When a deal goes wrong, does your M&A contract protect you? Learn a crucial, non-obvious mistake about choice of law and statutes of limitations that can leave buyers and sellers vulnerable, and discover the simple contractual fix to protect your deal from future litigation.
M&A Stories
August 8, 2025
When negotiating a deal, most M&A agreements specify a single state whose laws will govern any disputes. In a perfect world, the same state’s court would hear the case, providing a streamlined path to resolution. But sometimes, a deal’s legal documents specify one state for the governing law and a different state for the location of any litigation. This creates a critical but often overlooked problem: which state’s statute of limitations applies to the dispute?
This very issue was at the heart of a 2015 Delaware Superior Court case involving a company that processed credit card payments and its vendor, which provided international payment services. The M&A agreement contained a New York choice of law provision but mandated that any lawsuit be filed in a Delaware court.
The company sued the vendor in Delaware, alleging millions of dollars in damages for fraudulent inducement and breach of contract. Although the company filed its lawsuit before the six-year statute of limitations in New York had expired, the vendor moved to dismiss the case. It argued that because the case was in a Delaware court, Delaware’s three-year statute of limitations should apply, which would make the claims time-barred.
The Delaware court ultimately sided with the vendor on this point. It held that, under Delaware law—a view common in many states—a choice of law provision only governs substantive law, not procedural law like a statute of limitations. For the choice of law to apply to the statute of limitations, the contract had to explicitly say so.
The company’s claims narrowly survived the motion to dismiss because the court allowed the possibility that the company could prove through discovery that the fraud was so hidden that a reasonable person could not have discovered it sooner. This legal concept, known as equitable tolling, gave the company a chance to argue that the three-year limit should not apply in their specific circumstances.
The Pre-Closing Lesson
The lesson from this case is nonobvious yet simple. The crucial pre-closing mistake was a lack of foresight in drafting the contract. The company’s legal team assumed that the New York choice of law provision would automatically grant them the full six-year statute of limitations. This assumption was incorrect. The fix is a simple, actionable risk management tool: explicitly state your intent in the contract.
Had the company included a clause clarifying that the New York choice of law applied to the statute of limitations, it could have avoided a costly motion to dismiss and the complex task of developing a legal strategy to prove the fraud was hidden. A well-written contract could have saved a significant amount of time, money, and legal risk, providing a clear path to pursuing its claims.
See: Pivotal Payments Direct Corp. v. Planet Payment, Inc., No. N15C-02-059 EMD CCLD, 2015 WL 11120934 (Del. Super. Ct. Dec. 29, 2015).
https://law.justia.com/cases/delaware/superior-court/2015/n15c-02-059-ccld.html
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals.
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
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