Key Takeaways from Recent M&A Case: Buyer’s Indemnification Rights Clarified

Explore the legal intricacies of a recent M&A case where a restraint system manufacturer acquired a seat belt producer, leading to a dispute over indemnification for pre-closing product liability claims. Understand the court’s ruling and the implications for buyers and sellers in similar situations.

M&A Stories

October 30, 2018

In a recent M&A case, a South Bend, Indiana-based restraint system manufacturer acquired an Oklahoma City seat belt producer, leading to a dispute over indemnification for pre-closing product liability claims.

Background:

The buyer agreed to purchase the seller’s company on January 30, 2013, with the specifics outlined in a stock purchase agreement. The agreement included indemnification provisions requiring the seller to cover damages resulting from product-related injuries occurring before the closing date.

Key Points:

The seller committed to indemnifying the buyer for breaches of representations or warranties, with this liability extending until the second anniversary of the closing (January 30, 2015). Despite the buyer filing a claim on October 9, 2015, seeking indemnification for product liability claims made after the closing, the seller argued that the claim was time-barred.

Court Ruling:

The court sided with the buyer, asserting that the two-year provision applied solely to breaches of representations or warranties, not to breaches of the seller’s promise to indemnify the buyer for losses from pre-closing product sales.

Implications and Commentary:

This case emphasizes the common practice of limiting a seller’s exposure to a buyer for breaches of representations or warranties within a specific timeframe post-closing. Sellers in product businesses often remain responsible for issues arising from pre-closing product sales for the duration of the applicable statute of limitations.

Case Reference:

Ark Group, Inc. v. Shield Restraint Systems, Inc., Civil Action No. 1:18-cv-00755-RGA, United States District Court, D. Delaware (October 10, 2018).

By John McCauley: I help people start, grow, buy and sell their businesses.

Email: jmccauley@mk-law.com

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