Disclaimers, Lack of Justifiable Reliance In Sophisticated Party Asset Purchase Transaction Doom Fraud Claims

Asset purchase agreements (APAs), stock acquisitions and other high-end purchase and sale transactions are fertile ground for potential fraud claims. The typical scenario: The buyer pays a boatload of money for assets, stock or other interests in a business or goods, and then discovers after the transaction closes that what it bought is not what it anticipated or wanted. The buyer claims that the seller was not truthful or candid in some way in describing or presenting the subject of the purchase, amounting to some form of fraudulent misrepresentation.

Especially where sophisticated parties are involved, courts set a rather high bar for establishing these types of fraud claims. (See the cases commented upon in my topic heading “Sophisticated Parties.”) The cases show that the language contained in the transactional documents is key. If the buyer is truly relying upon or anticipating the existence of particular attributes of the subject of the purchase, it is essential to document the precise description and relevant representations of the accuracy of the information pertaining to the purchased items. These are often referred to extensively in the contract itself as well as in accompanying “schedules” that itemize the relevant subject. Especially where there is some suspicion on the nature of the subject of the contractual purchase, courts often want to see what they call “prophylactic” language protecting the buyer and its assumptions, including express contractual representations and warranties. See, e.g., Global Mins. & Metals Corp. v Holme, 35 A.D.3d 93 (1^st Dep’t 2006). But see ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 NY3d 1043 (2015)(“prophylactic” language not “required” in that transaction).

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