A Delaware state judge has allowed Novipax Holdings to proceed with a lawsuit stemming from its $80 million acquisition of a competitor's foam tray business, finding the Illinois manufacturer had viable claims for fraud and breach of contract.

Delaware Superior Court Judge Eric M. Davis on Tuesday denied defendant Sealed Air Corp.'s motion to dismiss the case, which accused the company of making false statements in order to dupe Novipax into purchasing a business that it knew was no longer viable.

In a 34-page ruling, Davis rejected Sealed Air's assertions that procedural and time bars in two contracts had prevented Novipax from pursuing its claims in court.

“After the parties closed the transaction, Novipax learned that those representations were false, and that Sealed Air did not correct the misrepresentations before closing in an attempt to induce Novipax into closing the transaction,” Davis wrote. “This is sufficient to support a claim for fraudulent inducement at this stage in the litigation.”

Novipax sued for damages in March, after discovering supposed violations of the 2015 deal, which required Sealed Air to disclose any “material adverse effects” or changes to its foam tray business.

According to court documents, the airtight products are used to package food for sale to retail stores or directly to consumers, like Tyson Foods and Cargill Foods. The impressive customer base for Sealed Air's foam trays made the business an appealing target for Novipax, and the companies agreed to the terms of the deal in February 2015 and closed two months later.

However, Novipax said in its complaint that Sealed Air knew by March 2015 that its clients were gravitating away from the foam tray and toward rigid ones, which were not a part of the transaction. Despite that knowledge, Novipax said, Sealed Air was careful to hide the trend and never warned the company about the customer migration or other dangers, and it never discovered the problems until well after the deal had closed.

“Given the carefully concealed fraud perpetrated by the sellers on the buyer pre-closing, as well as the deceitful conduct by the sellers under the transition services agreement post-closing, it has taken the buyer several quarters to discover the fraud and experience the true impact of the losses caused by the sellers, including the loss of volume suffered by the business and the financial loss resulting therefrom,” Novipax's attorneys wrote in the complaint.

Sealed Air responded that contractual provisions in the two agreements had barred the fraud claim, an argument that was directly at odds with Novipax's reading of a conflicting provision. And the company argued that Novipax had “bootstrapped” its fraud claim to its claim for breach of contract, a maneuver that is not allowed in Delaware.

On Tuesday, Davis declined to dismiss the suit based on the companies' two reasonable interpretations of the agreements, and he said that Novipax had established a viable claim for fraud, separate from the breach of contract claim.

“These allegations, if true, go beyond a mere intention not to comply with the terms of the agreement. As such, at this juncture, the fraud claim is different from the breach of contract claim,” Davis said, cautioning that the issue may need to be revisited at trial.

Attorneys for both sides were not available Wednesday to comment.

Novipax is represented by Robert Hoffman, Michael J. Chiusano and James C. Bookhout of Andrews Kurth Kenyon and Jeffrey Moyer, Richard P. Rollo and Travis S. Hunter of Richards, Layton & Finger.

Sealed Air is represented by Robin Cohen and Natasha Romagnoli of McKool Smith and Kenneth J. Nachbar, John P. DiTomo and Barnaby Grzaslewicz of Morris, Nichols, Arsht & Tunnell.

The case is captioned Novipax v. Sealed Air.