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Court of Chancery Clarifies Delaware Law on “Sandbagging”—the Arwood Decision and Related Practice Points

M&A/PE Briefing | March 21, 2022

Arwood v. AW Site Services (March 9, 2022) is notable for clarifying that Delaware is a “pro-sandbagging” jurisdiction—that is, unless the parties provided otherwise in their acquisition agreement, a buyer that “sandbags” a seller is still entitled to indemnification for breach of the seller’s representations and warranties. The court also amplified the sandbagging doctrine by holding that it is only implicated when the buyer, pre-closing, “actually knew” of the falsity of representations and warranties, even if the buyer’s lack of actual knowledge was due to its own “reckless disregard” for their truth. In addition, the case offers important reminders for private equity firms when acquiring a small company, especially if from an unsophisticated seller. In our Briefing, we discuss “sandbagging”; analyze the court’s decision; and offer related practice points.

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