In Arwood v. AW Site Servs., LLC (Del. Ch. March 9, 2022), the Seller was approached by Buyer about selling the business. Seller “lacked the know-how or inclination to prepare financial records or to formulate useful valuations,” so Buyer requested, and obtained, “full and unfettered access to the businesses’ raw financial and other records” to use in valuing and deciding whether to acquire the business. When the business did not perform as Buyer had expected after closing, Buyer brought claims for fraud against Seller.
Fraud
In a recent litigation claim, the Court found no evidence of intent to defraud by the Seller. The Court characterized the Seller as “unsophisticated” and noted that the Seller had granted the Buyer “unfettered access” to the business for a thorough diligence review. The ruling clarified that a Buyer alleging fraud must demonstrate reasonable reliance on false information. This can be established by showing that the Buyer either lacked knowledge of the information’s falsity or recklessly disregarded it. However, the Court held that the Buyer failed to meet this burden of proof in the litigation claim.
