Del. Court Provides Guidance on Merger-Related Fraud Claims

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By Michael Greene

Feb. 23 — The Delaware Securities Act isn't automatically triggered by a merger agreement's Delaware choice of law provision, the Delaware Chancery Court ruled Feb. 23.

In dismissing fraud claims brought under the act by a buyer of a Midwest trucking company, Chancellor Andre G. Bouchard concluded that the transaction at issue lacked a sufficient nexus to Delaware to implicate the state law regulating the sale of securities.

Construing the choice of law provision as the buyer advocates “would lead to the bizarre result of allowing contractual parties to convert a blue-sky law that was intended to regulate intrastate commerce into one that would apply to interstate commerce,” Bouchard said.

2012 Buy

The lawsuit arose out of a private equity firm's 2012 purchase of A&R Logistics Inc.

After the transaction closed, a representative of the selling stockholders, FdG Logistics LLC, filed a lawsuit in the chancery court seeking to recover a pre-closing tax refund.

In response, the buyer—A&R Logistics Holding Inc.—asserted fraud, indemnification and recision counterclaims against the sellers. The buyer alleged the trucking company had engaged in a series of illegal and improper activities that were concealed during pre-merger due diligence.

Claims Dismissed

In his ruling dismissing the Delaware Securities Act claims, Bouchard said that another Delaware provision, 6 Del. C. §2708—which allows contracting parties to agree to choice of law provisions—doesn't stand for “a mechanism for the wholesale importation of every provision of Delaware statutory law into the commercial relationship of contracting parties.”

The court also found that there wasn't a sufficient nexus between the transaction and the state because both the buyer and seller were based in other jurisdictions and there were no negotiations related to the merger that took place in Delaware.

However, the court did allow the plaintiff to proceed with common-law fraud claims against the sellers.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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