This Court of Chancery decision provides a useful example of those circumstances in which the express terms of a contract serve as a barrier for claims of fraud, misrepresentation and related claims that are dependent on statements or other facts outside the four corners of an agreement. Flores, et al. v. Strauss Water Ltd., C.A. No. 11141-VCS (Del. Ch. Sept. 22, 2016).
Background: This case involves a claim by a bankruptcy trustee that a creditor masterminded a fraudulent scheme to obtain valuable technology and business opportunities from a company to whom it loaned money – – with the expectation that the company would not be able to repay the loan and then the lender would obtain valuable assets upon default.
Among other reasons why this decision is of practical value to commercial litigators is the excellent statement of important legal principles of Delaware law and the elements of a cause of action for common claims in commercial litigation.
First, the court provides an exemplary recitation of the standard under Court of Chancery Rule 12(b)(6) for failure to state a claim upon which relief can be granted.
The court recited the elements of the cause of action for the following claims, and with one limited exception found that the express terms of the contract barred such claims: (1) fraud; (2) fraudulent inducement; (3) negligent misrepresentation; (4) breach of the implied covenant of good faith and fair dealing; (5) breach of contract; (6) promissory estoppel; (7) estoppel; (8) tortious interference with contract; and (9) tortious interference with prospective business relationship. The court also highlighted some elements of the foregoing claims that are common or shared.
The court found that the claims contradicted clear and unambiguous terms of the written contract between the parties which was negotiated through sophisticated counsel. Among other reasons described in this 40-page decision, the court explained that the claims for negligent misrepresentation are limited by the economic loss doctrine. [Compare: equitable fraud v. negligent misrepresentation.] In addition, the claims for tortious interference with contract failed because the allegedly improper acts were expressly permitted by the parties’ contracts.
The court found, however, that there was a reasonably conceivable inference that Strauss tortiously interfered with prospective business relationships.