Stewart et al v. Atherio Inc et al
Filing
109
MEMORANDUM OPINION AND ORDER: The Court DENIES the plaintiffs' 63 motion for partial summary judgment. Moreover, because the Court has determined that the purchase agreement bars the plaintiffs claims as a matter of law, the Court GRANTS summa ry judgment in the defendants favor. In accordance with Rule 56(f), the Court ORDERS the plaintiffs to file a response within 30 days containing any reason why the Court should not grant summary judgment in favor of the defendants given that the Court has rejected the plaintiffs' interpretation of the purchase agreement. (Ordered by Judge Jane J. Boyle on 6/7/2018) (zkc)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
TAMMY O’CONNOR and MICHAEL
STEWART,
Plaintiffs,
v.
ATHERIO, INC., JASON CORY,
THOMAS FARB, GREG FURST, and
MARK DINKEL,
Defendants.
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CIVIL ACTION NO. 3:16-CV-01731-B
MEMORANDUM OPINION AND ORDER
The plaintiffs sold their company to the defendants’ company. A purchasing agreement
memorialized the transaction. The plaintiffs have now brought securities-fraud claims against the
defendants based on statements not contained in the purchasing agreement. The defendants respond
in part that the purchase agreement expressly states that the plaintiffs relied only on representations
contained in the agreement and therefore that the plaintiffs cannot base a fraud claim on
extracontractual representations. The plaintiffs have now moved for partial summary judgment on
the defendants’ disclaimer-of-reliance defense, contending that another provision of the contract
allows them to bring the current claims. The Court disagrees with the plaintiffs’ interpretation of the
contract and therefore DENIES their motion.
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I.
BACKGROUND
A.
Factual History1
The plaintiffs memorialized their agreement to sell their company to Atherio, Inc.2 (Atherio),
the defendants’ company, in a written purchase agreement. Doc. 63-2, Pl. Summ. J. App., 20–84.
The agreement contains two provisions relevant to this motion. First, the parties promised that,
when entering the agreement, they relied only on representations in the agreement. Id. at 61. This
disclaimer-of-reliance provision states,
Each Contributor hereby acknowledges and agrees that the representations and
warranties of the Acquirer contained in this Agreement represent all of the
representations and warranties made by it as part of the transactions contemplated
hereby and that neither Contributor nor any person claiming through any
Contributor is relying on any other representations or warranties (express or implied)
in making its decision to consummate these transactions.
Id. Second, the parties preserved the plaintiffs’ right to bring fraud claims against the defendants.
Id. This so-called fraud carve out states, “Acquirer agrees that nothing contained in this Section 3.28
or elsewhere in this Agreement shall limit the Contributors’ right to bring claims for actual fraud
(including those based in violation of applicable securities laws).” Id.
The plaintiffs claim that, before they signed the agreement, the defendants lied to them and
that they relied on the defendants’ pre-purchase-agreement lies when they decided to sell their
company to Atherio. Doc. 63-1, Pl. Summ. J. Br., 2–3.
1
This factual history is drawn from the summary-judgment evidence.
2
The plaintiffs dismissed Atherio, Inc. Doc. 37, Am. Compl.
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B.
Procedural History
The plaintiffs allege in this suit that the defendants committed securities fraud. Doc. 37, Am.
Compl., ¶¶ 284–347. Each defendant pleaded, among other things, a disclaimer-of-reliance
affirmative defense based on the purchase agreement’s disclaimer-of-reliance clause. Doc. 46, Cory’s
Answer, ¶ 350; Doc. 47, Furst & Farb’s Answer, 36, ¶ 7; Doc. 48, Dinkel’s Answer, 38, ¶ 7. The
plaintiffs have now moved for summary judgment on the defendants’ disclaimer-of-reliance defense.
Doc. 63, Pl. Mot. Summ. J. Their motion is ripe for review.
II.
LEGAL STANDARD
Courts must grant summary judgment “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). Here, no facts are in dispute.
III.
ANALYSIS
The plaintiffs contend that the Court should grant their motion for partial summary
judgment because the contract’s fraud carve out preserves their right to bring their securities-fraud
claims. Doc. 63-1, Pl. Summ. J. Br., 1. The defendants respond that the disclaimer-of-reliance
provision allows the plaintiffs to bring fraud claims based only on representations in the purchase
agreement. Doc. 95, Cory’s Summ. J. Resp. Br., 7.
The Court agrees with the defendants. The plaintiffs clearly disclaimed reliance on
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extracontractual representations, Doc. 63-2, Pl. Summ. J. App., 61, and Delaware3 courts give effect
to clear disclaimer-of-reliance clauses like this one, see, e.g., Prairie Cap. III, L.P. v. Double E Holding
Corp., 132 A.3d 35, 34–35 (Del. Ch. 2015) (“Delaware law enforces clauses that identify the specific
information on which a party has relied and which foreclose reliance on other information.”);
Novipax Holdings LLC v. Sealed Air Corp., No. N17C-03-1682, 2017 Del. Super. LEXIS 605, at *32
(Del. Super. Ct. Nov. 28, 2017) (“[T]he Court finds that the parties preserved a fraud claim . . . but
limited that fraud claim through the non-reliance provisions.”). Thus, unless some other provision
of the contract excepts the plaintiffs’ current claim from the disclaimer-of-reliance clause, the Court
finds no grounds for granting the plaintiffs’ motion.
The plaintiffs are incorrect that the fraud carve out preserves their right to bring fraud claims
based on extracontractual misrepresentations. Delaware courts have harmonized disclaimer-ofreliance clauses with fraud carve outs by interpreting disclaimer-of-reliance clauses as limiting
accompanying fraud carve outs by preventing parties from bringing fraud claims based on
extracontractual representations. Novipax, 2017 Del. Super. LEXIS, at *32.
The plaintiffs propose an alternative way to harmonize the two provisions. They ask the
Court to interpret the fraud carve out to permit all actual fraud claims, including those based on
extracontractual misrepresentations. Doc. 101, Pl. Summ. J. Reply, 7. The disclaimer-of-reliance still
has meaning under their interpretation, they contend, because the disclaimer-of-reliance provision
would still limit fraud claims other than those for actual fraud. Id. at 7–8. But because Delaware
courts have endorsed the defendants’ interpretation, the Court rejects the plaintiffs’ interpretation.
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The parties agree that Delaware law applies.
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IV.
CONCLUSION
The Court DENIES the plaintiffs’ motion for partial summary judgment. Moreover, because
the Court has determined that the purchase agreement bars the plaintiffs claims as a matter of law,
the Court GRANTS summary judgment in the defendants’ favor. See Fed. R. Civ. P. 56(f)(1)
(authorizing Court to grant summary judgment in favor of nonmovant so long as the Court gives the
opposing party notice and the opportunity to respond). In accordance with Rule 56(f), the Court
ORDERS the plaintiffs to file a response within thirty days containing any reason why the Court
should not grant summary judgment in favor of the defendants given that the Court has rejected the
plaintiffs’ interpretation of the purchase agreement.4
SO ORDERED.
SIGNED: June 7, 2018.
4
The plaintiffs moved for summary judgment also on Cory’s affirmative defense that the plaintiffs
released him from liability. Doc. 63-1, Mot. Summ. J. Br., 7. But because granting summary judgment in
the defendants’ favor on the defendants’ disclaimer-of-reliance defense resolves all of the plaintiffs’ claims,
the Court need not rule on Cory’s release affirmative defense.
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