H-M Wexford, LLC v. Encorp, Inc.

On January 11, 2001, investment company H-M Wexford, LLC (Wexford) (plaintiff) received a private placement memorandum (PPM) for shares of stock in Encorp, Inc. (defendant), a provider of commercial power systems. The PPM included Encorp’s past financial information and certain sales and profit projections, including for the period ending December 31, 2000. In February 2001, Wexford signed a purchase agreement with Encorp to purchase stock and warrants. Pursuant to the agreement, Encorp provided Wexford with financial statements as of September 30, 2000. The purchase agreement contained an integration clause and a disclaimer clause, which, together with the agreement’s other language, provided that investors could rely on the company’s financial information as of September 30, 2000, that the purchase agreement constituted the entire agreement between the parties, and that Encorp was making no other representations and warranties. Encorp’s actual financial performance in the last part of 2000 and in 2001 was worse than had been projected in the PPM. Encorp made efforts to reprice the stock sold to investors, in exchange for which investors would be required to sign releases of all claims against the company and its directors. Wexford rejected the settlement offer and sued Encorp, alleging a breach-of-contract claim and various fraud-based claims. Wexford argued that the financial information provided by Encorp in the PPM was materially misleading and that Encorp had breached the purchase agreement. Encorp moved to dismiss the claims.