Anti-Reliance Clauses in Texas M&A: Italian Cowboy, Lufkin, and the Fraud Carve-Out

By Trenton Roberts and Isabella Matuk

Near the back of every private acquisition agreement is a sentence most business people skim. It says the buyer is relying only on the representations written into the agreement: not the confidential information memorandum, not the management presentation, not the quality-of-earnings call. That is the anti-reliance clause, also called a non-reliance clause or disclaimer of reliance.

When it works, it turns a fraud case about what someone said in diligence into a contract case about what the agreement says, subject to the survival periods, baskets, caps, and exclusive-remedy provision the parties negotiated. When it fails, the buyer can sue in tort outside that structure, and the seller's cap may not be the ceiling.

This article covers how Texas courts test the clause, how Delaware differs, how the clause interacts with the fraud carve-out and representation and warranty (R&W) insurance, and where each side usually lands.

Why the clause matters: a numeric example

Take a hypothetical buyer that pays $45,000,000 for a company, priced at 9.0x adjusted EBITDA of $5,000,000 as shown in the CIM and the management presentation. Properly stated, EBITDA is closer to $4,200,000, because a recurring cost was presented as one-time. The buyer's theory of loss is the shortfall times the multiple: $800,000 x 9.0 = $7,200,000.

Assume a general indemnity cap of 10% of the price, or $4,500,000. Recovery turns on three questions:

1. Was the misstatement inside the agreement (for example, a breach of the financial statements rep) or outside it (the adjusted EBITDA in the CIM)?

2. If outside, does the anti-reliance clause bar a fraud claim based on it?

3. If inside, does the fraud carve-out lift the cap, and what state of mind does "Fraud" require?

If the misstatement was extra-contractual and the disclaimer holds, the fraud claim fails on reliance and the buyer is left with the contract reps. If the disclaimer fails, the buyer can try to prove fraud and pursue the full $7,200,000 outside the cap, which is $2,700,000 more than the cap even if a rep was also breached.

The Texas framework

Schlumberger and Forest Oil

Texas law lets a party sue in tort for being fraudulently induced into a contract. In Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997), the Supreme Court of Texas held that a disclaimer of reliance in a release negotiated by sophisticated parties represented by counsel conclusively negated the reliance element of a fraudulent-inducement claim, while cautioning that a disclaimer will not always bar such a claim.

Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60 (Tex. 2008), also involving a settlement agreement, set out the factors Texas courts still apply:

1. Whether the terms were negotiated rather than boilerplate, and whether the parties specifically discussed the issue that became the subject of the dispute.

2. Whether the complaining party was represented by counsel.

3. Whether the parties dealt at arm's length.

4. Whether the parties were knowledgeable in business matters.

5. Whether the release language was clear.

The court declined a per se rule and said its holding should not be read to mean a disclaimer standing alone forgives intentional lies regardless of context. It also said parties who promise in writing not to rely on extra-contractual statements should be held to that promise, and that they can put the statements they do rely on into the contract or carve them out of the disclaimer.

Italian Cowboy: say "rely," not just "no representations"

In Italian Cowboy Partners, Ltd. v. Prudential Insurance Co. of America, 341 S.W.3d 323 (Tex. 2011), a lease said the landlord had made no representations or promises except as set forth in the lease. The court held that was a merger clause, not a disclaimer of reliance, and it did not bar the tenant's fraudulent-inducement claim. A merger clause alone does not do the work, and a recital that no outside representations were made is not the complaining party's statement that it did not rely on any.

The working rule: the clause must speak in terms of reliance, and it must come from the party who will later want to sue.

IBM v. Lufkin: the specific misrepresentations at issue

International Business Machines Corp. v. Lufkin Industries, LLC, 573 S.W.3d 224, 229 (Tex. 2019), restated the standard: the clause must clearly and unequivocally express the party's intent to disclaim reliance on the specific misrepresentations at issue, judged on the contract language and the totality of the circumstances. Lufkin had agreed it was "not relying upon any representation made by or on behalf of IBM that is not specified in the Agreement or this SOW, including, without limitation," completion dates, hours, charges, and results. The court held the disclaimers barred tort recovery for misrepresentations that induced both the original contract and a later amendment.

Two lessons follow. The "including, without limitation" list matters, because courts test the disclaimer against the specific misrepresentation alleged. And amendments, side letters, and waivers are separate inducement events that need their own disclaimer or an express incorporation of the original.

Justifiable reliance and statutory fraud

Even without an enforceable disclaimer, a Texas fraud plaintiff must prove justifiable reliance. In JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648 (Tex. 2018), the court held a sophisticated party could not justifiably rely on an oral assurance the written contract directly contradicted, and that red flags it should have investigated defeated reliance as a matter of law. For a PE buyer with a diligence team and a QoE provider, that is a real defense, but it is fact-heavy. A good disclaimer is cheaper.

In a stock deal, the buyer will also plead Texas Business and Commerce Code Section 27.01, which covers fraud in transactions involving real estate or stock in a corporation or joint stock company. The statute requires that the false representation or promise be relied on in entering into the contract, and it provides for actual damages, exemplary damages on actual awareness of falsity, and attorney's fees, expert fees, and costs. Because reliance is a statutory element, we draft the disclaimer to cover claims "at law, in equity, under statute, or otherwise." The statute's text refers to stock in a corporation, so its reach to LLC interests is not answered on its face, which is another reason to keep the claim-coverage language broad.

How Delaware differs

Many Texas deals choose Delaware law because the target or holding company is a Delaware entity. Under Texas Business and Commerce Code Section 271.005, in a "qualified transaction" (at least $1 million of consideration, per Section 271.001), the law the parties choose in writing governs an issue if the transaction bears a reasonable relation to that jurisdiction, even if contrary to Texas public policy, subject to listed exceptions. Section 271.004 includes as reasonable relations a party's residence and subject matter tied to the internal affairs of an entity formed there. Whether the clause reaches tort claims depends on its wording, so it should cover all claims arising out of or relating to the agreement, its negotiation, and the transaction, in contract, tort, or under statute.

Delaware's framework starts with ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006). The court enforced an exclusive-remedy provision and cap for misrepresentations not intentionally made, but held that public policy will not let a contract limit the buyer to a capped claim when the seller intentionally misrepresented a fact in the agreement, or knew the company had. Extra-contractual fraud can be disclaimed by a clear anti-reliance clause. Intra-contractual lies cannot be capped.

In Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35 (Del. Ch. 2015), buyer-side language that it relied only on the agreement's representations barred fraud claims based on extra-contractual statements and on alleged omissions from diligence materials. In FdG Logistics LLC v. A&R Logistics Holdings, Inc., 131 A.3d 842 (Del. Ch. 2016), a seller-side statement about what it was not representing, without the buyer's own disclaimer, did not bar the buyer's extra-contractual fraud claim.

Then the carve-out. In Express Scripts, Inc. v. Bracket Holdings Corp., 248 A.3d 824 (Del. 2021), the R&W policy was the buyer's exclusive remedy except for "deliberate fraud" and certain fundamental reps. The trial court let the jury find liability on recklessness. The Delaware Supreme Court reversed, holding that deliberate fraud requires a deliberate state of mind and does not include recklessness.

Texas asks whether the disclaimer is clear, specific, and negotiated by sophisticated parties under Forest Oil. Delaware asks whether the buyer itself clearly disclaimed extra-contractual reliance, and it will not let any clause cap liability for lying in the contract. The drafting advice converges.

Drafting the clause

A buyer-voiced clause that tracks both lines of authority:

"Buyer acknowledges and agrees that, in entering into this Agreement and consummating the Transactions, Buyer has relied solely on the representations and warranties expressly set forth in Article III and Article IV (in each case as qualified by the Disclosure Schedules) and in the certificates delivered under this Agreement, and Buyer is not relying, and has not relied, on any other representation, warranty, statement, or information, whether written or oral, express or implied, made or provided by or on behalf of Seller, the Company, or any of their respective Representatives, including any projections, forecasts, budgets, estimates, adjusted or pro forma financial information, quality-of-earnings analyses, management presentations, confidential information memoranda, or materials made available in any data room, or as to the accuracy or completeness of any of the foregoing."

What each piece does:

1. Buyer's voice ("Buyer is not relying") answers Italian Cowboy and FdG Logistics.

2. "Is not relying, and has not relied" covers signing, and with a bring-down, closing.

3. The category list is the Lufkin specificity point. Name adjusted and pro forma figures expressly, because that is where most diligence disputes start.

4. "Accuracy or completeness" targets omission theories, which buyers plead when an affirmative misstatement is hard to find.

5. "As qualified by the Disclosure Schedules" stops the argument that the buyer relied on an unqualified rep.

The seller's companion statement that it makes no other representations is useful, but alone it is a merger clause. Because the first Forest Oil factor is partly evidentiary, a seller should keep the record showing the clause was negotiated: the issues list and redlines on the category list.

The fraud carve-out: where the provisions collide

The anti-reliance clause decides which statements count. The fraud carve-out decides what remedies apply when a statement that counts was false. A carve-out that preserves "claims for fraud" without limitation invites the argument that extra-contractual fraud survives the exclusive-remedy provision despite the disclaimer.

The seller's opening definition usually reads something like: "Fraud" means actual and intentional fraud by a party in the making of the representations and warranties expressly set forth in this Agreement, requiring actual knowledge (not imputed or constructive knowledge) of falsity and intent to induce reliance, and excluding constructive fraud, negligent misrepresentation, recklessness, and equitable fraud. That limits fraud to the contract reps, sets the state of mind at actual knowledge, and excludes recklessness expressly, which after Express Scripts is the standard the parties will get.

Buyers push back on three points. On recklessness, they argue a seller who certifies financials with reckless indifference should not get the cap; that is a business point to settle in the definition. On whose fraud, buyers want specified managers' knowledge attributed to the seller, while non-managing sellers and the selling fund insist one manager's fraud does not uncap their proceeds. On rescission, sellers in a PE exit, where proceeds have been distributed to fund investors, push to limit the remedy to damages.

Back to the example. If the adjusted EBITDA appeared only in the CIM and the presentation, an enforced clause like the one above leaves the buyer without a fraud claim on it. If the financial statements rep was also knowingly false, a carve-out built on actual knowledge lets the buyer pursue the seller who committed that fraud above the $4,500,000 cap, and under ABRY, if Delaware law governs, the cap could not be enforced against that intra-contractual lie anyway.

R&W insurance changes the incentives

With a buy-side R&W policy, the buyer's practical remedy for most breaches is the policy, and seller exposure may shrink to a retention or disappear. That changes the negotiation in three ways.

First, read the policy's exclusions for forward-looking statements and projections. If projections are excluded, the policy will not fill the gap the disclaimer leaves for CIM projections, and the buyer's protection on those numbers lies in diligence and price.

Second, align the fraud definitions. In Express Scripts, both the agreement and the policy's subrogation provision used "deliberate fraud." A mismatch could let the carrier pursue sellers on a broader theory than the sellers negotiated with the buyer.

Third, in a no-survival insured deal, the fraud carve-out is often the only route to sellers' proceeds, so sellers should care more about the anti-reliance clause, not less.

Where each side lands

Sellers want a broad buyer-voiced disclaimer with a long category list, express coverage of statutory and equitable claims, fraud limited to the express reps, actual knowledge, and the person who committed it, damages only, and a fraud definition that matches the R&W policy.

Buyers want the disclaimer limited to the seller parties, an express carve-back for fraud in the reps, schedules, and closing certificates, a standard that does not expressly exclude recklessness, specified managers' knowledge attributed to the seller, and claims preserved against any individual who personally committed fraud.

A common middle ground: a buyer-voiced disclaimer with a full category list, fraud defined as intentional fraud in the reps, schedules, and certificates, actual knowledge of a short list of named individuals, recourse against the seller that made the rep and the person who committed the fraud, and no post-closing rescission.

FAQ

Does a standard "entire agreement" clause bar fraud claims under Texas law?

No. Italian Cowboy and Lufkin both hold that a merger clause standing alone does not prevent a fraudulent-inducement claim. The clause must clearly and specifically disclaim reliance by the party who would bring the claim.

Can a disclaimer protect a seller who lied in the purchase agreement itself?

Not as drafted here. A disclaimer of reliance on extra-contractual statements does not touch claims on the agreement's own representations, because the buyer expressly relied on those. Under Delaware law, ABRY holds a contract cannot cap liability for intentionally misrepresenting a fact in the agreement.

Must the clause be discussed in negotiations to work in Texas?

The first Forest Oil factor asks whether the terms were negotiated and whether the parties discussed the issue that became the dispute. It is a factor, not a strict requirement, but a documented negotiation helps the party relying on the clause.

How we can help

We draft and negotiate purchase agreements for buyers and sellers in private acquisitions, including the reliance, fraud, indemnity, and R&W insurance provisions that decide what happens when a number turns out to be wrong. If you are preparing for a sale process or reviewing a draft, we can walk through how these provisions fit your deal and your governing-law choice.

This article is general information and is not legal advice. Reading it does not create an attorney-client relationship with Roberts & Willie, PLLC. The cases and statutes are summarized for general discussion, and their application depends on the facts, contract language, and governing law of each transaction.