By Marcus Wolter and Crystel Saraie

What is sandbagging?

In the context of mergers and acquisitions (M&A), sandbagging refers to a situation where a buyer, after discovering that a seller’s representation or warranty in a purchase agreement is false, chooses to proceed with closing the transaction regardless. Subsequently, the buyer asserts a claim against the seller for breach of that representation or warranty, even though the buyer was aware, prior to closing, that it was untrue [1].

The Delaware Court of Chancery has defined sandbagging as “the practice of asserting a claim based on a representation despite having had reason to suspect it was inaccurate,” and more broadly as “to misrepresent or conceal one’s true intent, position, or potential in order to take advantage of an opponent”.

Delaware Court’s Stance on Sandbagging

Delaware has long been regarded as a “pro-sandbagging” jurisdiction, but the legal landscape was clouded in recent years by a 2018 Delaware Supreme Court decision (Eagle Force Holdings, LLC v. Campbell), which included dicta casting doubt on whether sandbagging was permissible when the acquisition agreement was silent on the issue [1]. This uncertainty has now been addressed in a series of recent decisions, most notably in In re Dura Medic Holdings, Inc. Consolidated Litigation (2025) and Arwood v. AW Site Services, LLC (2022) [1].

The Chancery Court has reaffirmed that, as a matter of default, Delaware law allows sandbagging unless the parties have expressly agreed otherwise in their contract [1]. In Dura Medic Holdings, Vice Chancellor Laster held that a seller’s disclosure of adverse information to the buyer outside the formal transaction documents “has no bearing on the legal analysis” if the merger agreement itself is silent on sandbagging. The court explained that reliance is not an element of a breach of contract claim in Delaware; the only question is whether a representation or warranty was breached.

This position is rooted in Delaware’s “profoundly contractarian predisposition,” which favors private ordering and upholds the risk allocation function of representations and warranties in commercial agreements. The courts have made clear that “Delaware is, or should be, a pro-sandbagging jurisdiction. The sandbagging defense is inconsistent with our profoundly contractarian predisposition.”

Buyers and sellers are free to negotiate and include explicit “pro-sandbagging” or “anti-sandbagging” provisions in their agreements. If the contract is silent, Delaware’s default is to allow sandbagging [1].

Implications for Sellers and Buyers

The Delaware courts’ clear endorsement of a pro-sandbagging stance has important implications for M&A transactions: buyers can enforce representations and warranties as written, even if they knew of breaches before closing, unless the contract specifically prohibits sandbagging, thereby strengthening their ability to seek post-closing remedies and manage risk. Conversely, sellers are exposed to greater risk if they do not negotiate explicit anti-sandbagging clauses, as information shared during due diligence but omitted from transaction documents may not shield them from future claims, making it essential for sellers to ensure accuracy and completeness in their representations, warranties, and disclosure schedules. 

Drafting Suggestions:

  1. Watch out for your governing law. Sellers under Delaware and New York law should require specific anti-sandbagging clauses.
  2. Pay close attention to the “Knowledge” definition (actual vs. constructive; named persons; timepoints). Ensure it aligns with your RWI policy’s knowledge exclusions (typically actual knowledge of named team members; known issues excluded). Mirror definitions to preserve coverage.
  3. Be specific about how diligence communications and disclosures are to be treated.
  4. Keep express fraud carve-outs and anti-reliance language to bar extra-contractual fraud.
  5. Think about the burden of proof. Does the Seller have to prove buyer knowledge?
  6. Align with exclusive remedy, survival, scrapes and baskets/caps provisions.

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Sources:

[1] Harvard Law School Forum on Corporate Governance. (2025, April 7). Chancery Court clarifies Delaware’s stance on sandbagging and transaction multiple for damages. Retrieved from https://corpgov.law.harvard.edu/2025/04/07/chancery-court-clarifies-delawares-stance-on-sandbagging-and-transaction-multiple-for-damages/

[2] American Bar Association. (2025, April). Chancery Court: Delaware’s sandbagging transaction calculate damages. Business Law Today. Retrieved from https://www.americanbar.org/groups/business_law/resources/business-law-today/2025-april/chancery-court-delawares-sandbagging-transaction-calculate-damages/

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