Explore the intricacies of M&A transactions through the lens of a recent legal battle in Brooklyn, where a buyer challenges a seller’s anti-reliance clause after a business deal goes awry. This insightful blog delves into the importance of clearly defining representations and warranties in purchase agreements, the implications of New York law on anti-reliance clauses, and practical tips for buyers and sellers to safeguard their interests. Whether you’re an M&A professional, legal expert, or simply curious about the legal aspects of business acquisitions, this post offers valuable lessons from a real-world case.
M&A Stories
June 19, 2024
M&A sellers often seek to limit their exposure to representations and warranties in purchase agreements. A common strategy is the inclusion of an anti-reliance clause, where the buyer disclaims reliance on any seller representations and warranties outside the written agreement.
In a recent case, a buyer purchased the assets of a Brooklyn bagel store, only to find that the business did not perform as expected. The buyer then sued the seller in a Brooklyn trial court for fraud, claiming they were misled by the seller’s statement that the business generated $250,000 in net income.
The seller sought to dismiss the suit via summary judgment, arguing that the anti-reliance clause in the purchase agreement precluded the buyer from relying on any oral representations about the store’s net income.
However, the trial court denied the seller’s motion. Under New York law, an anti-reliance clause must specifically identify the subject matter of the seller’s oral representations and warranties that the buyer cannot rely upon. In this case, the anti-reliance clause only pertained to the store’s assets and subleases, with no mention of net income.
Thus, the buyer’s lawsuit survived this pre-trial challenge, allowing the litigation to proceed.
Including anti-reliance clauses is a common practice for sellers. Buyers, on the other hand, should ensure that all critical seller representations and warranties are explicitly stated in the purchase agreement to protect their interests.
Case Reference: I & M Kosher Catering LLC v. Bhng Inc., Index No. 523834/2019, Motion Seq. No. 3, Supreme Court, Kings County, (May 30, 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners management, as well as professionals who share an interest in the complexities of M&A law.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Podcasts https://www.buzzsprout.com/2142689/12339043
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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