In LGM Holdings, LLC v. Schurder, C.A. N23C-09-011 (Del. Apr. 22, 2025), the Delaware Supreme Court reversed the Superior Court’s dismissal of the plaintiffs’ complaint, in part, because, in determining that the plaintiffs had filed their claims past the statute of limitations, the lower court did not address whether the plaintiffs had sufficiently pleaded fraudulent concealment nor did it determine when the plaintiffs were put on inquiry notice for their indemnification claim.
The plaintiffs comprised a group of buyers, LGM Holdings, LLC, and LGM Subsidiary Holdings, LLC (the Buyers), who sought to purchase three pharmaceutical companies owned collectively by Gideon Schurder (Gideon), Mendy Schurder (Mendy), Leah Chitrik, and IBS Pharma (collectively, the Sellers). After the acquisition closed on November 15, 2017, Gideon and Mendy remained as the commercial director and chief operating officer, respectively, of one of the acquired companies: LGM Pharma, LLC (LGM). However, an investigation commenced by the Food and Drug Administration (FDA) on September 17, 2018, into LGM’s facilities discovered that active pharmaceutical ingredients were being mislabeled and Gideon had concealed his role in the mislabeling by withholding emails and producing a false product-investigation log. Furthermore, after an independent investigation, the Buyers allegedly uncovered numerous instances of misconduct by both Gideon and Mendy, including violations of healthcare laws, customs restrictions, and regulations, many of which took place prior to the Buyers’ acquisition of the pharmaceutical companies. These findings were turned over to the FDA in January 2019. As a result of the FDA’s investigation, on November 8, 2022, the Buyers incurred more than $6 million in fees, for which, pursuant to an indemnification agreement into which the parties entered in July 2020, the Buyers sought indemnification from the Sellers. The Sellers rejected the Buyers’ claim, contending that the Buyers, pursuant to the contract, waived their right to pursue a fraudulent inducement claim and were time-barred from pursuing a claim for indemnification because the Buyers failed to file a complaint within five years of obtaining inquiry notice.
On the question of whether the Buyers’ indemnification claim was time-barred by the statute of limitations, the Court disagreed with the lower court’s determination that the plaintiffs failed to allege any affirmative acts by the Sellers that prevented the Buyers from learning facts that gave rise to their claim. To the contrary, the Court found that the plaintiffs’ complaint sufficiently detailed allegations, including the Sellers’ false statements, concealment of illegal activities, and withholding of information, that called into question when the plaintiffs were truly on inquiry notice of their indemnification claim. Accordingly, rather than relying on the date on which the parties entered into the sale agreement, November 15, 2017, as had the lower court, the Court noted that the plaintiffs may well have been put on inquiry notice on the date of the FDA’s investigation on September 17, 2018, or, alternatively, when the Buyers incurred the fees from the FDA in July 2020, either of which would have placed their complaint squarely within the five-year statute of limitations imposed by the contract.
The Court also reversed the lower court’s dismissal of the plaintiffs’ fraudulent inducement claim. In reaching this conclusion, the Court upheld the long-standing framework of contractual interpretation that prevents trial courts from deciding a motion to dismiss by choosing between two different yet reasonable interpretations of ambiguous contractual provisions. The provisions in question revolved around whether the Buyers waived their right to pursue claims for fraudulent inducement related to all governmental proceedings or only those with respect to losses attributable to particular governmental proceedings. Ultimately, the Court relied on the fact that the lower court neglected to adequately consider the plaintiffs’ contention that the contract should be read as a whole, allowing for the term “losses attributable to governmental proceedings” to be reasonably inferred into the last sentence of the controversial section of the agreement, which, by itself, broadly referred to the waiver of all fraud. Ultimately, a reasonable reading of the agreement could allow for a narrower waiver in favor of the plaintiffs’ interpretation of the agreement. As a result, the Court determined that more fact-finding was necessary to unearth the true intent of both parties.
This case sheds light on pleading fraudulent concealment and the consequential tolling of a statute of limitations. However, even a successful allegation of fraudulent concealment is insufficient to establish that a plaintiff was not placed on inquiry notice at an earlier time. If a plaintiff had any reason to suspect that a defendant misrepresented, omitted, or concealed information relevant to a claim, then that would likely be the point at which the statute of limitations would begin to run. A defendant should not rest easy if a plaintiff files a claim years after the statute of limitations runs, as questions surrounding inquiry notice and fraudulent concealment are often factual in nature and thus not easily resolved with a pleading-stage motion.
*Frank Landau, a summer associate at the firm not yet admitted to the bar, contributed to this alert.