Chancery Holds Specific Oral Statements About Post-Closing Plans May Exceed Mere Puffery

In Shareholder Representative Services LLC v. Sphera Solutions, Inc. (Mar. 31, 2026), a Magistrate for the Court of Chancery, in a letter decision, at the pleading stage of the litigation, declined to dismiss the plaintiff’s fraud claims that were based on oral statements that Sphera Solutions, Inc. allegedly made during the negotiations leading up to its acquisition of SupplyShift, Inc. Sphera allegedly told SupplyShift that, post-closing, it would focus on and provide resources for cross-selling SupplyShift’s products to Sphera’s customers. The plaintiff claimed that SupplyShift had relied on those statements in deciding to sell to Sphera and agreeing to a significant earnout; that, after closing, Sphera did not fulfill those “oral promises” and thus the earnout threshold was not met; and that, at the time the promises were made, Sphera had already finalized a post-closing budget (the “Budget”) that reflected that it had had no intention of fulfilling the promises. Critically, the Merger Agreement did not contain an anti-reliance provision.

Key Points

• The decision highlights the importance of anti-reliance provisions. The court reiterated that, if an agreement includes anti-reliance language (i.e., language clearly stating that a party has not relied on statements made or information provided by the other party outside the four corners of the parties’ written agreement), fraud claims based on statements made during the negotiation process will be barred. Absent anti-reliance language, however, pre-agreement statements may provide a basis for fraud claims if the statements went beyond mere “puffery” or “corporate optimism” about the future.
• There is no clear line as to when extra-contractual statements may constitute more than mere “puffery.” The court determined that Sphera’s statements that it would cross-sell SupplyShift’s products to all of its 7,000+ customers and that all of its customers would want to buy SupplyShift’s products were mere puffery. However, the court held that it could not determine at the pleading stage whether Sphera’s statements that it would provide significant resources to cross-sell SupplyShift’s products went beyond mere puffery.
• The court stressed that avoiding an earnout payment provided a motive for the buyer to mislead the seller about its post-closing plans. An earnout, standing alone, would not have supported an inference of scienter by Sphera, the court stated. However, there was a reasonable inference of scienter given the combination of the significant earnout together with evidence (i.e., the Budget) indicating that, when the promises were made, Sphera may have had no intention to fulfill them.
• The court rejected the buyer’s arguments that (1) the extra-contractual statements were only about the future, and (2) the seller could have negotiated covenants concerning post-closing operation of the acquired business but chose not to do so. With respect to (1), the court stated that while the statements related to Sphera’s future plans, the Budget concerned “the present state of affairs.” The court commented that it “defie[d] reasonable inference that those at Sphera conducting high level acquisition negotiations had no connection to those making equally high-level decisions on the going-forward budget for the new acquisition.” With respect to (2), the court stated that the plaintiff had plausibly alleged that Sphera, when negotiating, made commitments that at best were “partial or ambiguous,” and it was “unreasonable to require [SupplyShift] to bargain for extractions or commitments when it relied on representations it had no reason to doubt.”
• The buyer may have had a duty to disclose information that contradicted its extra-contractual statements. The court, in addition to validating the plaintiff’s fraud theory that Spera knowingly made false promises to SupplyShift, also sustained the plaintiff’s alternative fraud theory that Sphera had a duty to disclose the Budget to SupplyShift given that it contradicted the oral statements Sphera had made.
• The decision thus serves as a reminder that merger agreement parties: generally should include anti-reliance language in their written agreement; should seek to include in the written agreement all significant representations or covenants on which they are relying; and should be careful not to make vague pre-agreement oral statements that a court could view as going beyond mere puffery or corporate optimism (and thus could form the basis for a fraud claim). In addition, a party may have a duty to disclose to its counterparty new, newly developed or newly discovered information that contradicts its prior (even oral, vague or future-oriented) statements.

Background. SupplyShift, a Delaware corporation providing corporations with supply chain sustainability and responsible sourcing solutions, sought to grow by partnering with another company whose product line would boost its offerings and customer base. In 2023, it signed a non-binding letter of intent to be acquired by Sphera, a Delaware corporation specializing in ESG (environmental-social-governance) performance and risk management. The letter of intent set a closing purchase price of $50 million. Sphera allegedly made certain oral promises to SupplyShift relating to its plans, post-closing, to cross-sell SupplyShift’s products to its customers. The parties later entered into a Merger Agreement, which provided for total consideration of $52 million, with almost half that amount in the form of an earnout that would be payable in full if SupplyShift’s 2024 “annual recurring revenue” (ARR) exceeded $8.5 million.

The Merger Agreement included a standard integration clause (stating that the Merger Agreement constituted the parties’ entire agreement and superseded all of the parties’ prior written or oral agreements and understandings). The Merger Agreement did not, however, contain explicit anti-reliance language stating that the parties had not relied on any extra-contractual representations or promises.

SupplyShift allegedly discovered, after the Merger Agreement was signed, that, at the time Sphera made the oral statements relating to cross-selling, Sphera already had finalized the Budget, which did not provide significant resources for cross-selling and reflected a performance expectation for SupplyShift that was significantly below the earnout threshold. Post-closing, the earnout threshold was not met and no earnout amount was paid. The plaintiff, as representative for the former SupplyShift stockholders, brought suit claiming that Sphera fraudulently induced SupplyShift to agree to the sale to Sphera, and to agree to the earnout. The plaintiff claimed that SupplyShift relied on Sphera’s oral promises about cross-selling and that the Budget subverted those promises and the possibility of the earnout threshold being met. Magistrate David Hume, IV declined to dismiss the plaintiff’s fraud claims.

Discussion

• The plaintiff alleged that SupplyShift relied on the following oral representations and promises made by Sphera: (i) Sphera would market SupplyShift’s product offerings to all of Sphera’s 7,000+ customers. (ii) All of Sphera’s customers would want to buy SupplyShift products. (iii) Sphera would substantially increase the marketing budget for SupplyShift’s products and focus on cross-selling to Sphera’s customers. (iv) Sphera already had a “substantial integration plan” for the two businesses, which it would implement immediately post-closing. (v) Successfully cross-selling Sphera’s lowest price-offerings to just 7.5% of Sphera’s extant customer base would increase ARR to more than $10 million, and the average price-offerings to just 3% of Sphera’s customers would increase ARR by more than $13 million. (The ARR benchmark for the full earn-out payment was $8.5 million.)
• Oral promises may go beyond “mere puffery” when “sufficiently specific” and “fraudulently conceived.” The court held that Sphera’s statements in (i) and (ii) above were merely “vague statements of corporate optimism,” which are “routine in dealmaking,” constitute “mere puffery,” and cannot form a basis for a claim of promissory fraud. However, the court held that the statements in (iii) through (v) may have fallen outside the “mere puffery safe harbor” and constituted fraud. “Normally, statements which are merely promissory in nature and expressions as to what will happen in the future are not actionable as fraud,” the court acknowledged—but a promise can be the basis of a fraud claim when the plaintiff pleads with particularity specific facts that lead to a reasonable inference that, at the time the promise was made, the promisor had no intention of performing it. The plaintiff claimed that the Budget, which allegedly had already been finalized before the oral promises about cross-selling were made, indicated that Sphera had no intention of providing significant resources for cross-selling. The Budget reflected no increase in the marketing budget or marketing staff for SupplyShift’s products, and reflected a performance expectation for SupplyShift that was more than $1 million below the ARR threshold for the earnout.
• Notably, the overall factual context included post-closing actions by Sphera that its statements about its post-closing plans were false when made. The court noted the plaintiff’s allegations that, post-closing, Sphera: (i) cross-sold to a mere 17% of its customer base; (ii) dedicated minimal resources to cross-selling (devoting only part of just one employee’s time to coordinate cross-selling); (iii) failed to notify legacy SupplyShift employees of a retention bonus they would receive if they remained with Sphera 12 months post-closing, instead informing them that any earnout payment they might receive was part of a “phantom pool” and that their stock options were worth “nothing”; (iv) failed to replace key roles when several key legacy employees ultimately left Sphera prior to eligibility for the bonus; (v) reduced SupplyShift’s potential ARR (by directing leads within the historic core of SupplyShift’s business away from SupplyShift products to a different Sphera product line and by delaying renewal of a licensing agreement); and (vi) never even calculated SupplyShift’s 2024 ARR, having estimated several months after the merger that the SupplyShift product line would fall far short of the earnout benchmark.
• The court stressed that the earnout provided Sphera with a motive to mislead SupplyShift about its post-closing plans. In finding that the plaintiff sufficiently pleaded scienter by Sphera (a required element for a fraud claim), the court noted that the plaintiff not only had alleged that (i) Sphera had finalized the Budget prior to signing the Merger Agreement and (ii) Sphera’s post-closing actions supported an inference that Sphera’s directors knew that their statements about cross-selling were false when made, but that (iii) in addition, Sphera had a “motive” to make the allegedly false promises—namely, to avoid payment under the earnout. The mere existence of an earnout is not indicative of fraud, the court stated, but because of the earnout, Sphera had “every incentive to mislead” SupplyShift. Its motive, plus its post-closing actions, in combination, provided a reasonable inference that it “had no intention of performing on its promises.”
• Sphera may have had a duty to disclose the Budget to SupplyShift. The court reconfirmed that a party to an arms-length transaction has no affirmative duty to disclose material facts to the other party. However, “[w]here a party chooses to speak,…it cannot lie and also cannot speak partially or obliquely such that what the party conveys become[s] misleading.” As the plaintiff adequately pleaded that Sphera made a factual representation about its cross-selling intentions, at a time that the Budget contradicting that representation had already been finalized, the Sphera directors may have “possessed an affirmative duty to disclose” the Budget that was inconsistent with the representation.
• The plaintiff also claimed contractual breach of the Merger Agreement’s earnout efforts provision. The Merger Agreement stated that Sphera could make business decisions regarding the SupplyShift line “in any way that [Sphera] deems appropriate,” but that Sphera could not “knowingly and intentionally take…any action with the sole intent of avoiding, reducing or preventing the achievement of the [earnout threshold].” The Merger Agreement also stated that the earnout payment was not guaranteed; and that Sphera had no obligation to operate SupplyShift’s business to achieve or maximize any amount of the earnout payment. The plaintiff, in addition to claiming fraud, claimed that Sphera breached the Merger Agreement by acting with the sole purpose and intent of preventing achievement of the earnout. The court did not address this claim in this decision because Sphera, while disputing the claim, had not moved to dismiss the claim at the pleading stage.

Practice Points

• Drafters should keep in mind that an integration clause alone, without clear anti-reliance language, generally does not bar fraud claims based on the other party’s extra-contractual statements. To bar fraud claims based on the other party’s extra-contractual statements, promises, or information, anti-reliance language should be included in the parties’ written agreement, clearly stating that the party disclaims reliance on, and the other party will not have liability for, any oral or written representations, statements, promises or information made or provided to the party by the other party outside the four corners of the contract. Most agreements include anti-reliance language protecting the seller—i.e., language stating that the buyer is not relying on, and the seller will not be liable for, any extra-contractual representations by the seller about the company. Importantly, where part (or particularly, a significant amount) of the purchase price is in the form of an earnout, a buyer should consider seeking anti-reliance language to protect itself—i.e., language stating that the seller is not relying on, and the buyer will not be liable for, any extra-contractual representations by the buyer, including about its post-closing plans for the company, its efforts with respect to earnout, or the likelihood of achieving the earnout. (See here our Briefing on the recent J&J/Auris decision (Jan. 12, 2026) relating to this issue.)
• Each party should seek to ensure that the written agreement sets forth the other party’s oral and written statements, promises, and representations on which the party is relying—i.e., information that is significant in the decision to engage in the transaction or to achieve an earnout.
• A party should avoid making “vague” statements, promises, or representations that might be viewed as going beyond mere “puffery” or “corporate optimism”—and thus (if the agreement does not contain sufficient anti-reliance language) could form the basis for a fraud claim.
• A party should consider whether new, newly developed, or newly discovered information should or must be provided to the other party. Where a buyer develops an internal budget that could be viewed as contradicting or subverting the contractual (or, in the absence of anti-reliance language, extra-contractual) representations or promises it has made, the buyer should consider whether it has a duty to, or otherwise should, disclose such information to the other party. The issue may arise based on updated financial information or information that financial reporting needs improvement (as was the case in the recent Diem v. Maisonette decision (Mar. 4, 2026)—see our Briefing here), updated projections, or other information that may conflict with previously provided representations or statements.