DealLawyers.com Blog

Don’t ignore Vice Chancellor Will’s opinion in Edwards v. GigaAcquistions2, LLC (Del. Ch.; 2025) just because you see right on page one that the claims were dismissed in full for either standing issues, the statue of limitations or being not reasonably conceivable. Give it some time because this Fried Frank briefing says, “Edwards indicates that the court may refuse to toll the statute of limitations for fraud where it perceives that the party who allegedly received false information engaged in a due diligence process that, in the court’s view, was limited.”

In Edwards v. GigaAcquistions2, LLC (July 25, 2025), the Delaware Court of Chancery dismissed a case, at the pleading stage, in which former members of Cloudbreak Health, LLC, a high-performing health care company, claimed that Cloudbreak was fraudulently induced to join in a de-SPAC combination with a group of financially distressed health care companies (the “Portfolio Companies”). The combined company went bankrupt post-closing. Cloudbreak had received oral assurances and management presentations indicating that the Portfolio Companies were financially sound and positioned for success. A few years after the closing, it came to light that the information about the Portfolio Companies’ financial wellbeing, that had been provided by the Portfolio Companies, their financial advisor and the SPAC sponsor, was false. The court dismissed the plaintiffs’ claims on several grounds—most notably, refusing to toll the statute of limitations for fraud, which had lapsed shortly before the suit was filed.

As the briefing notes, when refusing to toll the statute of limitations for fraud, “the court emphasized that Cloudbreak—rather than relying on the oral statements and management presentations provided to it—could have “request[ed] additional information on [the companies’] financial wellbeing.” The court rejected the plaintiffs’ argument that, as the companies were privately held, the information about them was entirely in the defendants’ hands and therefore undiscoverable.”

The “fundamental due diligence dillema” highlighted in the decision — i.e., that due diligence responses are provided by people acting on behalf of your counterparty and requesting additional information may simply mean getting more false information — just underscores the need to view diligence responses with a healthy dose of skepticism and to specifically address any particularly important (or potentially suspect) information in reps and warranties. The alert then provides some practice points on running a strong diligence process, and also this tip for buyers to quickly validate information post-closing:

Post-closing diligence review. We note that, where in the due diligence process a company was portrayed as financially sound, and post-closing the company is failing, a post-closing diligence review should be considered so that possible fraud (or breach of representations and warranties) can be established before expiration of the statute of limitations (or any agreed indemnification period). A post-closing checklist should be maintained to serve as a reminder of important dates and deadlines under law or set forth in the parties’ agreement.

And don’t forget to check out the great resources posted in our “Due Diligence” Practice Area here on DealLawyers.com.

– Meredith Ervine