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When Delaware speaks, deal lawyers listen. And in In re Dura Medic Holdings, Inc., Consolidated Litigation, Cons. C.A. No. 2019-0474-JTL (Del. Ch. Feb. 20, 2025), the Delaware Court of Chancery clarified two issues that routinely shape private M&A negotiations:
(1) Whether Delaware remains a pro‑sandbagging jurisdiction, and
(2) When a buyer can use a transaction multiple to calculate damages for a breach of representations and warranties.
If you’re a Washington business owner, or an LLC member preparing for a sale, these developments may feel distant. But the logic behind them touches the same contract structures Washington companies rely on every day. And in a market where buyers are increasingly aggressive in post‑closing disputes, understanding how other jurisdictions treat these issues can help you draft stronger agreements here at home.
1. Sandbagging: Delaware Removes the Fog
“Sandbagging” is the scenario every seller dreads: the buyer closes the deal knowing a representation may be inaccurate, then sues post‑closing anyway. The term carries a negative connotation, but the legal question is simple: Does the buyer’s pre‑closing knowledge bar its claim?
In Dura Medic, the sellers argued exactly that. They had disclosed certain regulatory notices during diligence, even if those notices never made it into the disclosure schedules. The buyer said the representation was still breached. Delaware agreed with the buyer.
The Court reaffirmed what many practitioners long assumed: If the contract is silent, Delaware defaults to a pro‑sandbagging rule. Buyers may rely on the four corners of the agreement, even if they had reason to suspect a breach before closing.
For dealmakers, this means silence favors the buyer. If sellers want protection, they must negotiate for an anti‑sandbagging clause.
2. Damages Based on a Transaction Multiple: A Narrow but Powerful Tool
The Court also addressed when a buyer can calculate damages using a transaction multiple. For example, applying the EBITDA multiple used to price the deal to quantify the harm caused by a breach.
Delaware’s answer: only when the breach affects the valuation inputs the parties relied on to price the deal. In Dura Medic, undisclosed regulatory issues directly undermined the financial assumptions baked into the purchase price. That opened the door to a multiple‑based damages model.
This is a reminder that representations and warranties aren’t just boilerplate, they are valuation statements. When they’re wrong, the damages can scale quickly.
3. The Practical Takeaway for Washington Business Owners
If you’re preparing to sell your Washington LLC, or negotiating to buy one, Delaware’s latest guidance offers a simple lesson:
Silence is not neutral. Silence shifts risk.
And while the Four Tops may have been right that “silence is golden” in some contexts, in deal documents, silence is rarely your friend. In fact, silence on sandbagging, silence on damages models, and silence in disclosure schedules can all create outcomes no one intended.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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