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The Ninth Circuit Court of Appeal recently disposed of a novel and creative plaintiff’s claim, that representations and warranties contained in a corporate merger agreement which the company filed with the Securities Exchange Commission as part of normal transactional disclosure, amounted to public statements of fact which shareholders can sue upon if inaccurate.  In this case, a shareholder strike suit was brought against the company, its CEO and CFO after corporate bribery accusations caused a fall in the stock price.  The claim was that representations and warranties in a merger agreement, such as that the merger party was “in compliance with all applicable laws and regulations”, were untrue.  The Ninth Circuit upheld dismissal of the case, on the basis in part that the corporation and its top executives cannot automatically be held responsible to know every item of legal noncompliance or other important fact arising in their large organization, if they had no actual reason to be aware.  Left somewhat aside in the analysis is the fact that merger agreement reps and warranties are typically structured as blanket boilerplate statements, which the parties then work to flush out with final exceptions, exhibits and substantive information in between the time of contract signing and closing.  (Glazer Management, LP v. Invision Technologies, Inc., Ninth Circuit No. 06-16899, November 26, 2008)

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