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RAA Mgmt., LLC v. Savage Sports Holdings, Inc., C.A. No. No. 577, 2011 (Del. May 18, 2012)

May 18, 2012

In this opinion, the Supreme Court of the State of Delaware affirmed the Superior Court’s dismissal of a complaint brought by RAA Management, LLC (“RAA”) against Savage Sports Holdings, Inc. (“Savage”).  RAA, once a potential bidder for Savage, alleged that Savage fraudulently misled RAA into incurring $1.2 million in due diligence and negotiation costs by falsely claiming at the outset of discussions that there were “no significant unrecorded liabilities or claims against Savage.”  The Court held that non-reliance disclaimer language in the non-disclosure agreement (“NDA”) executed by the parties prevented RAA from bringing such claims.  Although the Court decided the matter under New York law, it confirmed that the results would be the same under Delaware law.

In September 2010, Savage, a sports equipment manufacturer, approached RAA, an investment firm, about potentially purchasing Savage.  The parties subsequently entered into a NDA, pursuant to which RAA agreed that Savage was making no representations or warranties as to the accuracy or completeness of any information being provided to RAA, and that Savage would have no liability to RAA resulting from RAA’s reliance on such information, except for breaches of representations and warranties that Savage may later make in an executed sale agreement.  RAA also waived any claims it might have in connection with any potential transaction with Savage unless the parties entered into a definitive sale agreement.  In March 2011, RAA notified Savage that it was no longer interested in acquiring Savage.  In April 2011, RAA brought suit alleging that Savage committed fraud by misrepresenting and concealing the existence of three alleged material liabilities and claims against it.  RAA further alleged that, had it known of any one of those alleged liabilities, it would have never attempted to acquire Savage or incurred the resulting $1.2 million in due diligence and other costs.  Relying on the NDA’s non-reliance disclaimer, Savage filed a motion to dismiss, which the Superior Court granted.

On appeal, RAA first argued that the NDA language should be interpreted to limit RAA’s non-reliance disclaimer to barring claims based on negligence or mistake, but not to extend to fraudulent misrepresentations.  The Court, however, found that the NDA’s language made no such distinction and rejected RAA’s argument as meritless.  In the alternative, RAA argued that the NDA language was at least ambiguous as to whether it created an exception for inaccurate or incomplete information attributable to fraud.  In weighing this claim, the Supreme Court turned to two prior Court of Chancery cases that had enforced NDA provisions with non-reliance disclaimers that were virtually identical to those at issue in this case – Great Lakes Chemical Corp. v. Pharmacia Corp., 788 A.2d 544 (Del. Ch. 2001) and In re IBP, Inc. Shareholders Litigation, 789 A.2d 14 (Del. Ch. 2001).  Affirming those cases, the Supreme Court held that the relevant language expressly barred RAA’s fraud claims.

RAA also argued that the Court should decline to enforce the NDA’s non-reliance disclaimer on policy grounds.  Citing the Court of Chancery’s decisions in Abry Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), the Court rejected this argument as well, finding that Delaware’s public policy favors enforcing contractually binding written disclaimers of reliance on representations made outside a written contract.  To hold otherwise, the Court reasoned, would excuse a lie made by one contracting party in writing to enable that party to prove that another party lied either orally or in writing outside the contract’s four corners.

For the foregoing reasons, the Court affirmed the Superior Court’s dismissal of RAA’s complaint.

The full opinion is available here.