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Failure to read agreements proves fatal to fraudulent induce claim

In Braga Investment & Advisory, LLC v. Musa Yenni, et al., C.A. No. 2019-0408-PAF (Del. Ch. May 31, 2023), the Delaware Court of Chancery held that Plaintiff's failure to read agreements and ask questions related to its purchase of a minority ownership interest in a Delaware limited liability company proved fatal to its claims for relief. In light of these missteps, the court was unwilling to unwind the transaction between these sophisticated parties and entered judgment in favor of the defendants.

Plaintiff Braga Investment & Advisory LLC (Braga) alleged that Defendants Yenni Income Opportunities Fund I LP (Company) and its founder Musa Yenni (with the Company, Yenni) induced Braga to purchase 23% of Steven Feller PE LLC in 2016 for $700,000 by representing that a 2015 operating agreement would be the final operating agreement between the parties. Braga only learned in 2019 that the operating agreement materially differed from the one it was shown, the company alleged.

However, in the days leading up to the deal's closing, Yenni informed Braga “that the operating agreement was being revised." At the same time, Braga provided the managing member of the Company with an irrevocable power of attorney meaning there were numerous communications between the parties and various law firms about revisions to the operating agreement. Despite these communications, the plaintiff executed the signature page for the revised operating agreement without reviewing the final draft. 

The revised operating agreement conferred significant authority to Yenni over the composition of the Steven Feller PE LLC's board and its affairs. A few years later, the operating agreement was revised again, under which the Steven Feller PE LLC's managing member exercised an irrevocable power of attorney to execute the document on Braga's behalf. 

The Delaware Court of Chancery refused to rescind the relevant agreements based on a fraudulent inducement theory. The court found that Yenni did not represent the original draft operating agreement because it was characterized in writing as a proposal. Communications between the parties indicated that further revisions to the draft were necessary, in which Yenni confirmed that revisions were being made. Further, the original draft was never executed. Instead, the parties executed the revised operating agreement. 

The court concluded that Yenni did not make any representations to Braga that the revised operating agreement was the same as the original draft. Instead, Braga failed to read the operating agreement it signed. Thus, Braga could not establish a misrepresentation capable of substantiating its fraudulent concealment claim.


court of chancery, business law, delaware court of chancery