248 A.3d 824
Del.2021Background
- Express Scripts subsidiary United BioSource LLC (UBC) sold three pharma R&D businesses to Bracket Holding Corp. under a $187M SPA; buyer obtained an R&W insurance policy as exclusive remedy for most rep/warranty breaches.
- SPA Section 9.6(D) carved out liability for "deliberate fraud" from the R&W-policy-only remedy; absent deliberate fraud, recoveries were limited to the R&W Policy.
- After closing Bracket alleged inflated revenue and working capital problems; it recovered $13M under the R&W Policy in arbitration (defendants did not participate) and later sued for fraud in Superior Court.
- At trial the Superior Court instructed the jury that liability could be based on recklessness as well as deliberate intent; the jury returned an $82.1M verdict for Bracket.
- On appeal the Delaware Supreme Court held the jury instruction was erroneous because the SPA unambiguously limited extra-policy recovery to deliberate (intentional) fraud; the error was not harmless, so the Court reversed and remanded for a new trial.
- The Court also found the trial court erred in excluding evidence (non-expert exhibits) relevant to whether Bracket relied on March 2013 financials covered by the SPA when pricing the deal; that exclusion should be reassessed under D.R.E. 403 on remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether jury could be instructed that recklessness satisfies the SPA's "deliberate fraud" carveout | "Deliberate" modifies act/statement/omission and should be read to incorporate common-law fraud (which includes recklessness); thus jury could find fraud on a reckless theory | SPA unambiguously limits extra-policy recovery to "deliberate" (intentional) fraud; allowing recklessness contradicts parties' bargained allocation and Section 9.6(D) | Reversed: "deliberate fraud" means intentional conduct; allowing recklessness conflicted with SPA and was legal error requiring new trial |
| Whether the erroneous instruction was harmless | Overwhelming evidence of intentional fraud made any error harmless | Instruction undermined contractually allocated risk and permitted liability on a lesser mental state; error was not harmless | Not harmless; trial court's error undermined jury's factfinding and allocation of risk in SPA |
| Admissibility of defendants' exhibits showing Bracket relied on other financial periods to price deal | Exhibits were relevant to undermine reliance element and should have been admitted | Trial court had previously limited the relevant TTM period to March 2013 and excluded exhibits as irrelevant/prejudicial | Court found the exhibits were relevant to reliance and exclusion under Rule 403 required clearer balancing; exclusion was erroneous and should be reconsidered on remand |
| Whether general SPA references to "fraud" override Section 9.6(D)'s specific carveout | The SPA read as a whole permits common-law fraud claims (including recklessness) despite 9.6(D) | Specific language in 9.6(D) controls over general provisions; the section unambiguously carves out only "deliberate fraud" | Specific indemnification carveout controls; other fraud references do not enlarge remedies beyond deliberate (intentional) fraud |
Key Cases Cited
- ABRY Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006) (contracts cannot insulate parties from damages for knowing/intentional fraud; but buyers who knowingly accept risk cannot use lesser mental states to escape contractual limits)
- Spencer v. Wal-Mart Stores E., LP, 930 A.2d 881 (Del. 2007) (standard for reviewing jury instructions and need for correct statement of law)
- R.T. Vanderbilt Co., Inc. v. Galliher, 98 A.3d 122 (Del. 2014) (parties entitled to correct statement of law in jury charge)
- DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954 (Del. 2005) (specific contract language controls over general language in interpretation)
- Duphily v. Delaware Elec. Co-op., Inc., 662 A.2d 821 (Del. 1995) (jury must understand applicable law to intelligently perform its duty)
- Volkswagen of Am., Inc. v. Costello, 880 A.2d 230 (Del. 2005) (erroneous jury instructions that prevent intelligent factfinding require new trial)
- Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126 (Del. Ch. 2009) (Delaware law prevents contracting around intentional fraud; indemnification limits apply absent illicit state of mind)