This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
Take a typical situation: a buyer is three weeks from closing on a Florida distribution business. The purchase agreement contains the usual seller representations — the financials are accurate, the customer relationships are intact, no undisclosed liabilities. Then a diligence call surfaces something. The target’s second-largest customer has quietly moved a third of its volume to a competitor, and the trailing-twelve-months revenue schedule doesn’t show it yet. The buyer’s deal team debates raising it, decides the price still works, and closes on schedule. Eight months later, the revenue hole is real, and the buyer sends an indemnification demand for breach of the customer-relationships rep. The seller’s response writes itself: you knew. You closed anyway. You don’t get to buy the company at a price that reflects the problem and then sue me for the problem.
That move — closing with knowledge of a breach and suing on it afterward — is what deal lawyers call sandbagging. Whether it works is one of the sharpest unresolved questions in private M&A, and it has a peculiar shape in Florida: the state whose businesses generate thousands of lower-middle-market deals a year has never squarely told those parties what the default rule is.
The question is whether a warranty is a promise or an inducement
Everything turns on how you characterize a contractual representation. If a warranty is a bargained-for allocation of risk — the seller promised the customer base was stable, priced that promise into the deal, and bears the loss if the promise was false — then the buyer’s state of mind is irrelevant. The promise either was true or it wasn’t. New York’s highest court took that view decades ago in the CBS v. Ziff-Davis line: the buyer purchased the warranty itself, the seller’s insurance against the stated facts being wrong, and reliance on the truth of the underlying facts is not an element of the claim.
If instead a warranty claim is a species of misrepresentation — a statement the buyer must have believed and acted on — then knowledge is fatal, because a party cannot rely on a statement it knew to be false. That is the anti-sandbagging intuition, and it has real force with judges who see a breach-of-rep claim as fraud in a suit. Delaware has spent a decade edging toward the first view without fully committing; the state of that guidance, and the Eagle Force footnote fight, is covered in my earlier post on Delaware’s sandbagging default. The short version: Delaware leans pro-sandbagging as a default, respects the contract when the parties write the answer down, and has left just enough daylight to keep litigators employed.
Florida has answered the fraud half, not the warranty half
Florida’s appellate courts have not delivered a clean holding on whether buyer knowledge defeats a pure breach-of-warranty claim in a business acquisition. What Florida law does supply is two doctrinal anchors on either side of the question.
First, on the fraud side, knowledge kills. Fraudulent inducement in Florida requires justifiable reliance, and a buyer that closed knowing the truth cannot plausibly claim it. The Florida cases wrestling with nonreliance clauses — collected in a Florida Bar Journal piece arguing the courts should enforce them more predictably, Reframing the Question — are all fights about what the buyer was entitled to rely on. A buyer with actual knowledge of the truth loses the reliance element before the fight starts. That interacts with Florida’s independent-tort doctrine in ways I’ve covered in the post on Florida’s economic loss rule and non-reliance clauses in M&A fraud claims.
Second, on the contract side, Florida enforces express warranties as written — even against contract language that seems to undercut them. The Eleventh Circuit’s decision in Global Quest, LLC v. Horizon Yachts, Inc., 849 F.3d 1022 (11th Cir. 2017), applying Florida law, is the closest thing Florida deal lawyers have to a lodestar. A yacht buyer sued on express warranties in the purchase contract; the sellers pointed to an “as is” clause and argued everything was disclaimed. The court held the express warranties survived — specific negotiated warranty language is not erased by boilerplate disclaimers — and, on the fraud count, held that an as-is clause cannot preclude a fraud claim unless the contract expressly says it is incontestable on grounds of fraud. The court reached back to the Florida Supreme Court’s 1941 decision in Oceanic Villas for the principle that “a party can not contract against liability for his own fraud.” Global Quest is a warranty-enforcement case, not a sandbagging case — the fight was about disclaimers, not buyer knowledge. But its logic matters: it treats express warranties as operative contract promises with independent force, which is the conceptual foundation the pro-sandbagging rule is built on. A Florida court that follows Global Quest’s contract-first instincts has most of the reasoning it needs to let an informed buyer recover on a warranty; a court drawn to reliance rhetoric has older tort-flavored cases to cite instead. Nobody can promise you which court you’ll draw.
If the default is unknowable, the clause is the deal
Sophisticated parties don’t litigate defaults; they draft around them. The pro-sandbagging clause says the buyer’s rights under the representations and warranties are not affected by any knowledge acquired (or capable of being acquired) at any time, whether before or after signing. The anti-sandbagging clause says the seller has no liability for any breach the buyer had knowledge of prior to closing. Either is enforceable; the negotiation is about which one, and about the word doing all the work — knowledge.
Anti-sandbagging provisions are only as broad as their knowledge definition, which is why the definition deserves the same attention as the clause. Actual knowledge of a named deal team is the buyer’s position; constructive knowledge — everything in the data room, everything a reasonable investigation would have surfaced — is the seller’s, and it can quietly convert the entire diligence exercise into a liability shield for the seller. The mechanics mirror the knowledge-definition fight on the seller’s side of the agreement, which I’ve walked through in the post on defining the knowledge group. A buyer that concedes an anti-sandbagging clause should insist on actual, conscious knowledge of specified individuals, and should exclude imputed knowledge from data room contents entirely.
Three adjacent provisions move with this one. First, the disclosure schedule update mechanism: if the seller can supplement schedules between signing and closing and the supplement cures the breach, the buyer’s post-closing claim disappears no matter what the sandbagging clause says — the interaction I covered in bring-down versus bring-forward disclosure schedules. Second, the closing condition: a buyer that discovers a breach pre-closing usually has a walk right; sellers argue that closing anyway waives the claim, so a well-drafted pro-sandbagging clause states that closing is not a waiver. Third, representation and warranty insurance: nearly every RWI policy excludes matters within the deal team’s actual knowledge, and the no-claims declaration signed at closing makes the point contractual — so even a buyer with a pristine pro-sandbagging clause against the seller has no coverage for the problem it knew about. The clause governs the seller fight; the declaration governs the carrier fight; they are not the same fight.
What this means for a Florida deal
In most Florida lower-middle-market purchase agreements the sandbagging question never gets drafted — the agreement is silent, both sides assume the answer favors them, and the dispute lands on an unsettled default. Silence is a choice with a price. The buyer discovering problems late in diligence has exactly three honest options: reprice, walk, or paper the claim — get the pro-sandbagging clause, confirm the closing-is-not-waiver language, and understand that the fraud count will still require reliance the buyer no longer has. The seller’s mirror move is the anti-sandbagging clause with a tight actual-knowledge definition, which converts the buyer’s diligence file into the seller’s best exhibit.
If you are negotiating a purchase agreement and thinking about what a problem discovered before closing does to claims brought after it, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
