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CBS, Inc. v. Ziff-Davis Publishing Co. | 553 N.E.2d 997 (1990)

In mergers and acquisitions, or M&A, a buyer who sues a seller after closing for a breach of warranty that the buyer knew about before closing is known as a sandbagger. An allegation of sandbagging is one of the most acrimonious disputes in M&A litigation. In CBS versus Ziff-Davis Publishing, we explore where New York courts stand on the issue of sandbagging.

Ziff-Davis Publishing placed some businesses up for sale. Relying on financials provided by Ziff’s accountant, CBS was the highest bidder for the businesses. Ziff and CBS signed a bilateral sales agreement in which Ziff warranted the truth of its financials. CBS then conducted an investigation of Ziff’s financials, discovered accuracies, and notified Ziff. Ziff dismissed CBS’s concerns. Despite the existence of a dispute, CBS decided to close the deal in light of the significant time, money, and resources expended. However, the parties agreed that closing wouldn’t waive either party’s rights or defenses under their agreement. After closing, CBS sued Ziff in a New York trial court. CBS’s claims included a cause of action for breach of an express warranty regarding the profitability of Ziff’s businesses. CBS argued that Ziff warranted the truth of its financials and that inaccuracies led to a higher sales price than CBS would’ve otherwise paid. However, CBS acknowledged knowing about the financial inaccuracies before closing. Ziff moved to dismiss CBS’s breach-of-warranty claim, arguing that a party suing for breach of warranty must’ve relied on the warranty. The trial court granted Ziff’s motion, so CBS appealed. The appellate division affirmed, and CBS appealed to the New York Court of Appeals.

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