In DRS Family Holdings, Inc. v. Regal Buyer, LLC, C.A. No. 2025-1452-BWD (Del. Ch. Mar. 10, 2026), Vice Chancellor David addressed a narrow but practically significant question of contract interpretation: whether a fraud claim—carved out from a membership interest purchase agreement’s exclusive remedy provision—nevertheless triggers the investigation rights afforded to an indemnifying party under the agreement’s Direct Claims process. The Court held that it does, and entered summary judgment for the plaintiffs.

Background

DRS Family Holdings, Inc. and Daniel Shaughnessy sold membership interests to Regal Buyer, LLC pursuant to a Membership Interest Purchase Agreement (the “MIPA”). Following the closing, Regal Buyer asserted a fraud claim against the sellers. The dispute that followed centered not on the merits of the fraud allegation itself, but on a threshold procedural question: whether the sellers were entitled to investigate the claim before it could proceed.

The MIPA contained the typical architecture of a post-closing indemnification framework. Article IX established the parties’ indemnification obligations, Section 9.06(c) set out the process for “Direct Claims”—that is, claims not involving third parties—and Section 9.08 provided that indemnification under Article IX was the parties’ exclusive remedy for breach of the MIPA, with a carve-out for fraud.

The critical provision was Section 9.06(c), which gave the indemnifying party a thirty-day period to investigate any Direct Claim before the claiming party could pursue it further. DRS and Shaughnessy argued that Regal Buyer’s fraud claim qualified as a Direct Claim under the MIPA’s definitions and was therefore subject to the investigation right. Regal Buyer took the opposite view, arguing that because its fraud claim was carved out from the exclusive remedy provision in Section 9.08—meaning it could pursue remedies beyond the indemnification cap—the fraud claim did not arise “under” the indemnification provisions and therefore fell outside the scope of Section 9.06(c) entirely.

Analysis

Vice Chancellor David found the MIPA’s language unambiguous and resolved the dispute on summary judgment. The Court examined the interplay between the MIPA’s defined terms and its substantive provisions, focusing on how the agreement defined key terms like “Losses” and “Direct Claims.”

The agreement defined “Losses” broadly to include damages arising from fraud, and the Direct Claims provision in Section 9.06(c) applied to any claim for Losses brought by an indemnified party against an indemnifying party. Vice Chancellor David concluded that Regal Buyer’s fraud claim fell squarely within these definitions—it was a claim for Losses asserted by an indemnified party against an indemnifying party, and it did not involve a third-party claim. It was, by the MIPA’s own terms, a Direct Claim.

The Court then rejected Regal Buyer’s central argument—that the fraud carve-out in Section 9.08 somehow removed fraud claims from the indemnification framework altogether. Vice Chancellor David drew a careful distinction between two related but separate concepts: the scope of available remedies and the procedural framework governing how claims are asserted. Section 9.08’s fraud carve-out expanded the universe of remedies available to a fraud claimant by removing the indemnification cap, but it did not exempt fraud claims from the procedural requirements of the Direct Claims process in Section 9.06(c).

As the Court explained, these provisions serve different functions. The exclusive remedy clause limits remedies; the Direct Claims process establishes the procedure for asserting claims. A carve-out from the former does not imply a carve-out from the latter. The MIPA could have been drafted to exempt fraud claims from the investigation right, but it was not—and the Court declined to read such an exemption into the contract.

Key Takeaways

This decision is a useful reminder that careful drafting of M&A indemnification provisions matters enormously, particularly at the intersection of exclusive remedy carve-outs and procedural claim requirements. Practitioners should not assume that a fraud carve-out from an exclusive remedy provision automatically removes fraud claims from the procedural framework governing how claims must be brought. These are distinct contractual mechanisms that serve different purposes.

For buyers, the lesson is that if you want fraud claims to bypass the Direct Claims investigation process, the agreement needs to say so explicitly. A carve-out from the exclusive remedy provision, standing alone, will not be read to exempt fraud claims from the procedural protections afforded to the responding party. And for sellers, this decision reinforces the importance of the investigation right—even when the buyer’s claim is not subject to the indemnification cap, the seller retains the contractual right to investigate before the claim proceeds.