September 18, 2008

Ninth Circuit Limits Survival Clause in Deal Governed by California Law

As noted in this memo, in what the court described as “an issue of first impression” – in Western Filter Corporation v. Argan (CD Cal.; 8/08) – the Ninth Circuit Court of Appeals applied California law and narrowly construed a stock purchase agreement provision that purported to limit the survivability of representation and warranty claims.

As noted in the memo, “The court held that the provision did not limit the time to bring claims for breaches of representations and warranties, but only determined the period during which “a breach of the representations and warranties may occur,” effectively negating the provision. As a result of the ruling, limited survivability provisions in M&A transactions governed by California law may not be effective unless carefully and properly drafted.”