Ambiguous Post-Closing Waivers Do Not Bar Fraud Claims & Toll Survival Periods by Fraudulent Concealment

Introduction

In LGM Holdings, LLC v. Gideon Schurder, 290 A.3d 1 (Del. 2025), the Delaware Supreme Court addressed two recurrent issues in merger and acquisition disputes: (1) whether a post-closing “letter agreement” can unambiguously waive all fraud-based claims when its language is susceptible to multiple meanings; and (2) whether contractual survival periods for indemnity claims may be tolled by the doctrine of fraudulent concealment. The case arose from the 2017 acquisition of three pharmaceutical distribution companies (“Target Companies”) by LGM Holdings, LLC and LGM Subsidiary Holdings, LLC (collectively, the “Buyers”) from Gideon Schurder, Mendy Schurder, Leah Chitrik and IBS Pharma, Inc. (collectively, the “Sellers”). After governmental investigations by the FDA and DOJ uncovered mislabeled shipments and quality control failures, the Buyers brought claims for fraudulent inducement and contract-based indemnification. The Superior Court dismissed all counts on the grounds that the Buyers had waived their fraud claims in a 2020 letter agreement and that the indemnity count was filed after the five-year survival period. On appeal, the Supreme Court reversed and remanded.

Summary of the Judgment

The Supreme Court unanimously held that:

1. Waiver Ambiguity: The critical indemnity-cap provision of the 2020 Letter Agreement—Section 4(a)—was subject to more than one reasonable interpretation. Under the applicable Rule 12(b)(6) standard, the Superior Court erred by selecting the Sellers’ “broad waiver” interpretation and dismissing the Buyers’ fraudulent inducement claims. Because the clause was ambiguous, the court cannot decide as a matter of law which interpretation controls.
2. Fraudulent Concealment Tolling: The Buyers adequately pleaded that the Sellers affirmatively concealed facts giving rise to the indemnification claim—false representations and document-withholding during FDA inquiries—which may have prevented the Buyers from discovering their cause of action. Under Delaware law, such concealment can toll contractual survival periods until the date of inquiry notice. Therefore, it was premature to dismiss the indemnity claim as time-barred.

The Supreme Court reversed the Superior Court’s dismissal of Counts I‐III (fraudulent inducement) and Count IV (indemnification) and remanded for further proceedings.

Analysis

Precedents Cited

In reaching its decision, the Court relied on well-established Delaware authorities governing contract interpretation and the doctrine of fraudulent concealment:

• VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606 (Del. 2003): A trial court may grant a 12(b)(6) motion to dismiss based on contract language only if the moving party’s interpretation is the only reasonable interpretation. Ambiguities must be resolved after fact-finding, not at the pleading stage.
• Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010): Contract language is ambiguous if it is susceptible to more than one reasonable meaning; courts cannot pick between competing reasonable interpretations on a motion to dismiss.
• Pilot Air Freight, LLC v. Manna Freight Systems, Inc., 2020 WL 5588671 (Del. Ch. Sept. 18, 2020): A contractual survival period may be tolled under the doctrine of fraudulent concealment if the defendant’s affirmative acts prevented or delayed discovery of the cause of action.
• In re Tyson Foods, Inc., 919 A.2d 563 (Del. Ch. 2007) and related Chancery decisions: Elaborate the elements of fraudulent concealment—an “artifice” by the defendant, resulting in the plaintiff’s lack of inquiry notice—and the principle that tolling ends when a plaintiff becomes objectively aware of the wrong.

Legal Reasoning

1. Contract Interpretation and Waiver Ambiguity. The Buyers and Sellers each offered plausible readings of Section 4(a) of their 2020 Letter Agreement. The Sellers’ reading treated the phrase “with respect to . . . the Governmental Proceedings” as a broad, all-encompassing waiver of any fraud or misrepresentation claim connected to the FDA and DOJ inquiries. The Buyers’ reading confined the waiver to “indemnification claims for losses attributable to those Governmental Proceedings,” preserving all other fraud-based suits. Because both readings were reasonable, the clause was ambiguous. Under VLIW, a court cannot resolve such ambiguity at the pleadings stage; doing so would require fact-finding or extrinsic evidence to ascertain the parties’ intent.

2. Fraudulent Concealment Tolling. The Buyers alleged that the Sellers took affirmative steps—falsely representing compliance in due diligence, withholding emails and documents from the FDA, creating a sham investigation log—to hide their mislabeling of pharmaceutical shipments. These acts could have prevented the Buyers from learning essential facts before the five-year deadline. Under Delaware law, a statute of limitations or contractual survival period pauses (“tolls”) when a defendant fraudulently conceals a claim, and restarts only upon inquiry notice—that is, when a reasonable person would have discovered the cause of action. The Superior Court’s blanket conclusion that the Buyers had “actual notice” within the survival period conflated inquiry notice with the mere passage of time. At the motion to dismiss stage, the complaint’s well-pled allegations of concealment sufficed to require further proceedings.

Impact

This decision reinforces two critical lessons for M&A practitioners and litigators in Delaware:

1. Precision in Waiver Provisions. Parties cannot rely on omnibus “for the avoidance of doubt” language to bar fraud claims unless the drafting unambiguously covers every scenario. Where multiple reasonable interpretations exist, courts will preserve those claims through discovery and extrinsic evidence.
2. Heightened Awareness of Tolling Doctrines. Contractual survival periods are not bullet-proof: affirmative concealment by a seller can toll the clock. Buyers alleging fraud or misrepresentation must carefully plead facts demonstrating how concealment prevented them from timely asserting indemnity rights.

Looking forward, this ruling is likely to prompt more detailed drafting of post-closing letter agreements and sharper pleading strategies when alleging fraud in the context of delayed governmental proceedings.

Complex Concepts Simplified

• Ambiguity: A contract is ambiguous if two or more reasonable interpretations exist. If a party’s interpretation is not the sole reasonable one, a court cannot resolve the dispute on a motion to dismiss.
• Contractual Survival Period: A time limit (e.g., five years) during which a party may bring indemnity claims under a purchase agreement. After that period, claims typically expire.
• Fraudulent Concealment: When a defendant takes active steps (document hiding, false statements) to prevent a plaintiff from discovering a cause of action. If proven, it pauses (“tolls”) the survival period until the plaintiff should have learned the truth.
• Inquiry Notice: The date a reasonable person, exercising due diligence, would have discovered facts giving rise to a claim. Tolling ends at inquiry notice.

Conclusion

LGM Holdings v. Schurder clarifies that post-closing waiver agreements must be drafted with precision if they are to foreclose fraud claims, and that contractual survival periods can be tolled by fraudulent concealment. The decision restores the Buyers’ fraudulent inducement and indemnification claims to the litigation track, emphasizing that pleadings stage motions to dismiss cannot be used to resolve inherently ambiguous language or fact-based tolling defenses. Mergers & acquisitions practitioners should heed this ruling by crafting clear waiver clauses and by diligently monitoring post-closing governmental inquiries to preserve or assert indemnity rights within the correct legal framework.