USA – UTAH Trends and Developments Contributed by: Layne Smith, Neal Monson, Paul Justensen and Cloe Nixon, Dorsey & Whitney LLP
In practice, however, many agreements remain silent on the issue, leaving the outcome to governing law. When an agreement does not address sandbagging, courts generally follow one of two approaches. Under the “modern rule”, applied in jurisdictions such as Delaware, buyers may pursue indemnification claims regardless of prior knowledge, reflecting the view that representations and warranties are bargained-for risk allocations. By contrast, the “traditional rule” requires proof of reliance, effectively preventing recovery where the buyer knew of the breach before closing. This divergence makes an understanding of governing law particularly significant in negotiated transactions. Utah law remains unsettled on this issue. There is no definitive Utah appellate decision squarely address - ing sandbagging in the M&A context. Courts in Utah have consistently required plaintiffs to demonstrate that they reasonably relied on alleged misrepresenta - tions, a requirement that may be difficult to satisfy where a buyer had actual knowledge of the underly - ing facts prior to closing. At the same time, because indemnification claims are fundamentally contractual, Utah courts may also look to the parties’ negotiated allocation of risk, especially where the agreement is silent but otherwise comprehensive. As a result, parties to transactions governed by Utah law face a degree of uncertainty when sandbagging is not expressly addressed. This uncertainty reinforces a practical takeaway: parties may want to address sand - bagging explicitly in their agreements to the extent they have sufficient leverage to do so. The decision to stay silent on sandbagging leaves the outcome uncer - tain as to how such claims will be resolved. Utah Chancery Court In 2023, the Utah Legislature established the Utah Business and Chancery Court as a specialised divi - sion within the state court system designed to handle complex commercial and business disputes. Codified at Utah Code Section 78A-5a-101 et seq, the court was created to provide a dedicated forum for sophis - ticated matters involving business entities, includ - ing disputes arising from contracts, fiduciary duties, and transactions such as mergers, acquisitions and dissolutions. Rather than functioning as a separate
standalone court, the Business and Chancery Court operates as a specialised division of the district court, with statewide jurisdiction over qualifying cases that meet statutory requirements. The court’s jurisdiction is limited to specified cate - gories of “business and commercial actions”, gen - erally involving claims for monetary relief exceeding USD300,000 or requests for equitable relief. These include disputes relating to the internal governance of business entities, claims among owners or managers, and controversies arising out of the sale or merger of a business. As a result, the court is particularly well- suited to handle many of the disputes that arise in corporate M&A transactions, including post-closing indemnification claims, purchase agreement interpre - tation, earnout disputes, and allegations of breach of fiduciary duty. The creation of the Business and Chancery Court reflects a broader trend towards specialised business courts seen in other jurisdictions and is intended to promote greater consistency, efficiency and predict - ability in the resolution of complex commercial dis - putes. Judges assigned to the court are expected to have subject-matter expertise in business law, which may reduce uncertainty and improve the quality of decision-making in technically demanding cases. Although still relatively new, the court has the potential to become a significant forum for corporate litigation in Utah. For transactional lawyers and their clients, the emer - gence of this specialised court has practical impli - cations for deal structuring and dispute planning. Parties may consider forum selection provisions that take advantage of the court’s jurisdiction, and the availability of a specialised forum may influence how risk allocation provisions – such as representations and warranties, indemnification clauses and govern - ance arrangements – are negotiated and enforced. As a relatively new forum, the Business and Chan - cery Court has not yet developed a significant body of case law, and parties are still evaluating its efficiency. Nevertheless, there is optimism that the Business and Chancery Court will be an efficient venue for commer - cial disputes and that it will play a key role in shaping Utah’s commercial legal landscape.
1438 CHAMBERS.COM
Powered by FlippingBook