BBP Holdco v. Brunswick: Delaware Superior Court reinforces M&A fair disclosure standards

In BBP Holdco, Inc. v. Brunswick Corporation, decided July 14, the Delaware Superior Court delivered a resounding defense of the “fair disclosure” standard in M&A transactions. Judge Paul R. Wallace’s 45-page decision after an 11-day trial rejected all fraud and breach of contract claims brought by buyers who alleged that the seller failed to adequately disclose the potential scope of European regulatory issues affecting bowling pinsetter products.

The case serves as a crucial reminder that sophisticated buyers cannot rely on sellers to predict every possible regulatory twist and turn, and that proper disclosure by sellers, combined with an opportunity for independent investigation, provides adequate protection under Delaware law.

Background and transaction structure

The deal

In May 2015, Brunswick Corporation sold its Brunswick Bowling & Billiards division (“BBB,” later renamed “Brunswick Bowling Products”) to BBP Holdco, Inc. and affiliated entities for an undisclosed amount. The transaction was structured as a stock and asset purchase agreement (“SAPA”) with typical representations, warranties, and indemnification provisions. The buyer group, represented by BlueArc Capital Management, included private equity backing from Gladstone Investment Corporation and PNC Bank. The transaction involved extensive due diligence with multiple third-party advisors, including law firms, accounting firms, and industry consultants.

The regulatory issue

The dispute centered on an ongoing regulatory matter with Swedish authorities regarding Brunswick’s GSX bowling pinsetters. The chronology was complex:

2012: The Swedish Work Environment Authority (“SWEA”) issued a notification to Brunswick’s Swedish distributor expressing concerns that GSX pinsetters might not comply with Article 11 of EU Machinery Directive 2006/42/EC.

August 2013: SWEA issued a formal “decision” prohibiting sales and arguably requiring a recall of GSX pinsetters with identified safety deficiencies. However, the decision was directed to Brunswick’s Swedish distributor, not Brunswick directly.

2013-2015: Despite the decision, Brunswick continued shipping pinsetters to Sweden with modifications to address inspector concerns. Brunswick’s Swedish counsel advised that shipments of compliant machines would not trigger fines. Internal communications showed Brunswick believed the issue would be resolved favorably, as had occurred with similar regulatory challenges in the UK, Finland, and Germany.

2014: Brunswick met with both SWEA officials and European Commission representatives, reporting that meetings “went very well” and expressing optimism about resolution.

The SAPA disclosure and due diligence process

What seller Brunswick disclosed

Brunswick disclosed the regulatory issue in multiple ways:

1. Schedule 3.16 of the SAPA: Explicitly mentioned that BBB’s Swedish distributor “received notification from the Swedish Work Environment Authority that SWEA believed that Brunswick’s GSX pinsetter did not conform to certain provisions of Article 11 of the Machinery Directive 2006/42/EC.”
2. Conference calls: December 2014 call where Brunswick characterized the issue as routine regulatory matter that was “not something that is of material concern.”
3. Document requests: When buyers requested additional information, Brunswick pointed them to Schedule 3.16.

The buyers’ due diligence approach

BlueArc performed a significant amount of due diligence on behalf of BBP, but the due diligence revealed several critical decisions that would later undermine BBP’s claims:

• No subject matter experts: BBP hired no experts on European machinery regulations
• No independent research: BBP conducted no internet searches on Article 11 of the Machinery Directive, despite it being publicly available
• Declined European counsel: When BBP’s U.S. counsel requested permission to hire Swedish or other European lawyers to investigate the issue, BlueArc refused
• Conscious reliance: BBP explicitly chose to rely on Brunswick “to identify the risks that they had deemed to be material and most critical.”
  • As lead BlueArc representative, James Jaxon testified: “You know, as someone who had never done anything in the bowling industry before, we had to rely on the seller to identify the risks that they had deemed to be material and most critical.”

The post-closing unraveling

The recall materializes

In November 2015, months after closing, SWEA issued a “formal request” requiring BBP to apply modifications to all pre-existing pinsetters across Sweden. This was the first actual recall demand.

The situation escalated significantly:

December 2018: The European Commission issued an “implementing decision” confirming SWEA’s measures were justified.

2018-2023: BBP spent years fighting the regulatory decisions through EU courts, ultimately losing at both the General Court and Court of Justice of the European Union levels.

August 2023: After losing all appeals, BBP switched from resistance to compliance, implementing the strictest remedial measures across all of Europe at a cost exceeding $23 million.

The lawsuit

BBP brought multiple claims against Brunswick seeking over $23.1 million plus attorney’s fees and interest:

1. Fraud by silence: Alleging Brunswick had a duty to speak but failed to disclose crucial information
2. Fraud by concealment: Claiming Brunswick deliberately hid material facts
3. Fraud by misrepresentation: Alleging false statements in SAPA Sections 3.15, 3.16, 3.17, and 3.22
4. Breach of contract: Based on the same allegedly false representations
5. Breach of indemnification obligations: Seeking coverage under SAPA Section 8.1.

The court’s analysis and holdings

No duty to speak; Fair Disclosure Standard met

Judge Wallace began with fundamental Delaware law principles: absent a pre-existing fiduciary or contractual duty, there is no general duty to disclose in arm’s-length transactions. However, if a party chooses to speak, it cannot “lie or speak partially or obliquely such that what the party conveys becomes misleading.”

The court found Brunswick’s disclosure satisfied Delaware’s “fair disclosure” standard:

“Brunswick disclosed what was needed, so that its representations were not materially misleading. And Brunswick permitted BBP to conduct its own investigation.”

Critically, the court emphasized that Delaware law does not require disclosure of “every single detail about a certain matter” or “speculative information which would tend to inundate [the listener] with an overload of information.” For sophisticated parties, disclosure must be “fair”—providing enough facts to allow independent investigation.

Sophisticated party standard applied

The court relied on In re JCC Holding Co., Inc., 843 A.2d 713 (Del. Ch. 2003) and repeatedly emphasized BBP’s sophistication:

• Extensive due diligence team with multiple advisors
• Prior experience in similar transactions
• Explicit acknowledgment in SAPA Section 4.7 that BBP had “conducted its own independent investigation”

The court noted that BBP’s expert witness admitted it was “industry custom for a buyer to conduct due diligence by independently searching publicly available information outside the Data Room.”

Article 11 put BBP on notice

A key finding was that Brunswick’s disclosure of Article 11 of the Machinery Directive provided adequate notice of potential recall risk. The court noted that Article 11 was publicly available, and BBP’s own counsel admitted that key provisions of the regulation could be understood as a recall. Yet BBP chose not to investigate this publicly available regulation.

No deliberate concealment

The court rejected fraud by concealment claims, finding no evidence that Brunswick “took some action affirmative in nature designed or intended to prevent…the discovery of facts.” Instead, Brunswick disclosed its honest belief that the issue was not material, based on:

• Positive engagement with regulators
• Past success resolving similar issues in other jurisdictions
• Internal probability assessments showing only 20% chance of significant recalls and 5% chance of the worst-case scenario.

The court distinguished between an “error in prediction” and deliberate concealment: “The law is rightly reluctant to find that mere expressions of opinion about the future can buttress a claim of fraud.”

BBP’s contract claims fail due to Brunswick’s proper disclosure schedule structure

The court’s analysis of specific SAPA provisions demonstrates sophisticated contract interpretation:

Section 3.16 (regulatory notices): Even if SWEA’s communications constituted “written notice” of noncompliance, Schedule 3.16 properly disclosed these facts, creating a carve-out from the representation.

Section 3.22 (product recalls): No “recall” existed as of closing under the plain meaning of that term. The November 2015 formal request was the first actual recall demand.

Sections 3.15 and 3.17 (government authorizations and legal proceedings): The court applied cross-sectional disclosure principles, finding that Schedule 3.16’s disclosures applied to multiple SAPA sections under the agreement’s “reasonably apparent” standard.

Contractual interpretation principles

The decision provides valuable guidance on disclosure schedule interpretation:

1. Preamble language matters: The SAPA’s Article 3 preamble stating disclosures applied “except as otherwise set forth in the disclosure schedule,” created broad exceptions.
2. Cross-sectional application: Disclosures can apply to multiple representations where “reasonably apparent on its face.”
3. Plain meaning controls: Undefined terms like “recall” and “legal proceeding” receive their ordinary dictionary definitions.

Takeaways and implications for dealmakers

For sellers

The BBP Holdco decision provides significant protection for sellers who make fair disclosures. Key takeaways:

• Fair disclosure is sufficient: Sellers need not provide exhaustive detail about every issue—only enough information to put sophisticated buyers on notice
• Document your rationale: Brunswick’s internal communications showed genuine belief the issue would resolve favorably, distinguishing honest predictions from fraudulent concealment
• Use broad disclosure language: Cross-sectional disclosure provisions can protect multiple representations
• Reference public materials: Pointing buyers to publicly available regulations satisfies disclosure obligations.

For buyers

The case serves as a cautionary tale about inadequate due diligence:

• Hire subject matter experts: Retain industry-specific expertise for regulated industries and cross-border transactions
• Research disclosed regulations: When sellers reference specific laws, independently investigate their requirements and enforcement history
• Engage local counsel: For international issues, retain qualified foreign counsel regardless of cost
• Document diligence decisions: If choosing not to investigate disclosed issues, explicitly document that decision.

Contract drafting lessons

• Define key terms: Avoid disputes by defining “recall,” “legal proceeding,” and “governmental authorization”
• Coordinate disclosure schedules: Ensure proper alignment with representations and broad cross-referencing language
• Use knowledge and materiality qualifiers: These can limit exposure for unknown future developments.

The court’s conclusion: A return to fundamental principles

Judge Wallace concluded with a pointed observation that perfectly captures the case’s significance:

“[BBP’s] claims now hyperfixate on a particular issue in this deal that—for good reason given Brunswick’s prior experience and BBP’s then-shifting focus on other aspects of the sale—seemed of little moment to either party at the time but—to all parties’ surprise and dismay—simply went unexpectedly (and expensively) sideways.”

This “hindsight-infected view” warning serves as the decision’s most important message for dealmakers. The M&A process cannot—and should not—eliminate all risks of adverse post-closing developments. Delaware law’s fair disclosure standard recognizes this reality while still providing adequate protection for buyers who conduct appropriate due diligence.

The decision reinforces time-tested principles that sophisticated parties entering arm’s length transactions bear responsibility for protecting their own interests through proper investigation. Sellers need not be prophets; they need only be fair in their disclosures and honest in their communications.

For buyers, the lesson is clear: disclosed regulatory matters, particularly those involving foreign jurisdictions and publicly available legal requirements, demand independent investigation regardless of the seller’s characterization. The comfort of relying on seller representations cannot substitute for the hard work of comprehensive due diligence.

Ultimately, BBP Holdco v. Brunswick Corporation serves as a valuable reminder that Delaware courts will enforce the traditional allocation of risk and responsibility that has long governed sophisticated commercial transactions. In an era of increasingly complex regulatory environments and global commerce, this adherence to fundamental principles provides essential predictability for dealmakers on both sides of the transaction table.

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