July 4, 2004
Tire Kicking is a Good
A who buyer doesn’t want conduct due diligence? Been there, done that. Ever been tempted to tell the client (buyer) that a full-body-armor set of reps could serve as a substitute for buyer’s lack of adequate due diligence. That thought has crossed my mind…
A recent (well, kind of) article in March 8 issue of The Deal, however, reminded me that merely “buying seller’s reps” may not be the smoothest path to M&A nirvana.
The authors, Todd David and Marc Gustafson of Alston & Bird, discussed their successful defense of a seller against buyer’s negligent misrepresentation claim. Essentially, they convinced the court, applying NY law, that buyer failed to exercise adequate due diligence in investigating the truth of seller’s reps.
The authors also point out that the buyer’s duty to protect itself from misrepresentation through due diligence is commensurate with buyer’s sophistication.
So, does this mean that buyer always has a common law duty to investigate? Can we really sleep at night relying on contractual provisions (hopefully) preserving the benefit of buyer’s bargain as framed in seller’s reps? Is this all part of that caveat emptor thing? Sounds like it.
One thing’s for sure, notions of duty to investigate, reasonable reliance and the like, give us lawyers lots of ammo to convince our clients that our sending the hoards of young lawyers to lay siege upon seller’s sprawling suburban corporate campus is good for the client’s business – and ours.
The Gipper’s approach with the USSR still rings true: Trust … but verify.