Post-closing disputes are a common reality in middle-market M&A. When undisclosed liabilities, accounting irregularities, or inaccurate representations surface after a transaction closes, buyers in Orange County must rely on the representations, warranties, and indemnification framework built into the Purchase and Sale Agreement to recover losses.
Understanding reps, warranties, and breach claims
In corporate acquisitions, representations are statements of fact made by the seller about the target company’s financial condition, tax compliance, material contracts, intellectual property, and litigation exposure. Warranties are contractual promises that those representations are true. Under California contract law, a seller who understates tax liabilities or fails to disclose pending litigation may face a claim for breach of contract or contractual indemnification.
Key indemnification terms to understand
M&A agreements establish financial parameters that govern how post-closing claims are handled:
Survival periods define how long after closing a buyer can bring a claim. General representations typically survive 12 to 24 months. Fundamental representations covering corporate authority, capitalization, and tax compliance often carry longer periods tied to applicable statutes of limitations.
Baskets set a threshold before seller liability attaches. Under a deductible basket, the seller is liable only for losses that exceed the threshold. Under a first-dollar or tipping basket, once losses cross the threshold, the seller is responsible for all losses back to the first dollar.
Caps limit total seller liability, often expressed as a percentage of the purchase price and sometimes backed by escrow arrangements or Representations and Warranties Insurance policies.
Steps to enforce a post-closing claim
When a material breach is discovered, buyers must act within specific contractual windows:
- Review notice requirements immediately and serve a formal claim notice that identifies the breach, factual basis, and estimated loss before the survival period expires
- Check escrow and insurance terms to ensure any claim filing conditions are met before the deadline passes
- Evaluate fraud exceptions under California Civil Code section 1668, which prevents sellers from using contractual caps to shield intentional misrepresentations. If concealment was deliberate, common law fraud claims may be available outside the cap
- Confirm the dispute resolution forum, as many M&A agreements require JAMS arbitration rules or exclusive venue in California Superior Court
Each of these steps requires careful review of the specific agreement language before any action is taken.
Getting counsel involved early
Post-closing M&A disputes involve overlapping contract, accounting, and litigation issues. A business litigation attorney in California can analyze the PSA, identify viable claims, and help you pursue recovery within the timelines the agreement requires.