2004 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 9-30-2004 

# S C J ohnson & S on I nc v

. D o wB r a nd s I nc P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al D ocke t N o . 03-2572

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Thi s de c i sion i s br ou gh t t o you for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit a t V i l l a no va U niv e r sit y S choo l of L a

w Di g it al Re posit or y

. It h as be e n a c c e pt e d for inclusion in 2004 D e c i sion s b y a n author i z e d a dmini s tr a t or of V i l l a no va U niv e r sit y S choo l of L a

w Di g it al Re posit or y

. F or mor e infor m a t ion, p le as e c on t a ct Be n j a min . C a rl s on@l a

w . v i l l a no va . e du . Re c omme nde d C it a t ion

" S C J o hn s on & S on I nc v

. D o w B r a nd s I nc " (2004). 2004 D e cisio n s . P ape r 309. h tt p://d i g it alc ommon s .l a

w . v i l l a no va . e du/thir dc ir c uit_2004/3091 NOT PRE CEDENT IAL UNITED STATES COURT OF APPEALS FO R T HE TH IRD CIR CU IT

No. 03-2572

S. C. J OHNSON & SON, I NC.

v.
DO W BR AN DS IN C.; D OW BR AN DS L.P .; DOW CHEMIC AL COMPANY, Ap pellan ts

On A ppeal from the Un ited States District Co urt

for the D istrict of Delaw are (CivilAction No. 00-CV-0444) District Judge: H on. Joseph J. Farnan, Jr.

Argued: June 23, 2004

Be for e: N YG AA RD , M cK EE , and CH ER TO FF , Circuit Judges
. (Opinion Fi led: September 30, 2004)2

MICH ELE L. OD ORIZZI, ESQ. (Argued) Mayer, Brown, Rowe & Maw 190 South LaSall e Street Chicago, I L 60603 KENNETH J . N ACHBAR, ESQ. M orris, N ichols, A rsht & Tun nell 1201 North Market Str eet P.O. Box 1347 Wilmington, DE 19899 Atto rneys fo r Ap pellan ts
MA URICE J. M CSW EENE Y, ESQ. (Argued) Foley & Lardner 777 East Wisconsi n Avenue Suite 3900 Milwaukee, WI 53202 ALLEN M. TERRE LL, JR. , E SQ. ANNE S. GAZA, ESQ. Richards, Layt on & Finger One Rod ney Square P.O. Box 551 Wilmington, DE 19899 Attorney s for Appell ee

OPINI ON OF THE COURT

M cK EE , Circuit

Judge
. Plaintiff S.C. Johnson & Son, Inc. (“SCJ”), purchased t he asset s of defendant DowB rands, Inc., pursuant to a writ ten agre ement with DowBrands, I nc., as well as co-1 The amount of the attorney ’s fees was less than the amount of the deductible. 3 defe ndan ts Do wB rand s, L.P., an d D ow Ch emic al Co mp any, Inc. (c ollective ly referred to as “D efen dants ”). SC J later su ed D efen dants for fr aud a lleging that the y had fra udu lently misrepr esented t

he dist ribution of Defendants ’ product s in Lati n America. SCJ al leged that D efen dants breac hed th e Pu rchas e A greem ent by ref using to inde mn ify SCJ for co sts incu rred as a resu lt of a pate nt in frin gem ent s uit b rou ght aga inst S CJ by a th ird p arty. The district c ourt found for SCJ on both of thes e clai ms. The court held that a nonreli ance claus e in the Purchase Agreement did not pr eclude sui ts for fraud, a nd that t

he
amo unt o f the in dem nifica tion w as no t subjec t to the $ 10 m illion de ductib le or “b aske t” in the Agree ment. For t he reasons stat ed below, we willrevers e the di stri ct court insofar
as it ru le d i n fa vor

of S CJ on it s f

ra ud c la im, but

we wi llaff

irm th e co ur t’ s rul in g t hat SCJ is entitl ed to inde mnification for i ts attorney ’s fees . However, we als o conclude that the indemnifi cati on is subj ect t o the deductible. 1 I. Bac kground Beginn ing at least in 1992 , Dow Brand s, Inc., and Do wB rands, L.P., (together, “DowB rands”) became aware of dist ribution probl ems it was havi ng with product s it was shippi ng to Lati n America. DowBrands beli eved that goods it was earmarking f

or dist ribution in Latin America were bei ng diverted to U.S. markets. In 1996, Li nda Esp osito, D ow Bran ds’ V ice Pre siden t for N orth an d La tin A meric a, hired Edw ard F rancis to surve y DowBrands’ Lati n American busine ss. Over t he next y ear, Fr ancis i nvesti gated4

the Lati n American busine ss and met wit h Jose Berdasc o, DowBrands’ Sales Manager for Latin America, as well as Jesus Cutie, the head of one of Dow Brands’ two largest dist ribut ors in Latin America. After Franci s reported back to Esposi to, DowBrands retai ned Euromonitor

Internationa l, I nc., to examine t he extent of its Latin America n business . In J anuary 1997, Euromonit or reported that it was not able to find any Do wB rand s prod ucts in a rand om sam ple of stores in Arg entina , Braz il or Ch ile. In July 1997, DowBrands terminated it s agreement with it s lar gest Latin American di stributor because DowBrands was concerned that the dist ribut or was diverting pr oducts i ntended for Latin Ameri ca to the U. S. At the same time, Dow Chemical Com pany, Inc. , decided to sellDow Brands’ assets, a nd it pre pared an of fering mem oran dum for p otentia l buyers th at it distribu ted in July1997. The memorandum stat ed that DowB rands’ Latin American sa les acc ounted for $18.6 million and that i ts totalsales were $764.2 million in 1996. DowB rands also projected sales of $15.7 mil lion i n Latin America for 1997. SCJ was among the companies that made prel iminary bids for the ass ets of DowBrands after recei ving that
memor and um. After submit

ting i ts bi d, SCJ began it s due dil igence. SCJ reviewed voluminous documents that Defendants placed i n two “data r ooms.” SCJ als o interviewed DowB rands’ e mployee s, and at tended a pr esentat

ion that DowB rands’ management conducted for

bidders . During i ts due di ligenc e, SCJ dis covered that DowBrands2 “W ater g ood s” is a synon ym fo r “d iver ted g ood s.” 5 conducted i ts busi ness in Latin America sol ely through t hird- partydist

ribut ors, and that the company its elf had no employ ees in Latin America. In addition, SCJ r eviewed the Euro mo nitor stu dy that disc ussed the pe netratio n of Do wB rand s’ prod ucts in th e La tin American market. However, DowB rands’ management never menti oned divers ion duri ng its pr ese ntati on t o bi dde rs. Marc English, SCJ’s Direct or of Acquisi tions , attended the management present ation. Signifi cantl y, English wrot e: “di versi on?” in his print ed copy of t he presentation summary next to bull et points about the Lati n Am erican distributors. Moreover, in hi s memorandum summarizing hi s key due dili gence findi ngs regar ding Defendants’ i nternat

ional bus iness, English wrot e that : “Dow has two Latin America n Dis tribu tors b ase d in M iam i – p oten tial ex ists f or w ater g ood s.” 2 At the concl usion of i ts due di ligenc e, SCJ made a finalbid of $1.1 bi lli on for Dow Brand s’ assets wh ich, after nego tiations, was increase d to $1.12 5 billion. How ever, a fe w day s be for e the P ur cha se Agre emen t wa s t o be exe cuted, Defe nda nt s s ent SCJ about fi fty pages of material i ncluding a copy of t

he July1997 letter by which DowB rands had t erminat ed its larges t Lati n American dist ribut or because of c oncerns that t he d istrib uto r w as d iver ting pro duc ts inte nde d fo r La tin A me rica t o th e U .S. Neverthel ess, the Purchas e Agreement was signe d a few days l ater a nd closi ng was sch edu led f or Ja nua ry 199 8.6

A few days before t

he closi ng actual ly occurred, Esposit o and two other DowB rands vi ce-pres idents were informed of t he resul ts of a di versi on detection progr am that DowBrands set

up in 1997. Pur suant t o that pr ogram, 174 coupons ha d been placed in selec ted sea led ca ses of Do wB rand s’ prod ucts tha t wer e to be distribu ted in L atin America. These c oupons stated that they could be re deemed for $50 by contacting Do wB ran ds a nd i den tifying the s tore and cas e w her e the cou pon had bee n fo und
. Twenty-two of these coupons were l ater redeemed in the U.S. rat her than Latin America, the intended place of distribution. After getting this informati on, one of Dow Brands’ other vi ce-pres idents told Espos ito and a nother vi ce-pres ident t hat thi s confirmed divers ion from the Latin America n market. However, theyagreed that the vice-president who would be meeting with SCJ offi cial s prior to clos ing shoul d not dis close t he program
orit s r es ul ts unl es s s pec if ic al lyas ked . De spi te con cerns t hat had bee n r ai se d at

SCJ regardi ng divers ion, no one from SCJ inquir ed about i t duri ng the subse quent pre- closi ng meeting wit

h the DowBrands’ vice- presi dent, and he did not voluntee r any information about the program or its result s. Prior to closi ng, SCJ put Michael Caron in char ge of tra nsitioning t he inte rnati onal part of DowBrands’ busi ness. On January 16, 1998, Car on met with Berdas co (DowBrands’ sales manager for Latin America) , to di scuss sa les i n Latin America . Caron asked Berdasco for

retai lers ’ names, retai l dis tri bution grids, and sales data byregion and country . Berdasco s aid that he coul d not provi de the i nformati on but indi cated that one of7

his major

dist ribut ors coul d. Berdasco told Caron that he would have t he information forwarded. However, SCJ completed t he purchase of DowBrands’ as sets on J anuary 23, 1998 without wait

ing for t he information from Berdasc o. Thus, Car on did not have the inform ation h e requ ested f rom Berd asco wh en the deal c losed . In add ition, as o f the d ate of the closing, DowBrand s terminated another of it s major Latin America distributors , stating that

it was aware t

hat the dist

ribut or was diverting DowBrands product s in bre ach of a d istribution agree men t. Four days afte r the clo sing, S CJ o fficials again met w ith Berd asco and a sked for the list of reta ilers w ho so ld D ow Bran ds pro ducts in La tin Amer ic a. Ber das co i nfo rme d t hem t hat he s ti lldi d no t h ave th e l is t. One o f the S CJ offici als r eplie d by as king Berdasco i f “it would be safe t o assume that 80-90 percent

of the busi ness never

left Miami and never le ft the United States[.] ” Berdasco di d not respond ver

bally , but s hrugged and smil ed in a manner t hat the SCJ officia ls i nterpr eted as affirmation. SCJ then had it s Latin Ameri can employ ees conduct a surveyto see whethe r they could find any DowB rands products in the stores there. After about two to three weeks, the employ ees reported that they found no DowB rands’ pr oducts i n Latin America , except for a few in Venezuel a. Moreover, in the f ive months fol lowing the s ale, SCJ sold no DowB rands produc ts i n Latin America , and i n the seventeen months fol lowing the s ale, SCJ sold only

about $1 mil lion wort

h of DowB rands’ pr oducts t here.8

In th e s pr in g of

199 8, Tenn eco Pac kag in g an d Spe ci al tyPro duc ts , I nc. , s ued SCJ to enjoi n it fr om selli ng the Sli de-Loc stor age bag li ne of product s all eging that the Sl ideLoc line inf ringed its paten ts. Do wB rand s had deve loped this line in 199 7 and sold it to SCJ under the aforementioned Pur chase Agreement. SCJ notifi ed Defendants of t he Tenn eco suit and dema nded ind emnification under the P urchase A greeme nt. How ever, Defendants ref

used argui ng that Tennec o’s sui t was not covered by t he indemnifi cati on clause. A. R elevant T erms o f the Pu rchase Agr eeme nt Un der the terms of the Purc hase Ag reem ent, D efen dants expr essly reno unce d all warranti es not expr essly set forth in t

he Agreement. I n additi on, the Purchase Agreement prov ided th at SC J wa s not b uying an y of D ow Bran ds’ ex isting co ntracts w ith La tin American dist

ribut ors. Section 10. 10 of the Agreement pr ovided: Entire Agreement . This A greem ent (inc luding the do cum ents an d instru men ts referr ed to in t

his Agreement) sets f

orth t he enti re unders tanding a nd agreement between the parties as to t he matter s covered i n this Agreement and super sedes and rep lace s an y prior und ersta ndi ng, a gre em ent o r state me nt o f inte nt. Purchaser acknowledges t

hat it has conducted i ts own independe nt revi ew and analysis of the Business and t

he Transferred Asset

s and that

it has been provide d access to the prop erties, rec ords and perso nnel o f Sellers fo r this pu rpos e. In en tering in to this Agr eem ent, P urch aser h as relie d sole ly upo n its ow n inve stigation and ana lysis and the representat ions and warrant ies se t forth in t his Agreement

and acknowledges that (a) none of Sellers or any of their respective Affiliates, directors, officer s, employ ees, age nts, repres entatives or advisor s makes any repres entation or warr anty , ei ther express or i mplied, as to t he accuracy

or completenes s of (and agr ees that none of such pers ons shallhave any liabi lit y or responsi bili ty to it

in res pect of) any of t

he information, i ncluding wit hout limitation any pro jection s, estima tes or b udg ets, prov ided o r mad e ava ilable to Purc hase r or its ag ents o r repre sentativ es, exc ept an d on ly to the ex tent ex pressly9

prov ided f or in this Ag reem ent. N othing in this se ction 1 0.10 is intend ed to preclude any r emedy for fraud or l imit

any right of Pur chaser wit h respect to any bre ach of o r ina ccu racy in any re pre sen tatio n or wa rran ty in this Ag reem ent. R. at 248. (E mph asis added ). The Ag reem ent also prov ided f or the tra nsfe r of inte llectual p rope rty necess ary to conduct DowBrands’ busi ness and, as we have noted, it pr ovided for i ndemnificat ion for lawsuit s ari sing fr om any brea ch of it s terms. Secti on 3.15 of the Agreement disc ussed th e tr an sf er of in tel lec tu al p ro pe rty: Intellectu al Pro perty . (a) Th e Tra nsfe rred In tellectua l Prop erty . . . includes all intel lectual proper

ty right s necessary for or use d in the c onduct of the Business a s currently conducted. . . Except for [cert ain except

ions], (I) Sel lers are the sole and exclusi ve owners of allright s to, or have a l icense t hat is in fullforce and effe ct to, the Transf

erred I ntell ectualProperty, . . . and (ii ) ther e is no cl aim by a ny Per son or any Pr oceeding pendi ng or, t o the knowledge of t he Selle rs, threatened which relates to t

he use of anyof the Trans ferred I ntell ectual Property i n the Busines s as currently conducted and as presently proposed t o be conducted, or the val idit y or enforce ability of the Transferred Intellectual Property or the rights of S ellers ther ein. R. at 213- 14. Sections 9.01, 9. 03 and 9.04 pert ained t o indemnifi cati on. Sect ion 9.01 s tate d: Indem nification by Sellers . From and aft er the Cl osing and subj ect t o the provisions o f this Article IX (inc luding the limitations set fo rth in Section 9.04 ) , Seller s agree t o . . . indemnifyfully , . . . and defend ea ch Purchaser Indemnifi ed Party fr om . . . any and all claims . . . (incl uding reasonable attorney s’ fees) (co llectiv ely, “ Damages ”) ari sing out of or rel ating to: (a) any i naccuracyor breach of any r epresent ation or warrantyof Selle rs cont ained i n this Agreement; ( b) any bre ach of a ny co ven ant o r ag reem ent. . . o f Se llers c ont aine d in this A gre em ent . . .

. R. at 237.10

Similarly , Sect ion 9.03 pr ovided: Indemnification Process
. . . . (a) In the eve nt that (I) a ny cl aim . . .is instituted by any Per son o ther tha n the p arties to th is Ag reem ent or th eir A ffiliates w hich c ould give ri se to Damages for whic h an Indemnify ing Party coul d be liable to a n Indemnifi ed Partyunder thi s Agreement

. . . (such cl aim, demand or pr oceedings, a “Third Party Claim”) . . . , the Indemnifi ed Partyshallwith reas onable promptness send t o the Indemni fyi ng Partya written notic e specif yi ng the nature of such cl aim, demand or Pr oceedings and the a mo unt or e stim ated am oun t ther eof
. . . . (b) . . . [ I]n t

he event of a Thi rd Party Clai m, the I ndemnify ing Party sha ll be entitled to c ontrolthe defens e of such Thir d PartyClaim and to appoi nt counselof the Ind emn ifying Pa rty’s choice at the e xpen se of the Ind emn ifying Pa rty to rep rese nt th e In dem nifie d P arty . . . The Indemnify ing Party sha ll . . . pay the reaso nable fees a nd ex pens es of coun sel retain ed by the Inde mn ified P arty (provi ded that

such counsel is re asonablyacceptabl e to the Indemnify ing Party) if . . . ( iii ) the cl aim seeks an i njuncti on or equit able re lief against the Indemni fied Par ty[.] R. at 239- 40. Finall y, Section 9. 04 provided: Lim itations o n Ind emn ity Paymen ts . Othe r than w ith resp ect to T axes , no cla im for indemni fication under s ecti ons 9.01( a) or Section 5.01 maybe made, and no payment in res pect thereof shal l be requi red unles s the aggr egate amount of Damages against

which the Purcha ser Inde mnified Parties are entitl ed to be ind em nifie d ex cee ds $ 10 m illion (an d th en o nly fo r the am oun t of s uch exc ess)
. The maximum aggregate amount of Damages agai nst which t he Purchaser Indemnifi ed Parti es shal l be entitl ed to be i ndemnified under Sections 9.01(a) and (b) with respect

to allclai ms thereunder shallbe $400 mill ion. R. at 242. B. Procedural Hist ory SCJ eventuall y sue d Defendants al leging t hat the y had committed fraud by dece iving S CJ a bou t the div ersion of D ow Bran ds pro ducts earm arked for d istribution in3 The court al so held t hat the amount of indemnif ication SCJ was enti tled to was not subj ect t o the $10 mil lion deduc tibl e.

4 Defendan ts requested that the court offset these damages by the al leged increase in the va lue of the North American busi ness that was masked by the dive rsion, but the court r efused.

5 We have juris dicti on over the di stri ct court ’s rul ings i n this case purs uant to 28 U.S.C. § 1291 becaus e the court properly exerci sed it s juri sdiction to hear thi s case under 28 U.S.C. § 1332 and has issued a final judgment. On appeal, we are a sked to exami ne onl y lega l issu es, o ver wh ich w e ex ercis e de nov o re view
. Henglein v. Colt Indus. Operating Corp. , 260 F.3d 201, 208 (3d Cir. 200 1). 11 Latin A merica. SC J also claimed that it was entitled to indem nification for attorne y’s fee s aris ing fro m th e 19 98 T enn eco pate nt in frin gem ent a ction
. The d is tric t c ourt g ra nt ed S CJ s ummar y ju dgme nton i ts in demn if ic at io n cl ai m, and later awarded SCJ $7.035 m illi on as reimbursement for SCJ’s attorney’s fees. 3 It t hen held a bench t

rialon the fraud clai m, after which it f

ound that Defendant s had made fraud ulent m isrepre sentatio ns to S CJ a bou t Do wB rand s’ La tin A meric an bu siness, a nd it awarded SCJ $21.948 mil lion i n damages. That repres ented the differ ence between the true va lue of the L atin A meric an bu siness a nd th e price SC J paid for it. 4 This appeal followed. 5 II. Dis cussion Defendants rai se four ar guments on appeal . They argue that the di stri ct court erred in co nclu din g th at S ectio n 10 .10 o f the Ag reem ent d oes not bar SC J’s f rau d cla im. Assuming that

Section 10. 10 does not bar the fraud clai m, Defendants ar gue that the fraud cl aim is not

meritorious becaus e SCJ did not j usti fiabl y r ely on their repres entations6 Since the amount of the at torney ’s fees did not exc eed the amount of the dedu ctible, D efen dants wo uld o we noth ing if c orrect. 12 abou t Latin A meric an sa les. D efen dants also ar gue th at the d istrict cou rt impro perly calcul ated damages r elating to t he fraud cl aim because t he court f

aile d to offset

the decrease d value of the Latin Americ an busines s by t he resul ting i ncrease i n value of the U.S. busi ness that would have been masked by any di versi on. Final ly , Defendants argue that t he court e rred i n holding t hat it was contract

ually obligated to inde mnify SCJ for the costs o f def endin g the T enne co pa tent inf ringem ent ac tion. A lternativ ely, Def enda nts clai m that, even theywere obligated to i ndemnify SCJ, the amount of the i ndemnificat

ion should have bee n reduced purs uant to t he $10 mill ion “basket” contai ned in the indemnifi cati on clause. 6 W e rev iew thes e arg um ents seria tim.

A. Is SC J’s Fra ud C laim B arred Un der the Purc hase A greem ent. Defendants argue that t he broad dis clai mer contai ned in Section 10.10 of t he Purc hase Ag reem ent pre vente d SC J from bring ing a f raud claim . Tha t disclaim er clea rly prov ided th at SC J wa s not re lying upo n D efen dants ’ disclo sures, b ut w as relying o n its own investi gation i nstead. However, the di stri ct court rejec ted that posi tion bas ed upon the court ’s interpret ation of the la st sentence of the s ecti on. As set forth above , tha t provisi on stat es: “Nothi ng in thi s Secti on 10.10 is intende d to precl ude any remedy for fraud or l imit

any right of Pur chaser wit h respect to anybreach of, or inacc uracy in, a ny repres entation or warr antyin thi s Agreement. ” The court al so refuse d to accept the non-7 See a lso K rone nber g v. K atz , 2004 WL 1152282 at *19-20 (Del. Ch. May 19,

2004) (u npublished opinion); St. James Recreation, LLC v. Rieger Op portunity Partners, LLC , 2003 WL 226 598 75 at * 3 (D el. Ch . No v. 5, 20 03) (sa me); Progressi ve Inte rnati onal Corp. v. E. I. DuPont De Nemours & Co. , 2002 WL 1558382 at *1, *7 (Del . Ch. Jul . 9, 2002) (same)
. In their b riefs an d at ora l argum ent, the p arties fo cuse d on the ex tent to which the prohibiti on in Norton is still v iable des pite t his c ont rary au tho rity. 13 reli ance provi sion base d upon its conclusi on that pr ovisi ons such as Sect ion 10.10 do not bar fraud claims as a m atter of De laware law under Norton v. Popl os , 443 A .2d 1 ( De l. 198 2). R . at 36 -37
. Norton is a 22 -year-old D elaw are S upre me C ourt ca se that a ppea rs to ca tegoric ally hold that non-rel iance pr ovisi ons in cont racts will not

bar subseque nt actions for fraud. 44 3 A .2d at 6 . H ow ev er , an y att em pt to ap pl y Norton is compli cated bya line of lat er cases deci ded by t

he Delaware ChanceryCourt all owing sophisticat ed parti es to waive their righ t to bring fraud claim s wh en a f reely neg otiated contra ct states th eir inten tion to do s o. See H- M We xfor d, L .L.C ., v. E nco rp, In c., 832 A .2d 129, 14 2-43 (D el. Ch. 2003 ); Great Lakes Chemical Corp. v. Pharmacia Corp. , 788 A .2d 544, 55 6 (Del. C h. 2001). 7 After concl uding that

SCJ could maint ain a fr aud acti on under Delaware l aw despit e the l anguage of Secti on 10.10, t he dist rict court pr oceeded to determine whether the rec ord supported SCJ’s purported rel iance on r epresent ations regardi ng the si ze of Do wB ran ds’ L atin A me rican bus ines s. See Step hen son v. C apa no D ev. C o., In c., 462 A.2d 1069, 1074 (Del. 1983). I n concludi ng that t he record s upported SCJ’s clai m and that SCJ h ad carried its burd en, the district court focu sed on the thorough ness of S CJ’s14

due dili gence. The court expla ined: First, the C ourt n otes tha t und er D elaw are law “the p urch aser o f a bu siness is under no dutyto inves tigate the accur acy of represent ations made by the sell er concerni ng its profit abili ty and operational a ffairs , even when ther e is an opportuni ty to do so. ” Cra ft v. Bar iglio , 1984 WL 8207 at *10 (Del. Ch. Mar. 1, 1984). Additionall y, under Delaware l aw, a buye r’s i ndependent r eview or investigati on will not

preclude reli ance on the s elle r’s r epresent ations unless t he inves tigation wa s so tho roug h and com plete a s to be “of s uch a chara cter as to fully acquaint him with the essential f acts. ” Om ar O il & Ga s v. M acK enzie O il Co. , 138 A. 392, 397 (Del. 1926) . Also, “if onl y a partialinvestigati on is made, und er pro per circ um stance s, a party m ay rely on an other’ s repre sentatio n to h is detri ment particularlywhere the other pers on has superi or knowledge.” Lock v. Schreppler , 426 A .2d 856, 86 1-62 (D el. Super. Ct. 198 1) []. R. at 109. The district co urt con clude d that “ SC J had no af firma tive du ty to investig ate diversion in L atin Am erica” and tha t SCJ reaso nably and justifiably conclud ed that SC J’s pre-sa le survey fi nding no DowBrands’ product s on the she lves i n Latin America did not
amou nt to a full investigation. T he cou rt therefore reason ed that, unde r Omar O il and Gas, SC J wa s entitled to rely on D efen dants ’ other repres entatio ns co ncern ing sa les to Latin America

because Defendants had superi or knowledge of the Latin Americ an business . R. at

109-10. The court als o focused on the fact that the Euromonitor s tudy finding no produc ts on the shelve s of La tin Am erican stores w as “non copyable” an d “part of a document that was more than one hundred pages[, ]” implying that SCJ could not
reas ona bly ha ve b een exp ecte d to ferr et-o ut th at inf orm ation
. Id. De fend ants co ntend that, eve n if S CJ c an av oid the non -relianc e lang uage in Sectio n 10 .10, it kn ew enou gh ab out the prob lem o f dive rsion to preclu de an y reason able15

r el i an ce on Se l l er s’ di sc l os ur es gi ve n the l an gu ag e o f t he Pu r ch as e A gr ee me nt . We agr ee. Und er certain circum stances, buyers can rely on the re presentations o f sellers without i ncurri ng a duty to inves tigate. For exampl e, i n Cra ft , t he De la war e Su pr eme Co urt stated : Where a repres entation is made of a fact ( as dist inguis hed from an ex pressio n of opin ion), an d relate s to a m atter as to which the parties have not equalmeans of information, but is pecul iarl y within the knowle dge of the per son making the repres entation, t

he person r eceivi ng and acti ng upon it i n the making of a contr act has a n absolut e right to rel y on the trut hfulness of the re present ation, and is not requir ed to seek means of information t o determi ne its falsi ty , al though such means are avai lable . Under thi s rule , representat ions may be fully relied o n w ithout in vestiga tion, an d are le gally equival ent to a

warrantyof the matter refer red to, when made by the sell er of a bus iness c once rning the pro fits wh ich h e ha s rec eive d fr om it in th e pa st . . . . Id. at *8 -*9 (qu otin g B lack , On Rescissi on And Cancellati on (2d ed.) § 11 8). Th us, Om ar Oil & Gas held that buy ers were entitl ed to rel y on a s elle r’s mat erial
re pr es ent at io ns. 138 A. 3 92, 397 (De l. 192 6) . Th e s it uatio n he re is very di ffe re nt . S CJ specifi call y agr eed to re ly only upon its own due dilige nce rather than rely ing upon any information it

recei ved from Defendants. Moreover, duri ng its due dili gence, SCJ was alerted to the likel ihood of dive rsion. Given SCJ’s contr act, the fact that Defendant s knew about the divers ion of product s earmarked f or Lati n America and chose not to volunteer the inf ormation to SCJ despite multi ple opport uniti es to do so i s far l ess rel evant t o our8 We have alreadyexplai ned that SCJ’s notes and communicati ons establis h that key peopl e conducti ng due dili gence, i ncluding Director of Acquisitions (Marc Engli sh) and its D irector o f Tra nsition ing (M ichae l Caro n), bo th susp ected divers ion o f pro ducts me ant f or L atin A me rica w as o ccu rring
. 16 fraud anal ysi s than might otherwis e have been the case. Thi s is t rue regar dless of

the current viabil ity of Norton . Although SCJ complai ns that critical information such as the Euromonit or Study was buried amongst

the volumi nous documents i n a “data r oom,” SCJ actual ly found that study , r evi ewed it , a nd s pec if ic al lynot ed t

he v er y pr obl em of

di ver si on i t n ow cl ai ms Defendants hi d from it. Defendants al so gave SCJ dire ct acces s to DowBrands’ sal es manager for Latin Am erica. SCJ asked him (Berdasco) the right questions. Those questi ons were clearlyfocused on SCJ’s conc ern about t he like lihood of di versi on from Latin Am erican mark ets. H ow ever, a s note d abo ve, SC J wa s con tent to p rocee d to closi ng without wait

ing for ans wers. SCJ procee ded to cl osing even t hough it knew that Defendants were not

warranti ng anyt

hing about DowBrands’ Latin American di stribution and that SCJ had agreed to relyonly upon its own due dilige nce. 8 M oreo ver, S CJ k new from the E urom onitor s tudy that n o D ow Bran ds’ pro ducts had been found in a s urvey of stor es in Argentina, Brazil or Chile. It i s, of cour se, t rue that Defendant s withhel d releva nt information fr om Dow Brands’ coupon se eding prog ram ju st as SC J argu es. H ow ever, th e cou pon prog ram, h ad it be en dis closed , wo uld sim ply ha ve c onf irme d S CJ ’s su spic ion s fro m s uch sou rces as th e E uro mo nito r stud y.17

Thi s a lloc cu rr ed ag ai ns t t he ba ck dr op o f SC J’ s a gr ee men t to c ond uc t “ it s o wn independent

review and anal ysi s of the [DowBrands’] Busi ness and the Transferred Assets[. ]” SCJ also a greed that it was “[rely ing] sol ely upon its own investi gation a nd
ana ly si s a nd the r epr es ent at io ns a nd wa rr antie s s etforth in [the P ur cha se ] Agreeme nt .” R. 248
. SCJ is now asking us to redraft its Purchase Agreement with Defendants and all ow it to rely on Defend ants’ allegedly incomp lete and/or m isleading disclosure s. How ever, we can not ignor e the expr ess la nguage of the Pur chase Agreement, and we will not redraft it by allowing SCJ t o relyupon Defendants’ di sclosures or t o insi st that it s rel iance was reasonbl e despite the l anguage of Secti on 10.10. The Pur chase Agreement makes no
men tion of Do wB rand s’ La tin A meric a sales and c ertainly gav e SC J no w arranty regardi ng those sa les. In addition, t he same provis ion of the Agreement, Sect ion 10.10, contai ns an int egrati on clause where by SCJ agre ed that the writ ten te rms of the “[Purchase] Agreement . . . set s forth the entire under standi ng and agreement be tween the parti es.” Id
. SCJ attempt s to pry

its elf l ose from it s contr act byfocusing on t he fact t hat the Pur ch as e Ag re eme ntal so pr ovi de d tha t S CJ c oul d ma in ta in an ac ti on f orfr au d. As we noted ear lier , the dist

rict court r elie d upon the fi nal sentence of Secti on 10.10 which provides that: ”Nothing in t his sec tion 10. 10 is i ntended t o preclude any r emedy for fraud or li mit anyright

of Purchaser

with res pect t o any br each of or i naccuracyin any9 The reaso nable ness o f SC J’s claim ed relia nce m ust be assess ed in c ontex t with

th e no n- re li anc e cl aus e un le ss SCJ c an e st abl is h fr aud in th e i ndu ceme nt . Ho weve r, SCJ mu st als o cle ar th e “re aso nab lene ss h urd le” to pre vail u nde r tha t theo ry.

"To establ ish fr aud in the inducement, and there by be r elie ved of the effect of the [Asset Purchase Agreem ent], [buy er is] requ ired to e stablish the ele men ts of co mm on law dece it, wh ich inc lude 'm isrepre sentatio n of a ma terial fac t, mad e to induce action, a nd reasonabl e reli ance on the fal se statement to the de tri ment of the per son rel yi ng. Gloucester Holding Co rp ., v. U.S . T ape and St ic ky P rod uct

s, LLC (Chancery , 2003) (inte rna l qu otati on m ark s om itted
. 18 rep rese ntati on o r w arra nty in th is A gre em ent.” R. a t 24 8. SCJ argues that even i f the nonreli ance language is val id under Dela ware law, i ts action for fr aud survi ves under that
sen tenc e. However, even if we were to c onclude that the non-rel iance pr ovisi on of Secti on 10.10 ca n not be e nforced as a matter of law un der Norton , or that S CJ’s fraud claim is prserve d by the last

sentence of Secti on 10.10, SCJ would st illhave to prove that disre garding i ts own suspi cions about divers ion and proce eding to c losi ng without add itio nalin format io n was re as onabl e i n or der to pr eva ilon i ts fr aud cl ai m. 9 SCJ kne w, or cert ainly

should have known, of t he divers ion that

was occurri ng in the Latin American mark et. Its relianc e on d isclosu res fro m D efen dants wa s there fore c learly unre ason able given it s contr actualundertaki ng. To paraphr ase the de cisi on in Gr eat L ake s, if we w ere to all ow [SCJ] to di sregar d the cl ear te rms of it s discl aimers [by

arguing i ts re lianc e on Defendants’ di sclosures was10 Moreover, give n SCJ’s will ingness to go to clos ing without getti ng eithe r answers to que sti ons it

asked about di versi on, or wri tten warr antie s that would have remo ved D ow Bran ds’ L atin A meric an dis tribution from the um brella o f the d isclaim er in Section 10.10, it i s exceedingly diffi cult to conclude that t hat portion of DowB rands’ bus ines s w as a ctua lly ma teria l to S CJ ’s de cisio n to pur cha se D ow Bra nds ’ ass ets. 19 reaso nable ] and to asse rt its claim s of f raud , the car efully negotiated and cr afted Purc hase Agreement between the par ti es wou ld .
. . notbe worth t he paperit

is wri tt en on . To allow [SCJ] t o assert

[that it ac ted rea sonablygiven the Purc hase Ag reem ent] . . . w ould defe at the re ason able commercial e xpectations of the contra cting parti es and eviserate the utilit

y of writt en contractual agreements.
Id . at 556. 10 Ac cord ingly, the d istrict cou rt erred in enterin g jud gm ent fo r SC J on its fraud claims against Defendants. B. Inde mnifi cati on. Defendants’ fi nal argument is that the dist

rict court i ncorrectly found that SCJ was entitled to indem nifica tion un der S ection 9.03 o f the P urch ase A greem ent fo r costs incurr ed defending agai nst Tenneco’ s patent infri ngement suit . Defendants argue that Section 9. 03 merelyexplai ns the i ndemnificat ion proces s, whil e the l anguage in Section 9.01 (a) o f the Ag reem ent p rov ides for SC J’s a ctua l righ t of in dem nific ation
. See Appellant s’ Br. at 53. As Defendants corr ectl y expl ain, the dis tri ct court held that Defendants’ l iabil ity

to indemni fy SCJ for attorney’ s fees di d not depend on the merit s of that s uit or

its outcome. Rather, “t he court he ld that

the word ‘coul d’ as used i n Section 9.03(a) suggests both the possibi lit y of recovery

and the poss ibility of an indem nity20

obligat ion under t

he Agreement.” Appel lants ’ Br. at 55 (emphasis in ori ginal) . We agree with t he d is tric t c ourt’ s r ead in g of th e s cop e of

Defe nda nt s’ obl ig at io n t o i nde mni fy SCJ und erth e Pu rc ha se Agr ee men t t hou gh o uran al y si s d if

fe rs so mewh at . H owe ve r, we disagr ee with the dist

rict court’ s conclus ion that the amount of t

he indemnifi cati on is not reduced bythe $10 mil lion deduc tibl e contai ned in Section 9.04 ( “Limitat ions on Indem nity Payments”). In Secti on 3.15, Defendant s repre sented t hat the y were t

ransfer ring “al l of the intel lectual proper

ty right s necessary for or use d in the c onduct of the Business a s currently conduc ted.” Section 9 .03 does e stablish the “proce ss” for indem nification. It also states the proce dure w hereby De fendan ts will defend SCJ p ursuant to the f ormer’s obligat ion to i ndemnify SCJ as long as t he latter s atis fies ce rtai n conditi ons such as prom pt no tice of the third party claim . Pursu ant to S ection 9.01 D efen dants agree d to “pa y and to in dem nify f ully, . . . an d de fen d [S CJ ] . . . ag ains t any a nd a ll claim s . . . (incl uding reas onable attorney ’s fees ) . . . ari sing out of or rel ating to: (a) any . . . breach of any r epresent ation or warrantyof [Defendants] contai ned in [the Purchase] Agreement.” Thi s requi red Defendants to indemnifySCJ for att orney ’s fees aris ing from the T enne co litigatio n bec ause it represe nted, in section 3.15, th at it wa s transf erring all
necessary i ntell ectualproperty rights and that it was t he “sole a nd exclusi ve owner” of those rights . However, that obli gation was s ubject to the de ductibl e contai ned in Section 9.04
.21

Section 9. 01 expressl y subj ects Defendant s’ obli gation to indemnifyto the $10 million deductibl e contained in Section 9.04. As noted above, Section 9.04 provides: “Other tha n with res pect t o Taxes, no cl aim for i ndemnificat ion under Sect

ions 9. 01(a) or Sec tion 5.01 ma y be m ade . . [or ] req uire d un less t he a ggr ega te am oun t of D am age s . . . exceeds $10 mil lion ( and only for the a mount of such exces s). ” The district court r efused to app ly that ded uctible beca use it co nclud ed tha t “SC J’s claim for atto rneys’s fe es . . . in the Tenneco Litigati on does not arise under Section 9. 01(a) or

Section 5. 01. Ins tead, [Defendants] breach of Secti on 9.03 of the Agreement gives SCJ a claim for indem nifica tion un der 9 .01(b ), for ‘an y breach of an y coven ant . . . of S ellers co ntaine d in this Agreement.’” We can not agree w ith the dist rict court ’s reading of the Purchase Ag reem ent. The court’ s rel iance on Section 9.03 e ssenti ally converts the proce dural pr ovisi on of S ectio n 9.0 3 in to a s ubs tanti ve p rov ision equ ivale nt to that f oun d in Sec tion 9.01
. Section 9. 03, however, simplysets f orth t he procedura l proces s for SCJ’s us e when indemnifi cati on is warra nted by Section 9. 01; it does not pr ovide an al ternat ive basi s for indemnifi cati on. By r ely ing on Secti on 9.03, t he dist rict court i ncorrectly concluded t hat the “basket” provision of Section 9.04 did not applyto the Tenneco Litigation because Sectio n 9.04 is not re feren ced in Sectio n 9.03 . The prov ision o f 9.04 , thoug h, is exp licitly incorpor ated i nto the s ubstantive provi sion of Section 9.01 whic h provides that Defendants wil l indemni fy SCJ for “ damages” where SCJ is s ued by a Thi rd Party and t he22

suit arose “out

of [or rel ated t o] any breach of anycovenant or . . . repres entation” in t he Purchase Agreement

with SCJ. Because Tenneco’s sui t all eged that SCJ’s use of the assets a cquire d fro m D efen dants violate d Te nnec o’s inte llectual p rope rty rights, it consti tuted a

potenti al brea ch of the warranties contai ned in Section 3.15 of t he Agreement. Accordi ngly , Defendants ’ obli gation to indemnifySCJ arose under Sec tion 9.01 and was subj ect t o the $10 mil lion dol lar deduc tibl e of Secti on 9.04 refe renced therei n. We therefore hold that the a mount of “Damages” Defendants owe SCJ in the form of indemnifi ed att orney ’s fees must be reduce d by $10 mil lion dol lars . Therefor e, Def en da nt s wo ul d on ly

owe th e a mou ntth at

ex ce ed s tha t $ 10 m il li on d ed uc tibl e. As we
no ted at t he ou tse t, S C J’s att or ne y’s f ee s w er e le ss th an th at d ed uc tib le. A cc or di ng ly, Defendan ts do not owe SC J anythi ng pursuant to their obli gation to pay t hose fees. IV. For allof the above r easons, we will reve rse the dist rict court’ s order di smissi ng SCJ’s fraud cl aim, and r efusing t o applythe $10 mil lion deduc tibl e. We will a ffirm the
cour t’s determ ination that D efen dants mu st indem nify SC J’s attorn ey’s fees incurr ed in def end in g ag ai nst

Tenn eco ’s patent

in fr in geme ntcl ai m.