Mark J. Oberstaedt, left, and Nick Franchetti, right, of Archer & Greiner.
When an important M&A contracting strategy goes by the moniker “sandbagging,” it is safe to assume the strategy is controversial.
The concept of sandbagging is relatively simple. In jurisdictions that allow M&A purchasers to sandbag sellers, a buyer has the right to rely on the verbatim text of the sale agreement and does not need to show it relied on the accuracy of the representations and warranties in the sale agreement in order to sue if one of the representations or warranties is inaccurate. At its extreme, a purchaser can have specific knowledge prior to closing that a representation or warranty is inaccurate, keep that information to itself, and then sue for breach of that representation the day after closing. While the concept has been challenged as both inequitable and unethical by certain commentators and courts, some courts have endorsed the theory by relying on strict rules of contracting.
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