Litigation: 3 common pitfalls of asset purchase agreements

Avoiding boilerplate language in APAs will save time and money if litigation arises

Those drafting or reviewing asset purchase agreements (APAs) may allow their desire to close a deal quickly to overpower their ability to foresee problems that may arise after the deal is done. This article provides a brief explanation of three aspects of APAs that often arise in litigation, as well as some guidance on how in-house counsel can rewrite APAs to avoid these pitfalls.

1. Representations and warranties

Second, ensure that you understand the applicable arbitration rules and process as a whole, as they differ from typical state and federal court litigation. For example, many ADR rules do not address what the arbitrator’s qualifications must be for a particular dispute, how the arbitrator will be selected, what discovery can be taken, what evidentiary rules apply or whether dispositive motions can be filed. Generally, the courts are likely to allow such procedures only if an arbitration clause includes such provisions. If you want certain discovery procedures or evidentiary rules to apply or if you want some level of review beyond the typical statutory grounds for vacating an arbitration award, you need to include those terms, including the use of an appellate arbitration panel, as part of the arbitration clause.

Finally, if the transaction involves a guarantor, surety or other third-party you want to be bound by the APA’s arbitration clause, it is important to make certain that the clause expressly includes them. Merely having the third-party guarantee the contractual obligations of the seller or buyer as a whole may not bring them within the reach of the APA’s arbitration clause.

Contributing Author

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Ronald Hicks Jr.

Ronald L. Hicks, Jr. is a partner at Pittsburgh law firm, Meyer, Unkovic & Scott LLP and Vice-Chair of the firm’s Business & Tort Litigation...

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