Clarifying Delaware's "Muddled" Anti-Bootstrapping Rule

This week, the Delaware Chancery Court clarified the "muddled" state of Delaware law on the anti-bootstrapping rule.  That rule generally prevents plaintiffs from contemporaneously asserting fraud and breach of contract claims.  The court held both claims can be brought against a party "who knew contractual representations were false, and yet made them anyway."   

Plaintiffs in Levy Family Investors, LLC v. Oars + Alps LLC, (Del. Ch. Jan. 27, 2022), were early investors and convertible noteholders of Oars + Alps.  Plaintiffs' convertible notes empowered them to block the company's Founders from selling more than 5% of the company without Plaintiffs' approval.

Buyer S.C. Johnson & Son, Inc. entered into discussions with Founders to buy a majority stake in Oars + Alps.  A confidentiality agreement prevented Founders from sharing the purchase agreement with Plaintiffs.  Plaintiffs threatened to block the transaction without knowing the deal's terms.  So, Founders