M&A Stories
June 1, 2026
Under Delaware law M&A sellers can avoid extracontractual fraud claims — which are not subject to the agreement’s indemnification cap — if there is a robust anti-reliance clause where the buyer explicitly disclaims reliance on any extracontractual seller representations. However, the seller is still subject to uncapped liability if the seller lies in its written representations and warranties.
But seller lies told to the buyer before closing may still come back to haunt the seller, even with a robust anti-reliance clause. A recent federal Delaware court permitted a buyer to use an extracontractual seller lie to support its contractual fraud claim.
The case involved the sale of a franchisor’s business involving a chain of 50 franchised yogurt stores. During due diligence, the seller told the buyer that an airport frozen yogurt kiosk was “a concept idea.” No airport kiosk contracts were disclosed on the material contract representation and warranty. However, the buyer discovered after closing that the seller was operating a kiosk at the Denver airport and collecting royalties.
The buyer sued the seller for fraud based on the failure to include the airport kiosk in the material contract representation and warranty. The seller moved to dismiss the fraud claim, arguing that the buyer could not use the extracontractual concept idea statement to support the fraud claim because the asset purchase agreement included a robust anti-reliance clause.
The court disagreed. The buyer was not using the extracontractual statement to support an extracontractual fraud claim. It was using it to show scienter in its contractual material contract representation fraud claim. This ruling is consistent with the Delaware Superior Court’s 2023 decision in Cablemaster LLC v. Magnuson Group Corp., where the court applied the same analytical framework to a similarly robust anti-reliance clause.
Anti-reliance clauses protect sellers from extracontractual fraud claims based upon misrepresentations made during negotiations, pre-closing presentations, and in the data room.
But any of those same misrepresentations can be used by the buyer to prove scienter in an uncapped fraudulent written representation claim.
Case: U Swirl, LLC v. U-Swirl International, Inc., Civil Action No. 24-1243-GBW, United States District Court, D. Delaware, (May 18, 2026); Cablemaster LLC v. Magnuson Group Corp., C.A. No. N23C-05-185 PRW CCLD, Delaware Superior Court (December 5, 2023)
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals.
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
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