Explore the legal intricacies of M&A in our latest blog post, “Unveiling the Power of Boilerplate.” Dive into the courtroom drama of Novipax Holdings LLC v. Sealed Air Corporation, discovering how a fraud carve-out provision became the buyer’s lifeline. Gain insights into safeguarding buyer interests and the strategic dance between contractual obligations and legal battles.
M&A Stories
June 29, 2018
In the intricate landscape of mergers and acquisitions, a seemingly mundane boilerplate provision emerged as the hero in the courtroom, preserving a buyer’s right to seek justice. Let’s delve into the gripping case of Novipax Holdings LLC v. Sealed Air Corporation, where the buyer navigated the legal maze using a strategic fraud carve-out provision.
The narrative unfolds in the summer of 2014, as the seller, a prominent player in the food tray industry, decided to part ways with its North American foam tray and pads business while holding onto its rigid tray segment. The ensuing asset purchase agreement between the buyer and the seller, signed on February 11, 2015, set the stage for a transaction worth $80 million, culminating in the buyer’s acquisition on April 1, 2015.
Post-closing, the seller granted the buyer access to pre-acquisition emails, unveiling a critical twist in the tale. These emails exposed the seller’s knowledge of material information detrimental to the value of the acquired foam tray and padded business. Shockingly, the seller failed to disclose this pertinent information, specifically indicating a shift in major customers from foam trays (the acquired product) to the seller’s retained product line of rigid trays.
In response, the buyer, feeling the sting of deception, filed a lawsuit against the seller, alleging fraud and seeking retribution for the undisclosed information that could have significantly altered the agreed-upon purchase price.
Enter the courtroom drama. The seller, invoking the contractual deadline, sought to dismiss the lawsuit, claiming the buyer had exceeded the 18-month timeframe for filing a breach of contract suit. The buyer, however, skillfully argued that the lawsuit was centered on fraud, not contractual breach, and thus, the 18-month restriction did not apply.
The court, donning the hat of impartial arbiter, sided with the buyer, pointing to the exclusive remedy provision nestled in the boilerplate clauses. This provision stipulated that the sole recourse for disputes arising from the deal was breach of contract, complete with an 18-month deadline. However, a crucial exception existed for fraud claims, exempt from the temporal constraints imposed on contractual breaches.
In essence, the court’s decision hinged on what is commonly known as a “fraud carve-out.” Typically concealed within the recesses of acquisition documents, this provision proved to be the buyer’s lifeline, allowing them to pursue justice when conventional contractual remedies were barred by time constraints.
In conclusion, the Novipax Holdings LLC v. Sealed Air Corporation case serves as a poignant reminder of the strategic importance of boilerplate provisions in M&A agreements. The nuanced dance between contractual obligations and fraud carve-outs can significantly impact the trajectory of legal battles, offering a glimpse into the intricacies of safeguarding buyer interests in the dynamic realm of mergers and acquisitions.
Case Reference:
This case is referred to as Novipax Holdings LLC v. Sealed Air Corporation, C.A. No. N17C-03-1682 EMD CCLD., Superior Court of Delaware (Decided: November 28, 2017).
By John McCauley: I help people start, grow, buy and sell their businesses.
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