MBI Acquisition Partners, L.P. v. Chronicle Publishing Co.

Chronicle Publishing Company (Chronicle) (defendant) owned MBI Publishing Company, a Wisconsin corporation. In 1999 MBI Acquisition Partners, L.P. (MBI Acquisition) placed a bid to purchase MBI Publishing for $46 million. Throughout discussions between Chronicle and MBI Acquisition, Chronicle represented that it had disclosed to MBI Acquisitions all real estate leases to which MBI Publishing was a party. However, Chronicle did not disclose a lease for a warehouse that contained $1 million in unprocessed customer returns. By not disclosing the unprocessed returns, Chronicle was able to overvalue MBI Publishing by $10 million. MBI Acquisition purchased MBI Publishing and entered into a purchase agreement with Chronicle. The purchase agreement contained an integration clause stating that the only representations the parties relied on were those contained in the agreement. The purchase agreement also contained a choice-of-law provision stating that the agreement would be interpreted according to California substantive law. After the purchase, MBI Acquisition learned of the undisclosed warehouse and unprocessed customer returns. MBI Acquisition filed a lawsuit in the United States District Court for the Western District of Wisconsin, alleging that Chronicle had violated Wisconsin state law and federal securities law by failing to disclose the warehouse and unprocessed returns and by inflating the value of MBI Publishing. Chronicle filed a motion to dismiss, arguing that MBI Acquisition’s Wisconsin state-law claims had to be dismissed because of the choice-of-law provision and that the integration clause barred MBI Acquisition’s claims related to Chronicle’s failure to disclose the warehouse and unprocessed returns.