Express Scripts, Inc. v. Bracket Holdings Corp

IN THE SUPREME COURT OF THE STATE OF DELAWARE

EXPRESS SCRIPTS, INC. and §
UNITED BIOSOURCE LLC, § No. 62, 2020
§
Defendants Below, § Court Below: Superior Court
Appellants/Cross- § of the State of Delaware
Appellees, §
§ C.A. No. N15C-02-233 CCLD
v. §
§
BRACKET HOLDINGS CORP., §
§
Plaintiff Below, §
Appellee/Cross- §
Appellant.

Submitted: December 16, 2020
Decided: February 23, 2021

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and
MONTGOMERY-REEVES, Justices, constituting the Court en Banc.

Upon appeal from the Superior Court. REVERSED and REMANDED.

Kevin G. Abrams, Esquire, Michael A. Barlow, Esquire, Daniel J. McBride, Esquire,
ABRAMS & BAYLISS LLP, Wilmington, Delaware; Derek L. Shaffer, Esquire
(argued), Michael Lyle, Esquire, QUINN EMANUEL URQUHART &
SULLIVAN, LLP, Washington, D.C., Richard I. Werder, Jr., Esquire, Rollo C.
Baker, Esquire, Silpa Maruri, Esquire, Dominic J. Pody, Esquire, QUINN
EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; Attorneys
for Defendants-Appellants/Cross-Appellees Express Scripts, Inc. and United
BioSource LLC.

David E. Ross, Esquire, Eric D. Selden, Esquire, ROSS ARONSTAM & MORITZ
LLP, Wilmington, Delaware; Paul D. Clement, Esquire (argued), C. Harker Rhodes
IV, KIRKLAND & ELLIS LLP, Washington, D.C.; Kevin M. Neylan, Jr., Esquire,
KIRKLAND & ELLIS LLP, New York, New York; Attorneys for Plaintiff-
Appellee/Cross-Appellant Bracket Holdings Corp.
SEITZ, Chief Justice:

United BioSource LLC (“UBC”), a subsidiary of Express Scripts, Inc. (“ESI”)

agreed to sell three of UBC’s pharmaceutical research and development businesses

to Bracket Holding Corp. (“Bracket”), a holding company formed by Parthenon

Capital Partners, LP (“Parthenon”) for the acquisition. In August 2013, Bracket and

UBC signed a $187 million securities purchase agreement (the “SPA”). Except for

claims involving deliberate fraud and certain fundamental representations, Bracket

agreed to limit its remedy for breach of the SPA’s representations and warranties to

an insurance policy (the “R&W Policy”) purchased to cover these claims.

After closing, Bracket claimed that ESI and UBC engaged in fraud by

inflating the revenue and working capital of one of the divisions of the acquired

companies. In an arbitration proceeding Bracket recovered $13 million under the

R&W Policy for breach of the SPA’s representations and warranties. Bracket then

sued ESI and UBC for fraud in the Superior Court. A jury awarded Bracket over

$82 million.

The parties have appealed from the jury verdict and judgment. We find one

issue dispositive. The SPA provides unambiguously that, except in the case of

deliberate fraud and certain fundamental representations, Bracket could only recover

up to the R&W Policy’s limits for breaches of the representations and warranties.

Over ESI’s objection, however, the Superior Court instructed the jury that it could

2
find for Bracket not only for deliberate fraud, but also for recklessness. A deliberate

state of mind is a different kettle of fish than a reckless one. The court’s erroneous

jury instruction was not harmless—it violated a key provision of the SPA and how

the parties allocated risk in the transaction. We therefore reverse the Superior

Court’s judgment and remand for a new trial. To be helpful to the court and the

parties on remand, we also address one other meritorious issue raised by ESI and

UBC in their appeal.

I.

We review the facts in a light most favorable to the jury’s verdict.1 ESI is a

Delaware corporation providing pharmaceutical support services and benefits

management. In 2012, ESI acquired UBC and its three subsidiaries—Bracket

Global Holdings LLC, Bracket Global K.K., and Bracket Global Limited.

Parthenon, a private equity fund, formed Bracket to purchase the Company from

UBC. To distinguish between Bracket Holding Corp., the acquisition entity, and the

three UBC Bracket subsidiaries, we will refer to the acquisition entity as “Bracket”

and the three subsidiaries as the “Company.” We will also refer to ESI and UBC

together as “the defendants.”

1
Burgos v. Hickok, 695 A.2d 1141, 1142 (Del. 1997). Unless otherwise stated, the facts are drawn
from the Superior Court’s opinion, In re Bracket Hldg. Corp. Litig., 2020 WL 764148 (Del. Super.
Ct. Feb. 7, 2020).
3
 In the fall of 2012, UBC hired Credit Suisse Securities (USA) LLC (“Credit

Suisse”) as its financial advisor to market the Company and KPMG LLC (“KPMG”)

to perform sell-side due diligence. Credit Suisse prepared a Confidential

Information Memorandum (“CIM”), while KPMG conducted a Quality of Earnings

(“QoE”) investigation, which led to a February 2013 QoE Report. After Parthenon

received both reports, it submitted a letter of intent to purchase the Company. To

price the transaction, Parthenon focused on a multiple to the Company’s Earnings

Before Interest, Taxes, Depreciation, and Amortization—“EBITDA” in the twelve-

month period prior to closing (“TTM EBITDA”).

During due diligence, Parthenon grew concerned about the high balance of

unbilled accounts in the QoE Report for Scientific Services, one of the Company’s

divisions. It raised the issue with Jim Stewart, the Company’s Vice President of

Finance. Stewart responded that the high receivable balance came from contract

change orders when additional work was authorized beyond the scope of the original

contract but had not yet been reflected in a revised contract. According to Stewart,

unexecuted change orders were common in the industry and did not pose

collectability problems. KPMG did not express concerns about the collectability of

the balances.

On July 12, 2013, Bracket and UBC entered the SPA. UBC represented that

the January 2011 through March 2013 financial information in the disclosure

4
schedule supporting a $29 million TTM EBITDA was true and correct. UBC also

represented that, as of May 31, 2013, the Company had $11.85 million in working

capital, subject to a post-closing adjustment.

Soon after closing, Bracket believed it had been misled about the Company’s

finances. According to Bracket, the Company had inflated historical revenue by

millions of dollars. The Company’s unbilled receivable balance was way off.

Contracts did not support the balances and the revenue recognized against them. The

Company recognized revenue long after work ended. Revenue continued to be

booked for closed out contracts and was uncollectible. Bracket claimed that the

Company’s working capital was a negative $2.7 million along with large unbilled

receivables.

After some back and forth between the parties, Bracket settled on a negative

$14 million in working capital, requiring an over $25 million post-closing working

capital adjustment. Bracket attributed the shortfalls to overstated unbilled

receivables. Bracket also believed that it overpaid for the Company by tens of

millions of dollars based on the effect unbilled receivables had on revenue.

In October 2014, Bracket demanded arbitration to recover under the R&W

Policy. The arbitration raised many of the same events that led to this litigation.

Bracket recovered $13 million under the R&W Policy. The defendants did not

participate in the arbitration.

5
 In 2015, UBC filed an action in the Court of Chancery to compel Bracket to

commence arbitration under Section 2.5(b) of the SPA to resolve the working capital

dispute.2 The court granted UBC’s demand and ordered the parties to commence

the working capital arbitration process under the SPA.3 Under Section 2.5(b), each

party submitted a proposed calculation of working capital. The arbiter issued a

report, ruling in favor of UBC. The arbiter found that the “Final Working Capital”

was $9,687,383, which gave Bracket a price adjustment of $504,591.4

Bracket then sued ESI, UBC, and Jim Stewart in the Superior Court for

fraudulently inducing Bracket to purchase the Company. UBC responded with

counterclaims for breach of contract and tortious interference for Bracket’s failure

to pay UBC under a separate contract—a Transition Services Agreement (“TSA”).

At trial, Bracket called fact witnesses and an expert witness to show that Stewart

recognized revenue for contracts before the work had been performed, that did not

exist or had been terminated, and in amounts exceeding totals for active contracts.

After a ten-day trial the jury found that the defendants committed fraud and that ESI

aided and abetted UBC’s fraud. The jury awarded Bracket $82.1 million in damages

and UBC $2.2 million in damages for UBC’s breach of the TSA.

2
In re Bracket Hldg. Corp. Litig., 2017 WL 3283169, at *4 (Del. Super. Ct. July 31, 2017).
3
The Court of Chancery’s Order stated that “the arbiter will not decide defendant Bracket Holding
Corp.’s fraud claims pending in Delaware Superior Court . . . .” Id.; App. to Answering Br. on
Appeal at B1–3 (Order, United BioSource LLC v. Bracket Hldg. Corp., C.A. No. 10840-CB (Del.
Ch. Nov. 12, 2015)).
4
In re Bracket, 2017 WL 3283169, at *4.
6
 The parties filed a flurry of post-trial motions. For purposes of this appeal,

we focus on the Superior Court’s jury instruction addressing the state of mind for

proof of fraud. The Superior Court first addressed the state of mind requirement in

its April 11, 2019 pre-trial opinion.5 Bracket argued that the defendants should be

liable not only for deliberate fraud, but for reckless conduct. The defendants

objected and relied on the SPA’s deliberate fraud limitation to recover more than the

R&W Policy. The court concluded that it was “confident there will be a significant

dispute over how the jury will be instructed regarding fraud and what [Bracket]

needs to establish to support this allegation” but found that “the extent to which

others may have had knowledge of or reasonably suspected [Stewart’s conduct] will

be one for the jury to decide.”6 Continuing, the court concluded that Bracket “will

be required to establish that the intent of [the] [d]efendants, through their employees,

was to knowingly create false financial documents . . . . [but] [t]he exact wording of

the jury instructions will await the submissions by the parties.”7

In a May 15, 2019 pre-trial hearing, the defendants raised the reckless versus

deliberate jury instruction issue again, arguing that “it impacts the nature of the case

statement that plaintiff has proposed. It may also influence the argument that

plaintiff makes. So that is why the parties had agreed th[is] issue . . . could be

5
In re Bracket Hldg. Corp. Litig., 2019 WL 1762975 (Del. Super. Ct. Apr. 11, 2019).
6
Id. at *7.
7
Id. at *8.
7
addressed today as opposed to later during a charging conference.”8 It appears that

the parties interpreted the court’s April 11 ruling differently.9 After the parties made

their positions known, the court clarified its prior decision. The court stated that the

term “deliberate” was not “defined otherwise in the document,” meaning that UBC

could be liable for recklessness, not just intentional fraud.10

At trial, the defendants reasserted their objection and argued that there should

be no “recklessness instruction at all” because “under the contract, only deliberate

fraud is actionable.”11 The court rejected the argument, stating that the court had

already ruled on the recklessness issue earlier.12

The defendants renewed their objection to the fraud jury instruction in a post-

trial motion for a new trial.13 Once again, the court turned away their argument. The

court reasoned that Delaware law requires an “express agreement” to alter the

common law fraud state of mind requirement, which includes recklessness.14 The

court found “no clear articulation of the parties’ intent,” and thus, the court “d[id]

8
Ex. B to Opening Br. on Appeal at 61.
9
Id. at 62 (“[The plaintiff’s counsel]: So to the extent that [the defendants] want to reargue this
issue, I don’t think it’s needed because it’s already been decided in your opinion.”); id. at 65 (“[The
defendants’ counsel]: We also thought this issue had been decided [i]n . . . Your Honor’s
opinion.”).
10
Id. at 71 (“[B]ut if [the defendants] have a situation where they should have known or recklessly
hid themselves that is a sufficient basis to hold [the defendants] accountable also. So we’ll leave
it at that. It wasn’t defined otherwise in the document.”); id. (“That was my intent . . . .”).
11
App. to Opening Br. at A2002 (Trial Tr. at 131).
12
Id. (Trial Tr. at 132).
13
See id. at A2626–2360 (Defendants’ Opening Br. in Support of Their Renewed Mot. for
Judgment as a Matter of Law, Mot. for a New Trial, and Mot. for Remittitur at 8–12).
14
In re Bracket, 2020 WL 764148, at *5.
8
not believe that the inclusion of one undefined term – ‘deliberate’ – in the

indemnification section of the SPA alters the mental state required for common law

fraud.”15 Thus, the court reaffirmed its prior ruling that the court properly instructed

the jury that the defendants could be liable for fraud if they acted recklessly. The

court denied the defendants’ post-trial motion to overturn the jury’s verdict.

II.

On appeal, the defendants argue that the Superior Court erred by allowing

Bracket to recover for breach of the representations and warranties not only for

deliberate fraud, but for recklessness. They point to Section 9.6(d) of the SPA and

its “deliberate fraud” requirement. In the absence of deliberate fraud, the defendants

argue, the SPA limited Bracket to the “sole remedy” of the R&W Policy.16

According to the defendants, because the fraud jury instruction conflicted with a

fundamental provision of the SPA, they are entitled to a new trial.

Bracket responds that the SPA contains numerous provisions referring to

fraud, which refer to common law fraud. When the SPA is read as a whole, Bracket

argues, the defendants could be liable for common law fraud, which includes

recklessness. Further, Bracket contends that “deliberate” fraud under the SPA

covers intentional and reckless mental states. Finally, according to Bracket, if the

15
Id. (emphasis in original).
16
Opening Br. on Appeal at 22.
9
Superior Court erred, the error was harmless given what they characterize as

overwhelming evidence of deliberate fraud.

On appeal, we review de novo the trial court’s jury instructions.17 While “jury

instructions need not be perfect,” they must “give a correct statement of the

substance of the law and be reasonably informative and not misleading when read

as a whole.”18 If the jury misunderstands the law, “its ability to perform its duty is

undermined and substantial rights of the parties are affected.”19

A.

In ABRY Partners V, L.P. v. F & W Acquisition LLC, the Court of Chancery

recognized “a strong tradition in American law that holds that contracts may not

insulate a party from damages or rescission resulting from the party’s fraudulent

conduct.”20 There is also “a strong American tradition of freedom of contract, and

that tradition is especially strong in [Delaware], which prides itself on having

commercial laws that are efficient.”21 The Court of Chancery in ABRY Partners

17
Spencer v. Wal-Mart Stores E., LP, 930 A.2d 881, 885 (Del. 2007).
18
Chrysler Corp. (Del.) v. Chaplake Hldgs., Ltd., 822 A.2d 1024, 1034 (Del. 2003) (internal
quotation marks and citation omitted); see R.T. Vanderbilt Co., Inc. v. Galliher, 98 A.3d 122, 125
(Del. 2014) (“A party is not entitled to a particular jury instruction but does have the unqualified
right to have the jury instructed on a correct statement of the substance of the law.”) (quoting
Koutoufaris v. Dick, 604 A.2d 390, 399 (Del. 1992)).
19
Duphily v. Del. Elec. Co-op., Inc., 662 A.2d 821, 834 (Del. 1995). We note that ESI and Stewart
are defendants but not parties to the SPA. For purposes of this appeal, the parties have been content
not to distinguish the basis for liability among ESI, UBC, and Stewart. Thus, like the parties, we
focus on the arguments made under the SPA.
20
891 A.2d 1032, 1059 (Del. Ch. 2006).
21
Id. at 1059–60.
10
resolved the tension between Delaware’s “distaste for immunizing fraud” and “the

need for commerce to proceed in a rational and certain way,” by concluding that a

contracting party cannot, as a matter of public policy, “limit . . . exposure for its own

conscious participation in the communication of lies to the Buyer . . . .” 22 But when

a party “knowingly accepted the risk that the [counterparty] would act with

inadequate deliberation,” then that party “may not escape the contractual limitations

on liability by attempting to show that the [counterparty] acted in a reckless, grossly

negligent, or negligent manner.”23

The SPA—governed by Delaware law24—and its indemnification framework

directly reflects the balance struck in ABRY Partners. In Section 9.6(D) of the SPA,

the parties addressed deliberate fraud and other states of mind and allocated the risks

associated with post-closing liability for breach of representations and warranties:

NOTWITHSTANDING ANY OTHER PROVISION HEREIN
TO THE CONTRARY, EACH OF THE BUYER AND PARENT
ACKNOWLEDGES AND AGREES, THAT FROM AND AFTER
THE CLOSING, EXCEPT IN THE CASE OF FRAUD, PARENT
SHALL NOT HAVE ANY DIRECT OR INDIRECT LIABILITY
(DERIVATIVELY OR OTHERWISE) WITH RESPECT TO ANY
BREACH OF ANY REPRESENTATION OR WARRANTY (OTHER
THAN THE FUNDAMENTAL REPRESENTATIONS) MADE BY
PARENT IN THIS AGREEMENT. IN FURTHERANCE OF THE
FOREGOING, THE BUYER AND PARENT EACH
ACKNOWLEDGES AND AGREES THAT EXCEPT IN THE
CASE OF ANY DELIBERANT [sic] FRAUDULENT (I) ACT, (II)

22
Id. at 1061, 1064.
23
Id. at 1064.
24
App. to Opening Br. at A2587 (SPA § 10.9).
11
 STATEMENT, OR (III) OMISSION (1) THE SOLE AND
EXCLUSIVE REMEDY OF WITH RESPECT TO ANY BREACH
BY PARENT OF ANY REPRESENTATION OR WARRANTY
(OTHER THAN THE FUNDAMENTAL REPRESENTATIONS)
CONTAINED IN THIS AGREEMENT SHALL BE SATISFIED
SOLELY FROM THE R&W INSURANCE POLICY . . . .25

Section 9.6(D) is unambiguous. The parties agreed that, except for fraud and

fundamental representations, the Parent—defined as UBC26—would not be liable

for any breach of the SPA’s representations and warranties. And absent deliberate

fraud, Bracket’s exclusive remedy against UBC was the R&W Policy.

The Superior Court “d[id] not believe that the inclusion of one undefined term

– ‘deliberate’ – in the indemnification section of the SPA alters the mental state

required for common law fraud.”27 We disagree. When sophisticated parties craft

purchase agreements, they typically follow a time-tested template.28 Specific to

25
Id. at A2582–83 (SPA § 9.6(D)) (emphasis added). “Deliberant” is obviously a typographical
error and means “deliberate.” We will use deliberate in this opinion.
26
Id. at A2512.
27
In re Bracket, 2020 WL 764148, at *5 (emphasis in original). The SPA notes that “[t]he article
and section headings contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.” App. to Opening Br. at A2587
(SPA § 10.8).
28
See Robert Anderson & Jeffrey Manns, The Inefficient Evolution of Merger Agreements, 85
GEO. WASH. L. REV. 57, 64 (2017) (“To create [deal] documents, transactional lawyers do not
write new documents from scratch, but instead work from one or more ‘precedents’ from past
deals that provide a template of established law and practice with provisions that reflect firm-
specific or partner-specific conventions. . . .The widespread use of precedent-based drafting means
that the first draft of the terms of virtually every deal are based upon and adapted from a prior
deal—its ‘precedent’”); see also Victor Fleischer, Deals: Bringing Corporate Transactions Into
The Law School Classroom, 2002 COLUM. BUS. L. REV. 475, 483 (2002) (“Forms and precedents
are undoubtedly the backbone of corporate practice and there is often no reason to start from
scratch.”).
12
indemnification provisions, the buyer wants to be sure it is getting what is

represented and secures representations and warranties specific to the seller’s

financial information. The seller wants to limit its liability for post-closing disputes

over representations and warranties. The parties channel post-closing representation

and warranty disputes to the indemnification provisions of their agreement.29

Here, the parties followed this well-worn path and used Section 9.6(D) to

address fraud and allocate risk associated with post-closing disputes. Following

Delaware law, the parties carved out deliberate fraud from the limits of the

indemnification provision.30 But for all other states of mind, Bracket agreed to limit

29
See White v. Curo Tex. Hldgs., LLC, 2016 WL 6091692, at *11 (Del. Ch. Sept. 9, 2016)
(recognizing that “[d]eal-related indemnification provisions address post-closing risk allocation”)
(citation and internal quotation marks omitted); CertainTeed Corp. v. Celotex Corp., 2005 WL
217032, at *3 & n.5 (Del. Ch. Jan. 24, 2005) (“In the context of a merger or asset acquisition, the
term ‘indemnification’ refers generally to the responsibility retained by the seller to make the buyer
whole for liabilities related to the assets sold or for breaches of representations and warranties.”);
see also ABA Mergers & Acquisitions Comm’n, Model Stock Purchase Agreement with
Commentary 302–303 (2d ed. 2010) (“[I]t is customary in the acquisition of a privately held
company for the buyer to be given a clearly specified right of indemnification for breaches of
representations, warranties, covenants, and obligations, and against certain other remedies.”);
Glenn D. West & W. Benton Lewis, Jr., Contracting to Avoid Extra-Contractual Liability—Can
Your Contractual Deal Ever Really Be The “Entire” Deal?, 64 BUS. LAW. 999, 1017 (2009)
(discussing extra-contractual liability consequences in “carefully crafted deductibles and caps on
a seller’s obligation to indemnify a buyer for losses arising from breaches of contractually
bargained-for warranties, which are designed to define precisely the parameters of each party’s
post-closing liability”).
30
See Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 136–37 (Del. Ch. 2009) (“Because
of Delaware’s strong public policy against intentional fraud, a knowingly false contractual
representation can form the basis for a fraud claim, regardless of the degree to which the agreement
purports to disclaim or eliminate tort remedies.”); EMSI Acquisition, Inc. v. Contrarian Funds,
LLC, 2017 WL 1732369, at *9 (Del. Ch. May 3, 2017) (“Under Abry and its progeny, therefore,
absent a contractual portal, the Plaintiff (Buyer) cannot reach the Defendants (Sellers) on an
indemnification claim beyond the bargained-for limits (the Escrow Funds) unless Plaintiff can
demonstrate that Defendants acted with an ‘illicit state of mind’ or ‘knew that the Company’s
13
its remedy to the R&W Policy for breaches of the SPA’s representations and

warranties.

Our reading of Section 9.6(D) is confirmed when read in conjunction with

Article 4, which addresses the “Representations and Warranties of the Buyer.”31

Consistent with the indemnification limitations in Section 9.6(D), and specifically

the carveout for deliberate fraud, the parties agreed in Section 4.6 (Insurance) that

“[t]he R&W Policy shall not provide for, or increase, any liability of Parent or its

Affiliates . . . except as may result in the case of any deliberate fraudulent (a) act, (b)

statement or (c) omission.”32 Further, the R&W Policy had to include “a waiver by

the insurer(s) that issued the R&W Policy of any and all rights of subrogation . . .

except in the case of any deliberate fraudulent (a) act, (b) statement or (c)

omission.”33 In other words, the scope of the R&W Policy had to “conform to the

representations and warranties were false.’”) (quoting ABRY PARTNERS, 891 A.2d at 1064); see
also Lou R. Kling & Eileen Nugent, Negotiated Acquisitions of Companies, Subsidiaries, and
Divisions, § 15.02 (2020) (discussing the ambiguity problem of undefined fraud parameters and
suggesting “a clause which narrowly defines fraud based on a concept of intentional, knowing
misrepresentation by the Seller”); Model Stock Purchase Agreement with Commentary 294 (“If
the sellers are successful in negotiating one or more liability-limiting provisions, they often agree
to remain fully liable for ‘willful’ or ‘intentional’ misconduct such as fraud or intentional
misrepresentation.”); Steven M. Haas, Contracting Around Fraud Under Delaware Law, 10 DEL.
L. REV. 49, 57 (2008) (“As one would expect, exclusive remedy provisions are intensely
negotiated and contain various carve-outs for different occurrences. . . . Most often, these carve-
outs exempt claims relating to intentional misrepresentations from the exclusive remedy provisions
such that all claims except for fraud must be brought as indemnification claims.”).
31
App. to Opening Br. at A2552 (SPA art. 4).
32
Id. at A2553 (SPA § 4.6).
33
Id.
14
representation in Section 4.6.”34 The R&W Policy incorporated the deliberate fraud

limitations—“[t]he insurer shall only be entitled to exercise rights of subrogation

against the Seller(s) . . . if the Loss arose in whole or in part out of any deliberate

fraudulent act, statement or omission.”35 Through Section 4.6, the parties made clear

that deliberate fraudulent “acts, statements, and omissions” were not covered by the

R&W Policy and the carrier could subrogate a claim for these actions and omissions.

Otherwise, the R&W Policy was the exclusive remedy.

A plain reading of the SPA shows that the parties took great care to distinguish

between deliberate fraud and other states of mind and conduct. If the defendants

committed deliberate fraud, Bracket could recover damages in addition to the R&W

Policy. Absent that, Bracket’s sole remedy was a claim against the R&W Policy.

B.

Bracket argues that references to common law fraud throughout the SPA “fit

together seamlessly with the indemnification provision in Article 9.”36 The

argument goes as follows. Section 9.6(D) states that “[n]otwithstanding any other

provision herein to the contrary, . . . except in the case of fraud,” the defendants will

not be liable for “any breach of any representation or warranty.”37 Section 9.8 states

34
Id. at A2566 (SPA § 6.6).
35
Id. at A586 (R&W Policy § 9.2).
36
Answering Br. on Appeal at 27.
37
Id. (emphasis in original) (quoting App. to Opening Br. at A2582–83 (SPA § 9.6(D))).
15
that “[i]n the absence of fraud and except for [Bracket’s] and its Affiliates’ rights

under the R&W Policy,” the SPA’s indemnification provisions “shall provide the

exclusive remedy for breach of any covenant, agreement or representation or

warranty.”38 Section 9.8 also states that “in absence of fraud,” the defendants will

not be liable for breach of a “Non-Fundamental Representation,” including the

representations at issue here.39 Without explaining further, Bracket concludes that,

“[t]aken together, these provisions form a coherent liability regime that allows

Bracket to hold Defendants liable in court if it can prove common-law fraud, and

limits Bracket to recovering under the R&W Policy if it cannot.”40

Bracket’s attempt to import fraud references from other provisions into the

indemnification provision suffers from glaring errors. First, it ignores the language

in Section 9.6(D) that the indemnification provision supersedes “any other provision

herein to the contrary,” meaning anything in Section 9.8 or other SPA provisions

that are inconsistent with Section 9.6(D).41 In Section 9.6(D) the parties treated

deliberate fraud as a matter separate from other general references to fraud in the

SPA.42 Further, Section 9.6(D)’s lead-in phrase following the general fraud

38
Id. (emphasis and alteration in original) (quoting App. to Opening Br. at A2583 (SPA § 9.8)).
39
Id. (emphasis in original).
40
Id.
41
App. to Opening Br. at A2582 (SPA § 9.6(D)).
42
DCV Hldgs., Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005) (“Specific language in a
contract controls over general language, and where specific and general provisions conflict, the
specific provision ordinarily qualifies the meaning of the general one.”).
16
exception—“[i]n furtherance of the foregoing”—means that more is coming to

refine the fraud exception. The parties made clear that, other than for instances of

deliberate fraud, the R&W Policy is the exclusive remedy. Section 9.6(D)’s specific

treatment of fraud also controls over general references to fraud elsewhere in the

SPA.43

Next, Bracket resorts to grammatical rules to override the plain meaning of

Section 9.6(D). It argues that “‘delibera[te]’ in §9.6(d) is an adjective that modifies

the nouns ‘act,’ ‘statement,’ and ‘omission,’ not an adverb that modifies

‘fraudulent.’”44 Thus, according to Bracket, “[e]ven if Defendants were right to

claim that ‘deliberate’ means ‘intentional,’ §9.6(d) would require only an intentional

act, statement, or omission; it would not alter the scienter standard for whether such

intentional act were fraudulent.”45 This is a tortured reading of Section 9.6(D).

States of mind are often paired with, and modify, the legal description of claims that

follow them.46 Although grammatical parsing can at times be useful to clarify

43
Brinckerhoff v. Enbridge Energy Co., Inc., 159 A.3d 242, 255 (Del. 2017) (recognizing the
“settled rules of contract interpretation, requiring that the court prefer specific provisions over
more general ones”).
44
Answering Br. on Appeal at 28 (alteration and emphasis in original).
45
Id. at 28–29 (emphasis in original).
46
See Glenn D. West, That Pesky Little Thing Called Fraud: An Examination of Buyers’ Insistence
Upon (And Sellers’ Too Ready Acceptance Of) Undefined “Fraud Carve-Outs” In Acquisition
Agreements, 69 BUS. LAW. 1049, 1074 (2014) (“defining fraud by adding a descriptive adjective”
is a “step in the right direction” for a trend in U.S. markets to “define fraud with some specificity
when including it as an exception to an [exclusive remedy] provision”) (alteration in original)
(citation omitted); West & Lewis, 64 B US. LAW. at 1033 (“If your counterparty insists on a ‘fraud
exclusion,’ limit the exclusion to ‘intentional fraud . . . .’ And make certain that the effect of such
an exclusion . . . eliminate[s] the applicability of deductibles and caps as to those breached
17
ambiguous language,47 here Section 9.6(D) has a plain meaning—the parties sought

to distinguish deliberate fraud from other mental states.

Finally, Bracket claims that “deliberate” fraud can include recklessness. But

as explained earlier, fairly read, the parties used Section 9.6(D) to distinguish

“deliberate fraud” from other states of mind. Even though the parties did not define

“deliberate,” its use in context shows that it was meant to refer to an intentional state

of mind. Dictionary definitions back this up.48 Black’s Law Dictionary defines

“deliberate” as “1. Intentional; premediated; fully considered” and “2. Unimpulsive;

slow in deciding.”49 “Deliberate,” in its plainer meaning, is defined as “[o]f a person:

that acts or takes decisions after careful thought or consideration; measured and

represented that were, in fact, ‘intentionally fraudulent.’”); see also, e.g., In re Massey Energy Co.,
Deriv. & Class Litig., 2011 WL 2176479, at *27 n.180 (Del. Ch. May 31, 2011) (“Typical
exclusions [from D & O insurance coverage] include acts arising out of, based upon, or attributable
to . . . committing any deliberate criminal or deliberate fraudulent act.”) (alteration in original)
(citation omitted).
47
See CelestialRX Invs., LLC v. Krivulka, 2017 WL 416990, at *16 (Del. Ch. Jan. 31, 2017)
(“Despite the linguistic, grammar and punctuation arguments each side advances, I read this
provision by what I view as its plain meaning in accordance with Delaware law.”); 17A A M. JUR.
2D Contracts § 358, Westlaw (database updated February 2021) (“While a court, in construing a
contract, will give due force to the grammatical arrangement of the clauses, it will disregard the
grammatical construction if it is at variance with the intent of the parties as indicated by the
contract as a whole.”).
48
Lorillard Tobacco Co. v. Am. Legacy Foundation, 903 A.2d 728, 738 (Del. 2006) (“Under well-
settled case law, Delaware courts look to dictionaries for assistance in determining the plain
meaning of terms which are not defined in a contract.”).
49
Deliberate, Black’s Law Dictionary (11th ed. 2019).
18
thoughtful. Also: that acts purposely or with intent.”50 What the parties intended to

describe here was an intentional state of mind, not recklessness.

A deliberate state of mind does not equate to a reckless state of mind.51 The

parties used “deliberate” to describe a specific state of mind. Bracket agreed that,

absent deliberate fraud, its sole and exclusive remedy for breach of the

representations and warranties was the R&W Policy. The Superior Court erred when

it instructed the jury that it could find for Bracket if it proved that the defendants

acted with a reckless state of mind.

C.

Bracket argues in the alternative that we should treat the legal error as

harmless. Bracket claims that the “overwhelming evidence at trial . . . [that] showed

that [the] [d]efendants committed intentional not merely reckless fraud” should

50
Deliberate, Oxford English Dictionary (2d ed. 1989), available at Oxford English Dictionary
Online (last visited February 21, 2021).
51
See Staub v. Proctor Hosp., 562 U.S. 411, 417 (2011) (distinguishing intentional torts from
“negligent or reckless torts”); Daniels v. Williams, 474 U.S. 327, 334 & n.3 (1986) (distinguishing
“something less than intentional conduct, such as recklessness . . .”); Restatement (Second) of
Torts § 8A (1965) (“If the actor knows that the consequences are certain, or substantially certain,
to result from his act, and still goes ahead, he is treated by the law as if he had in fact desired to
produce the result. As the probability that the consequences will follow decreases, and becomes
less than substantially certainty, the actor’s conduct loses the character of intent, and becomes
mere recklessness[.]”); Restatement (Second) of Torts § 500 cmt. f (“Reckless misconduct differs
from intentional wrongdoing in a very important particular. While an act to be reckless must be
intended by the actor, the actor does not intend to cause the harm which results from it. It is enough
that he realizes or, from facts which he knows, should realize that there is a strong probability that
harm may result, even though he hopes or even expects that his conduct will prove harmless.
However, a strong probability is a different thing from the substantial certainty without which he
cannot be said to intend the harm in which his act results.”).
19
excuse the erroneous instruction.52 According to Bracket, the reckless instruction

“did not ‘undermine[] the jury’s ability to intelligently perform its duty.’”53 We

disagree.

As noted earlier, “[a] party is not entitled to a particular jury instruction but

does have the unqualified right to have the jury instructed on a correct statement of

the substance of the law.”54 “While some inaccuracies and inaptness in statement

are to be expected in any [jury] charge, this Court will reverse if the alleged

deficiency in the jury instructions undermined the jury’s ability to intelligently

perform its duty in returning a verdict.”55

The erroneous jury instruction was not harmless error. Bracket was able to

argue for a lesser mental state to establish liability notwithstanding the parties’

agreement to limit fraud liability in excess of the R&W Policy to deliberate fraud.56

Rather than focus on deliberate or intentional misrepresentations, the jury was

instructed that it could also find in favor of Bracket by focusing on the defendants’

“recklessly indifferent” conduct, meaning the defendants “we[re] aware of and

52
Answering Br. on Appeal at 31–32.
53
Id. at 31 (alteration in original) (quoting Sammons v. Doctors for Emergency Servs., P.A., 913
A.2d 519, 540 (Del. 2006)).
54
R.T. Vanderbilt, 98 A.3d at 125 (quoting Koutoufaris, 604 A.2d at 399).
55
Culver v. Bennett, 588 A.2d 1094, 1098 (Del. 1991).
56
See App. to Opening Br. at A2063 (Trial Tr. at 44) (the plaintiff’s counsel stating in closing
argument that “what this tells [the jury] is, [ESI] . . . knew or sure as hell should have known as of
June 11th, a month before we signed up to do the deal, there was something wrong with these
financial statements. There was something wrong with [Mr.] Stewart.”).
20
consciously disregarded a substantial and unjustifiable risk.”57 The jury instruction

misstated the law and undermined how the parties allocated risk in the SPA.58 The

defendants were entitled to a correct statement of the law.59

57
Id. at A2087 (Trial Tr. at 139) (“[The Court]: Bracket contends that UBC and ESI knew, or
were recklessly indifferent to, the fact that the company’s financial statements provided in the
[SPA] . . . .”); id. at A2088 (Tr. Trial at 143) (“[The Court]: The second element [of fraud] is that
the defendant knew or believed that this representation or concealment was false, or that they were
recklessly indifferent as to whether it was false. [Bracket] is required to establish the defendant,
at the time the [SPA] was executed, knew the financial documents attached to the SPA were false
or to be recklessly indifferent as to whether they were false, and recognizing those documents
would be relied upon by the plaintiff in determining whether to purchase the business, they
certified them to be true and correct. Now, ‘reckless’ means that a defendant was aware of and
consciously disregarded a substantial and unjustifiable risk would result from the conduct.”).
58
See, e.g., R.T. Vanderbilt, 98 A.3d at 127 (reversing and remanding for new trial where jury
instructions “left the jury without a correct statement of the applicable law”); Volkswagen of Am.,
Inc. v. Costello, 880 A.2d 230, 236 (Del. 2005) (reversing and remanding for a new trial after
finding that erroneous jury instructions on landowner liability law meant that “the jury could not
intelligently perform its factfinding function”) (internal quotation makes omitted); E.I. DuPont de
Nemours & Co. v. Pressman, 679 A.2d 436, 444 (Del. 1996) (reversing and remanding for new
trial because erroneous jury instruction overstated the effect of the implied covenant of good faith
in an at-will employment contract); Riggins v. Mauriello, 603 A.2d 827, 831 (Del. 1992) (reversing
and remanding for new trial where the jury instruction “was inappropriate as a matter of law”);
Tydings v. Loewenstein, 505 A.2d 443, 445 (Del. 1986) (reversing and remanding for new trial
where jury instruction was incomplete as to the proper standard of care); see also Duphily, 662
A.2d at 834 (“It is fundamental that the jury have a basic understanding of the law which it is asked
to apply in order to intelligently perform its duty in reaching a verdict. . . . When it is manifest, as
here, that the jury has misunderstood the applicable law, its ability to perform its duty is
undermined and substantial rights of the parties are affected.”).
59
Sammons v. Doctors for Emergency Servs., P.A., 913 A.2d 519 (Del. 2006), is distinguishable.
There, even though the instructions were erroneous, the jury was still able to “make a reasoned
and informed decision in the case.” Id. at 541. Likewise, we found no error in the trial court’s
response to a jury question regarding whether the jury was limited to the plaintiff’s theory of the
case because the court’s responses were consistent with the plaintiff’s theory of the case and
reiterated correct pattern jury instructions. Id. at 541–42. By contrast, this case presents a more
fundamental problem—the jury instruction incorrectly stated what the plaintiff had to establish at
trial to hold the defendants liable for fraud. Under the SPA, Bracket only had recourse for
deliberate fraud, but the trial court’s instructions led the jury to believe, instead, that it could
ground its judgment on a lesser standard—recklessness.
21
 III.

Although we reverse the Superior Court’s judgment based on its erroneous

fraud jury instruction, to be as helpful as possible to the court on remand, we address

another meritorious evidentiary issue the defendants raised on appeal.60

Throughout the case, Bracket alleged that it calculated its purchase price based

on a multiple of EBITDA during the TTM period. If the defendants overstated

EBITDA, Bracket argued, it overpaid for the Company. But Bracket’s overstated

EBITDA claim depended on the financial statements represented in the SPA. In its

summary judgment ruling, the Superior Court limited Bracket’s fraud claim to the

Company’s March 2013 financial statements based on what it characterized as a

representation that Bracket relied on those statements. The court ruled:

[T]he financial statements that were certified in § 3.1 of the SPA are set
forth in disclosure statement § 3.4(a). It is the representation as to these
statements that Plaintiff alleges is false. It has also been represented to
the Court that Plaintiff determined its pricing based upon these
disclosure statements. Therefore, the Court believes it is the difference

60
Bracket argues that the defendants raise their relevance argument for the first time on appeal.
We are satisfied, however, that the defendants raised substantially the same argument below. See
App. to Opening Br. at A1779 (Trial Tr. at 60) (“[The defendants’ counsel]: But as a factual
matter, [Bracket] ha[s] to establish that [Bracket] relied on the represented financials. And what
the documents show is [Bracket] didn’t.”); id. at A1780 (Trial Tr. at 62) ([The defendants’
counsel]: The fact that [Bracket] [is] asked multiple times what TTM did you base the purchase
price on, it changes every other day. It demonstrates that [Bracket] didn’t actually value the
company in that way. [Bracket] [was not] simply relying on March TTM financials.”); see also
id. at A2637 (Defendants’ Opening Br. in Support of Their Renewed Mot. for Judgment as a Matter
of Law, Mot. for New Trial, and Mot. for Remittitur at 19) (arguing for a new trial because the
defendants “attempted to proffer evidence showing that [Bracket] did not, in fact, determine its
pricing based upon the March 2013 financial statements—and, therefore, that [Bracket] could not
prove reliance on any actionable false statement.”).

22
 between the financial statements ending as of March 2013 and those
recalculated by [Bracket’s expert] that are at issue. As a result, the
calculations set forth in Exhibit 2 of [Bracket’s expert]’s report would
appear to reflect the relevant difference and are the calculations that the
Court will allow testimony about.”61

At trial, the defendants sought to introduce three exhibits to show that Bracket

allegedly relied on financial information not covered by the SPA’s representations

and warranties to price the transaction.62 The Superior Court refused to admit the

exhibits based on its summary judgment ruling. As the court ruled, “[i]t’s what I

said it was before. It’s what it’s going to be utilized for. . . . The Court made the

ruling and they have relied upon it. You knew it up front[.]”63 Then, post-trial, when

the defendants raised the issue again, the Court ruled:

As established before trial, Bracket relied upon the March 2013
financial statements in setting the purchase price for the transaction.
The evidence that Defendants sought to introduce regarding Bracket’s
evaluation of other statements would have been prejudicial and
irrelevant to whether Bracket was defrauded. The decision as to [the
relevant exhibits’] exclusion was set forth in the Court’s Memorandum
Opinion of April 11, 2019, which resolved the dispute over the
appropriate TTM period. As a result of the Court’s [summary
61
In re Bracket, 2019 WL 1762975, at *11.
62
The three exhibits were (1) a Parthenon executive’s affidavit stating that it relied in part on
financial information outside the SPA’s representations and warranties period to price the
transaction; (2) emails between the Parthenon executive and Bracket’s financial expert supposedly
showing that Bracket set the purchase price based on June 2013 financial statements; and (3)
spreadsheets purportedly showing that the multiples used to price the transaction were not tied to
financial statements covered by the SPA. App. to Opening Br. at A2656–62; id. at A2665; id. at
A2663, A2669–93.
63
During trial the court also stated that “[t]his is all the argument that was made months ago,”
“[b]ut at the moment, the Court ruled that the financials that were important to the decision as to
how they were going to proceed, end of . . . March and beyond that, it doesn’t matter.” App. to
Opening Br. at A1779–80 (Trial Tr. at 61, 64); see also id. at A1899 (Trial Tr. at 64) (“The line of
questioning is not relevant.”).
23
 judgment] ruling, the Plaintiff was limited to this period, which had a
significant impact on the damages they were claiming. In spite of the
Court’s ruling, at trial, the Defendants tried to introduce, through non-
expert witness testimony, evidence regarding other potential periods.
This was simply a back door effort to get around the Court’s previous
ruling.”64

It appears that the court misapprehended the basis for the defendants’ use of

the three exhibits. To prove its fraud claim, Bracket had to demonstrate, among

other elements, reliance.65 The defendants sought to introduce the exhibits to show

that Bracket relied on financial information outside the March 2013 financial

statements to set the purchase price. What Bracket relied on to fix the purchase price

was both relevant and a question for the jury that was not susceptible to resolution

at summary judgment.

Having concluded that the exhibits are relevant, under Delaware Rule of

Evidence 403, to exclude the exhibits, the prejudice must substantially outweigh the

probative value of the exhibits.66 The court did not explain the nature of the

64
In re Bracket, 2020 WL 764148, at *6.
65
DCV Hldgs., 889 A.2d at 958 (“To prevail on its claim of common law fraud, the Buyer was
required to show that: . . . the plaintiff acted in justifiable reliance on the [defendant’s]
representation[.]”); Lord v. Souder, 748 A.2d 393, 402 (Del. 2000) (“A party claiming fraud must
allege: . . . the plaintiff’s action or inaction taken in justifiable reliance upon the representation;
and . . . damage to the plaintiff as a result of such reliance.”).
66
D.R.E. 403 (“The court may exclude relevant evidence if its probative value is substantially
outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues,
misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.”);
see also Kiser v. State, 769 A.2d 736, 741 (Del. 2001) (“Rule 403 requires the probative value of
relevant evidence to be ‘substantially outweighed’ by the danger of confusing the issues or
misleading the jury.”).
24
prejudice. It appears from the court’s rulings that the prejudice stemmed from the

court’s prior ruling that Bracket was limited to the March 2013 financials. Thus, as

we understand it, Bracket would be unfairly prejudiced if it was limited to the March

2013 financial statements, but the defendants could use post-March financial

statements to undermine Bracket’s reliance.67

Once again, we think that the prejudice finding stemmed from a lack of clarity

about the intended use of the evidence. The defendants sought to use the evidence

to undercut Bracket’s claim that it relied exclusively on financial statements covered

by the SPA. Bracket could still rebut this evidence with proof that it relied on the

March 2013 financial statements. Relevant evidence is, for the most part, prejudicial

to the other party’s case.68 The prejudice must be unfair when balanced against

67
See In re Bracket, 2020 WL 764148, at *6 (“As established before trial, Bracket relied upon the
March 2013 financial statements in setting the purchase price for the transaction. The evidence
that [the] [d]efendants sought to introduce regarding Bracket’s evaluation of other statements
would have been prejudicial and irrelevant to whether Bracket was defrauded. . . . In spite of the
Court’s ruling, at trial, the [d]efendants tried to introduce, through non-expert witness testimony,
evidence regarding other potential periods.”); App. to Opening Br. at A1780 (Trial Tr. at 64) (“The
Court made the ruling and they [Bracket] have relied upon it. You knew it up front[.]”).
68
See Lecompte v. State, 150 A.3d 1200, 2016 WL 6519002, at *1 n.2 (Del. Nov. 2, 2016)
(TABLE) (“Virtually all evidence is prejudicial to one party or another.”) (quoting 2 JOSEPH M.
MCLAUGHLIN, WEINSTEIN’S FEDERAL EVIDENCE § 403.04 [1] (2d ed. 2016)); Stevenson
v. State, 709 A.2d 619, 632 (Del. 1998) (“Any evidence that is properly admissible . . . is prejudicial
to the defendant in the sense that it enhances the likelihood of a conviction.”); see also Hinojosa
v. Butler, 547 F.3d 285, 295 (5th Cir. 2008) (“‘Prejudice’ to one party is the natural and intended
consequence of the admission of evidence by another.”).
25
relevance.69 On the record before us, the balance tips decidedly in favor of

admission.

IV.

The Superior Court’s judgment is reversed. The case is remanded for a new

trial consistent with this opinion. The issues raised on cross-appeal are moot. Thus,

we do not comment on the merits of the arguments on cross-appeal.

69
See, e.g., Hines v. Joy Mfg. Co., 850 F.2d 1146, 1154 (6th Cir. 1988) (“In order to exclude
evidence under [R]ule 403, it must be more than damaging to the adverse party; it must be unfairly
prejudicial.”); Dollar v. Long Mfg., N.C., Inc., 561 F.2d 613, 618 (5th Cir. 1977) (“Of course,
‘unfair prejudice’ as used in Rule 403 is not to be equated with testimony simply adverse to the
opposing party. Virtually all evidence is prejudicial or it isn’t material. The prejudice must be
‘unfair.’”), cert. denied, 435 U.S. 996 (1978); see also Smith v. State, 813 A.2d 1141, 2002 WL
31873704, at *2 (Del. Dec. 23, 2002) (TABLE) (explaining that the policy behind Rule 403 “is to
provide the jury with an ‘adequate factual base and breadth of understanding that it needs to render
a fair verdict consistent with the truth’”) (citation omitted).
26