providing IAC with false data relating to Investopedia’s remnant ad sales during due diligence.  The parties did not include an express representation or warranty concerning the accuracy of this information in the Agreement.  IAC also asserted claims against ValueClick for breach of contract and indemnification.

In moving to dismiss, ValueClick argued, among other things, that three provisions of the Agreement together constituted clear anti-reliance language that barred IAC’s fraud claim. The Court agreed.

According to the Court, in the first provision on which ValueClick relied, Section 3.31, ValueClick “disclaimed making any extra-contractual representations.” Another provision, Section 10.6, contained an integration clause the Court viewed as “defining the universe of writings that ma[d]e up the parties’ agreement by which IAC acquired the Transferred Group from ValueClick.”  And, in Section 4.7 of the Agreement, which the Court characterized as the “Buyer’s Acknowledgement Clause,” “IAC as the ‘Buyer’ acknowledged that ValueClick was not making any representation concerning information provided during due diligence unless such information was included in an express representation and warranty in the Agreement.”  Specifically, Section 4.7 stated as follows:  

The Buyer is a sophisticated purchaser and has made its own independent investigation, review and analysis regarding the Transferred Group and the transactions contemplated hereby, which investigation, review and analysis were conducted by the Buyer together with expert advisors, including legal counsel, that it has engaged for such purpose. The Buyer acknowledges that neither the Seller nor any of its Affiliates or Representatives is making, directly or indirectly, any representation or warranty with respect to any data rooms, management presentations, due diligence discussions, estimates, projections or forecasts involving the Transferred Group, including, without limitation, as contained in the Confidential Information Packet dated August 2013 and any other projections provided to Buyer, unless any such information is expressly included in a representation or warranty contained in Article III.  Nothing in this Section 4.7 is intended to modify or limit any of the representations or warranties of the Seller set forth in Article III.

The Court held that these three provisions, particularly the Buyer’s Acknowledgement Clause in Section 4.7, barred IAC’s fraud claim based on the allegedly false data provided during due diligence. The Court found that the Buyer’s Acknowledgement Clause was “substantively identical” to the “critical provision” in Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), which then-Vice Chancellor Strine found to “define what information the Buyer relied upon in deciding to execute the Agreement.”  The Court explained that, similar to the provision in Abry, the Buyer’s Acknowledgement Clause was “critical language” that “define[d] in precise terms from IAC’s perspective as the buyer the universe of information on which IAC relied and did not rely when it entered into the Agreement through IAC’s express acknowledgement that ValueClick was making no representation about information provided during due diligence, except as otherwise provided in an express representation in the Agreement.”

The Court rejected IAC’s attempt to distinguish the provision in Abry on the basis that it contained an additional “release” clause not present in Section 4.7, in which the buyer further acknowledged that the seller would not be liable for misstatements made during due diligence, reasoning that, “[a]lthough this ‘release’ clause reinforces the limiting effect of the acknowledgement provision in the Abry agreement, and its absence here makes this case a closer call than Abry, the combined effect of the Buyer’s Acknowledgement Clause and the integration clause in Section 10.6 of the Agreement nonetheless add up in my opinion to a clear anti-reliance clause to bar fraud claims based on extra-contractual statements made during due diligence.”

The Court also disagreed with IAC’s contention that the Buyer’s Acknowledgement Clause “at most . . . means that IAC may not sue ValueClick for breach of contract, or seek contractual indemnification, on account of ValueClick’s fraud relating to the Investopedia remnant ad metrics,” because, among other reasons, “IAC’s theory would render the Buyer’s Acknowledgement Clause duplicative of [the integration clause and other provisions in the Agreement], contrary to basic principles of contract construction.”  

The Court concluded that “[t]o permit IAC to now assert a fraud claim against ValueClick, based on Investopedia data provided during due diligence but never made the subject of an express representation in the Agreement, would, to borrow Chief Justice Strine’s words, ‘excuse a lie made by [IAC] in writing’ that ValueClick made no such extra-contractual representations.” Accordingly, the Court dismissed IAC’s fraud claim for failure to state a claim upon which relief could be granted.  The Court also dismissed one of IAC’s breach of contract claims pursuant to Rule 12(b)(6).

The full opinion is available here