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April 1 — Universal American Corp. can't proceed with certain merger-related fraud claims in its lawsuit against former executives of Partners Healthcare Solutions Inc., the U.S. District Court for the District of Delaware ruled March 31.
Relying on a recent Delaware Chancery Court ruling, Judge Richard G. Andrews held that under the merger agreement, Universal couldn't bring state law fraud claims based on statements and omissions that occurred outside the contract.
Andrews's decision is one of the first federal court rulings to rely on the Delaware Chancery Court's November 2015 decision in Prairie Capital III v. Double E Holding Corp., 2015 BL 386569 .
In Prairie Capital, the state court clarified that a merger agreement's anti-reliance provision can define “the universe of information that is in play for a fraud claim.”
Attorneys have said that Prairie Capital and another Delaware Chancery Court ruling—FdG Logistics LLC v. A&R Logistics Holdings Inc., 2016 BL 50399—provide clear guidance on when non-reliance provisions—clauses stating that the parties haven't relied on extra-contractual information—can bar fraud claims based on information outside of the representations and warranties made in M&A agreements.
In its March 31 ruling, the district court found that the merger agreement's language added up to a clear anti-reliance provision, even though it differed from the language at issue in Prairie Capital.
In its lawsuit, health-benefits provider Universal brought a litany of claims alleging that it was defrauded about Partners's financial health before the acquisition.
Although the district court dismissed Universal's extra-contractual state law claims, it allowed the plaintiff to continue with state law fraud claims based on Partners's alleged contractual misstatements. It also ruled that the plaintiff had adequately pleaded certain securities fraud claims against former Partners executives.
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The opinion is available at http://www.bloomberglaw.com/public/document/Universal_Am_Corp_v_Partners_Healthcare_Sols_Holdings_LP_No_13174.
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