Here's an engaging story inspired by a true case to answer a key question for successful business owners:

What are the consequences of hiding information about your business from a potential acquirer?

The Cost of What You Don’t Disclose

When Jonah Patel acquired Meridian Biologics in late 2017, it looked like a good bet. The founders pitched a tight ship: clean compliance history, FDA protocols in order, and a pipeline poised for growth.

Jonah did his homework. He brought in counsel, negotiated a detailed purchase agreement, and made sure it included strong representations about regulatory compliance. The contract gave him five years to bring any claims. After that, the slate would be wiped clean.

At least, that’s how it looked on paper.

The first crack appeared in early 2019. A letter from the Department of Health and Human Services landed on Jonah’s desk. It raised questions about mislabeled product shipments sent to clinics in four states. At first, he assumed it was a routine mix-up.

But during the company’s internal review, five emails surfaced. All were dated before the acquisition. All were between one of the founders and a federal investigator. None of them had been disclosed during diligence.

Jonah’s attorney cross-checked the emails against the diligence folder. Several threads were missing. Some documents appeared altered. This wasn’t sloppiness. It looked intentional.

When he confronted the sellers, they didn’t deny what happened. They signed a short letter reaffirming their indemnification obligations under the original agreement. But they made no changes to the survival clause, which still said that all claims would expire five years after closing.

Fast forward to 2023, Jonah sued. He claimed breach of contract, fraudulent inducement, and sought indemnification.

The sellers fired back: “Too late. The five years are up.”

Jonah’s counsel argued that the clock shouldn’t have started in 2017. The concealment had lasted well into 2020. The timeline should start from when Jonah could have known something was wrong, not from the day the ink dried.

The trial judge didn’t buy it. Citing an older case, the judge said contractual deadlines were firm, even if someone played hide-and-seek with the facts. Case dismissed.

But the Delaware Supreme Court reversed that decision.

The justices found that when one party actively conceals material facts — by withholding or altering documents, for example — the survival period does not necessarily begin on the date of closing. Instead, it begins when the other party is put on notice that something may be wrong. In Jonah’s case, that was 2020. His 2023 lawsuit was therefore timely.

The Court also clarified something important for anyone drafting or relying on survival clauses. Even when a limitation period is written into a contract, it can still be paused if the other side is proven to have engaged in fraudulent concealment.

The Takeaway for Business Owners

So, dear business owners, remember, if you try to gain an advantage by hiding important information from a potential acquirer, a court may turn that advantage against you. For sellers, full disclosure protects the deal long after closing. Concealing problems might get the deal done, but it also risks wiping out the contract’s protections. For buyers, pay attention to what surfaces later. If something was hidden, the clock may not be ticking against you just yet.

This story is based on a real court case, with names and details modified for clarity and confidentiality. The legal principles remain the same, providing important lessons for business owners facing similar situations.

Are you wondering about any of the issues mentioned above? Please email us at info@wilkinsonlawllc.com or call (732) 410-7595 for assistance.

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