Explore a recent M&A case where a buyer’s claim in a software breach dispute was dismissed. Gain insights into the importance of language in release agreements and learn from the experiences of a Jacksonville-based insurance company acquiring a Fort Lauderdale-based private insurance company.
M&A Stories
October 25, 2018
Title: Dispute Resolution in M&A: Buyer’s Claim Dismissed in Software Breach Case
Date: October 25, 2018
In a recent M&A case, a Jacksonville-based insurance company (Buyer) acquired a Fort Lauderdale-based private insurance company and its subsidiaries (Target) from the seller. The stock purchase agreement included a representation by the seller that a software application, developed for Target by a vendor, was in adequate operating condition.
As part of the agreement, the seller provided the buyer with a closing date statement, outlining Target’s adjusted book value. This value served as a basis for adjusting the purchase price, depending on the difference in Target’s book value before and after the closing.
Upon receiving the closing date statement, the buyer raised objections, including the contention that the software application was defective and worthless. Despite other issues being resolved in favor of the buyer, the selected accounting firm affirmed the correct booking of the software application at its fully amortized cost.
Following a signed release agreement, where the seller agreed to pay approximately $1.6 million, the buyer pursued legal action in a New York court, alleging a breach of the representation and warranty regarding the software application’s condition. The seller sought dismissal, arguing that the payment under the release fully satisfied all claims, including the software’s alleged defects.
The court sided with the seller, dismissing the buyer’s claim. In hindsight, negotiation of language in the release could have preserved the buyer’s right to pursue the defective software claim against the seller.
Case Reference:
This case is referred to as Cypress Group Holdings, Inc. v. Onex Corp., 7020, 653408/15, Appellate Division of the Supreme Court of New York, First Department (Decided October 9, 2018).
https://scholar.google.com/scholar_case?case=12070284192468640179&hl=en&as_sdt=6&as_vis=1&oi=scholarr
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
Legal Disclaimer
The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.
Recent Comments