Paragon Metals Holdings, LLC, et al. v. Michael J. Smith, et al., 385, 2025

Stellex agreed to buy Paragon from Smith for $100 million while two major customers were telling Smith they would materially reduce purchases. 1
Before closing, Smith learned ZF and FCA would cut orders, ZF lost sole-supplier status, and Smith concealed the ZF Letter and rebate arrangement from Stellex. 2
The Agreement warranted no material adverse effect and no knowledge that customers would stop or decrease purchases, and Stellex acknowledged its own independent investigation. 3
After closing, Stellex learned FCA would stop ordering certain brackets and ZF would scale back orders, causing loan default and an added $37 million infusion. 4
Stellex sued Smith for common law fraud; the Superior Court found falsity and scienter but held reliance was unjustifiable because Stellex was willfully blind. 5
The Supreme Court affirmed falsity and scienter, reversed on justifiable reliance, and remanded for damages. 6

Issue	Plaintiff's Argument	Defendant's Argument	Held
Fraud burden of proof 7	Stellex argued preponderance governs Delaware fraud claims.	Smith argued clear and convincing evidence should apply.	Preponderance of the evidence applies. 8
Whether Smith's warranties were false 9	Stellex said Smith falsely warranted no customer term changes and no MAE.	Smith said customer volume changes were not warranty breaches.	Yes; both § 3.23 and § 3.8 were false. 10
Scienter 11	Stellex said Smith concealed the customer declines and rebate scheme.	Smith denied intent to defraud.	Scienter was proved by a preponderance. 12
Effect of anti-reliance clause 13	Stellex said § 5.10 did not bar reliance on contractual warranties.	Smith said § 5.10 defeated reliance.	§ 5.10 did not bar Stellex's intra-contractual fraud claim. 14
Justifiable reliance / willful blindness 15	Stellex said it could rely on Smith's warranties despite imperfect diligence.	Smith said Stellex was willfully blind and failed reasonable diligence.	Stellex's reliance was justifiable; no willful blindness. 16

Sofregen Medical Inc. v. Allergan Sales, LLC, 349 A.3d 1148 (Del. 2025) (fraud in Delaware is proved by a preponderance of the evidence 17)
Johnson & Johnson v. Fortis Advisors LLC, 352 A.3d 229 (Del. 2026) (one-sided anti-reliance clause cannot bar post-closing intentional extra-contractual fraud claims by the non-promising party 18)
G.L. v. S.D., 403 A.2d 1121 (Del. 1979) (serious consequences alone do not justify raising the civil burden of proof 19)
Deloitte LLP v. Flanagan, 2009 WL 5200657 (Del. Ch. Dec. 29, 2009) (circumstantial evidence may support scienter 20)
Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (U.S. 2011) (willful blindness requires subjective belief in a high probability and deliberate avoidance 21)
Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006) (contracts cannot insulate a party from fraud damages or rescission 22)