Opinion
C.A. No. 07C-08-286 WCC.
Submitted: January 2, 2008.
Decided: April 2, 2008.
On Defendants' Motion to Dismiss Counts II, IV, and V and to Dismiss and/or Strike Certain Allegations of the Verified Complaint. GRANTED.
On Defendant Henry W. Holbrook's Motion to Strike Paragraphs 68-71 of the Verified Complaint Pursuant to Rule 12(f). GRANTED.David A. Felice, Cozen O'Connor, Wilmington, DE, Attorney for Plaintiff.
Gregory B. Williams, Fox Rothschild, LLP, Wilmington, DE, Attorney for Defendants.
MEMORANDUM OPINION
Introduction
Before this Court is Versyss Transit Solutions, LLC's, Versyss Commercial Systems, LLC's, Holbrook Systems Incorporated's, and Henry W. Holbrook's (collectively, "Versyss" or "Defendants") Motion to Dismiss Counts II, IV, and V, and to Dismiss and/or Strike the allegations contained in paragraphs 16, 22-25, 46-51, 53-54, and 66 of the Complaint filed by Transched Systems Limited ("Transched" or "Plaintiff"), and Defendant Henry W. Holbrook's ("Holbrook") Motion to Strike Paragraphs 68-71 of the Complaint. Upon review of the record and briefs filed in this matter, the Court hereby grants the Defendants' Motion to Dismiss, and grants Defendant Holbrook's Motion to Strike Paragraphs 68-71of the Complaint.
Facts
On January 28, 2005, Plaintiff entered into an Asset Purchase Agreement ("the Agreement") with Versyss to acquire its transportation software assets. Henry Holbrook was the President of Versyss at the time of the negotiations. Plaintiff entered into the agreement primarily to acquire Versyss's Titan Transportation Management System, a software application for managing charter bus reservations, scheduling, billing, and dispatching. Plaintiff claims that the Titan software application was not delivered as previously promised. It was incomplete, and as a result Plaintiff had to use its own resources to finalize development of the software. Plaintiff alleges it incurred significant losses due to material misrepresentations made by Defendants, including: the extent of the completion of the Titan software; the state of Defendants' customer contracts and relationships, and providing Plaintiff with misleading financial reports and projections which Plaintiff relied upon in valuating Defendants' business. Plaintiff asserts that as President of Versyss during the negotiation period, Holbrook is liable because he ratified and approved the misrepresentations made by Defendants.
Defendants have filed a Motion to Dismiss Count II (the negligent misrepresentation claim against Versyss), Count IV (the negligent misrepresentation claim against Holbrook), and Count V (the civil conspiracy claim against Holbrook and Versyss), and/or Strike Allegations in Paragraphs 16, 22-25, 46-51, 53-54, and 66 of the Complaint. Henry Holbrook filed a separate Motion to Strike Paragraphs 68 — 71 as Impertinent, Immaterial and/or Scandalous. This is the Court's opinion addressing all outstanding motions.
Standard of Review
A motion to dismiss must be decided solely upon the allegations set forth in the complaint. In determining the merits of a motion to dismiss pursuant to Rule 12(b)(6), the court must accept all allegations within the complaint as true. If a plaintiff may recover under any reasonably conceivable set of circumstances, a motion to dismiss must be denied. Only if the plaintiff could prevail under no set of facts inferred from the pleadings may the court dismiss the complaint for lack of merit, as a matter of law or fact.Discussion
I. Negligent Misrepresentation Claims
Defendants request the Court dismiss the Plaintiff's claims against Versyss and Holbrook for negligent misrepresentation. The crux of Defendants' argument rests on its interpretation of three contractual provisions in the Agreement that they assert bar Plaintiff's claims: the exclusive remedy clause in section 7(f), the integration clause in section 8(f), and the disclaimer of extra-contractual representations in section 3(hh).First, Defendants argue that Plaintiff's negligent misrepresentation claims are barred by provision 7(f) in the Agreement, which states,
Other Indemnification Provisions. The foregoing indemnification provisions shall constitute the sole and exclusive remedy for monetary damages in respect of any breach of or default under this Agreement by any Party and each Party hereby waives and releases any and all statutory, equitable, or common law remedy for monetary damages any Party may have in respect of any breach of or default under this Agreement.
Asset Purchase Agreement at 7(f) [hereinafter "Agreement"].
Defendants maintain that Plaintiff was a sophisticated party represented by counsel, and as such must be held to the exclusive remedy of indemnification provided for in the Agreement, as opposed to seeking other relief through litigation.
In response, Plaintiff claims the language "in respect of any breach of or default under this Agreement" (emphasis added) in 7(f) limits the indemnification remedy only to contract claims, still allowing Plaintiff to bring tort claims in the present action. The Court finds this argument unpersuasive. A similar argument was made, and rejected, in Abry Partners V, L.P. v. F W Acquisition LLC, where the Court noted,
891 A.2d 1032 (Del.Ch. 2006).
It is difficult to fathom why rational contracting parties would attempt to cut, by contract, a clear division that American jurisprudence has never been able to achieve: a division between the role of contract and tort law in addressing the consequences of false representations inducing the making and closing of contracts.
Id. at 1054.
This Court agrees and finds it stretches one's common sense to believe Plaintiff's counsel when negotiating the contract intended to distinguish tort relief from the exclusive remedy set forth in the contract. Delaware courts have consistently adhered to an objective theory of contract interpretation, holding that contractual language controls when no ambiguity exists. Here, a plain reading of 7(f) reveals that the contracting parties agreed to an exclusive remedy of indemnification, and to read further into the language as Plaintiff suggests would defeat the reasonable commercial expectations of the two parties. Plaintiff had a lengthy due diligence period during which it could have objected to or requested clarification of the indemnification clause and it did not. It cannot now expand the universe for possible relief through other means. The fact that the Plaintiff would like to throw alternative theories of liability to the jury hoping one will catch on does not overcome the contractual limitations that they previously agreed to. All of the Plaintiff's theories as to why they could recover are included in the contract counts of the complaint and repackaging those same arguments as torts is not appropriate under the facts of this case.
Progressive International Corp. v. E. I. DuPont de Nemours Co., 2002 WL 1558382, at *7 (Del.Ch. July 9, 2002). "This presumption that parties will be bound by the language of the contracts they negotiate holds even greater force when, as here, the parties are sophisticated entities that bargained at arm's length." Id.
The Court notes that counsel candidly admitted during oral argument that the complaint was drafted to expand, to the degree professionally appropriate, to include all possible avenues of liability, even if recovery would logically be available in other counts.
Defendants' position is further supported by the language in 8(f) and 3(hh) of the Agreement. In order to succeed in its claims for negligent misrepresentation against Versyss and Holbrook, Plaintiff must prove it justifiably relied on the misrepresentations made by Defendants. Defendants contend that conjunctively, the language in 8(f) and 3(hh) precludes Plaintiff's reliance on extra-contractual representations, and therefore its negligent misrepresentation claims fail as a matter of law. Plaintiff and Defendants agreed to the following terms in 8(f):
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 142 (Del.Ch. 2003).
Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.
Agreement at 8(f).
In its brief, Plaintiff states that 8(f) merely demonstrates the parties "have not formed separate oral contracts and that no separate consideration existed for entering into the Agreement." The Court does not see how Plaintiff can logically assert such a meaning to this section, yet assert that it was also appropriate for it to rely on representations made outside the four corners of the Agreement. This is especially true when reading the following terms Plaintiff agreed to in section 3(hh):
Pl. Response Br. at 11.
Disclaimer of Other Representations and Warranties. Except as expressly set forth in this § 3, Sellers make no representation or warranty, express or implied, at law or in equity, in respect of any of its assets (including, without limitation, the Acquired Assets), or operations, including, without limitation, with respect to the merchantability or fitness for any particular purpose. Buyer hereby acknowledges and agrees that, except to the extent specifically set forth in this § 3, Buyer is purchasing the Acquired Assets "as-is, where-is." Without limiting the generality of the foregoing, Seller makes no representation or warranty regarding any assets other than the Acquired Assets or any liabilities other than the Assumed Liabilities, and none shall be implied at law or in equity.
Agreement at 3(hh).
The lack of the word "rely" or "reliance" in these sections is not in itself determinative, as Plaintiff suggests. While Plaintiff correctly points out that anti-reliance language must be clear, nowhere in the cases Plaintiff cites have the Courts held that some form of the word "rely" must appear in the contract for it to be "clear." Indeed, the thrust of the language in sections 7(f), 8(f) and 3(hh) is unambiguous: no representations made outside of the four corners of the Agreement are to be given consideration by the parties in interpreting the terms. Consequently, Plaintiff cannot argue it justifiably relied on anything other than what is present in the contract. Therefore, the Court finds that Plaintiff is unable to state a claim for negligent misrepresentation against Versyss and Holbrook because it agreed to provisions when it entered into the Agreement with Defendants — provisions that Plaintiff, a sophisticated party represented by counsel, agreed to after an extensive due diligence period. These provisions preclude Plaintiff's argument that it justifiably relied on the extra-contractual representations made by Defendants.
See Great Lakes Chemical Corp. v. Pharmacia Corp., 788 A.2d 544, 552 (Del.Ch. 2001) (barring a plaintiff's claims due to three provisions in the contract, none of which contained the word "rely" or "reliance"). "As seen by the disclaimers in Great Lakes, to foreclose reasonable reliance, the clause or clauses need not necessarily contain the words "rely" or "reliance;" Medical Wind Down Holdings III, Inc. v. InnerDyne, Inc. 332 B.R. 98,105 (Bankr. D. Del. 2005). The facts here are distinguishable from Kronenberg v. Katz, 872 A.2d 568 (Del.Ch. 2004). There, Plaintiff's fraud complaint survived Defendants' motion for summary judgment based on an integration clause in the parties' contract. The Court held, ". . . the contract must contain language that, when read together, can be said to add up to a clear anti-reliance clause by which the plaintiff has contractually promised that it did not rely upon statements outside the contract's four corners in deciding to sign the contract. The presence of a standard integration clause alone, which does not contain explicit anti-reliance representations and which is not accompanied by other contractual provisions demonstrating with clarity that the plaintiff had agreed that it was not relying on facts outside the contract, will not suffice to bar fraud claims." Kronenberg, 872 A.2d at 593. Unlike Kronenberg, Defendants here point to multiple contractual provisions that demonstrate Plaintiff's agreement not to rely on extra-contractual representations. See §§ 8(f), 3(hh). Reading these provisions together, Plaintiff's agreement not to rely on statements made outside the four corners of the Agreement is clear, despite literal usage of the word "rely." In addition, the Chancery Court in Kronenberg focused on the Delaware Courts' intolerance of fraud, whereas here, there is no claim of fraud by Plaintiff.
The Court appreciates this finding is inconsistent with the comments made by the Court during oral argument that indicated that Mr. Holbrook would remain as a defendant. After reviewing the arguments and cases cited by counsel further, the Court finds merit to dismissing Count IV relating to Mr. Holbrook for reasons set forth in the body of this opinion.
II. Civil Conspiracy Claims
To succeed on a claim of civil conspiracy Plaintiff must first have a valid underlying claim. Because the negligent misrepresentation claims against Versyss and Holbrook form the basis of the conspiracy claim, it too must be dismissed.
The State of Sao Paulo of the Federative Republic of Brazil v. American Tobacco Company, 919 A.2d 1116, 1125 (Del. 2007).
III. Motion to Strike Certain Allegations of the Complaint.
Defendants also move to strike the following paragraphs from Plaintiff's Complaint: 16, 22-25, 46-51, 53-54, and 66. Plaintiff included those paragraphs in the Complaint to support its allegations of negligent misrepresentation and civil conspiracy. As those claims have been dismissed, the Court grants Defendants' motion to strike these paragraphs.
Pl. Response Br. at 15.
IV. Holbrook's Motion to Strike Paragraphs 68-71 of the Complaint
The paragraphs at issue relate to a criminal matter in Mr. Holbrook's past that does not appear to be particularly relevant to the matter at hand. For that reason the Court granted Defendant's Motion after the conclusion of oral argument, however, this will not affect any future ruling by the Court as to the relevancy of this information at trial.
Conclusion
For the foregoing reasons, the Defendants' Motion to Dismiss and/or Strike Paragraphs is hereby GRANTED. Defendant Holbrook's Motion to Strike Paragraphs is hereby GRANTED. Having reached this conclusion, the Court wants to be clear that the Opinion does not reflect a belief by the Court that contractual provisions such as the ones at issue here would insulate or protect a party whose conduct would be fraudulent in nature. In spite of due diligence by sophisticated parties, the Court can never be in a position to condone or prevent redress for clearly fraudulent activity. The interaction between contracting parties must be done in good faith by parties whose conduct meets reasonable business and ethical standards and not one masterminded with an evil intent to fraudulently mislead the other party. Accordingly, the Court grants Plaintiff sixty days to consider whether they desire to amend the Complaint assuming they believe there is a basis for other claims. If Plaintiff in fact can establish a claim for fraud, the Court imagines that, due to Mr. Holbrook's status as President and principal shareholder of Versyss, his personal liability as well as the liability of the company may again be at issue. However, I will leave that decision up to the Plaintiff after reviewing the facts now available to it.
IT IS SO ORDERED.