Closing a Business Transaction with an ADA Physical Obstacles Lawsuit Pending

The Americans with Disabilities Act (ADA) is a civil rights law which prohibits discrimination against people with disabilities. This article focuses on Title III accessibility lawsuits.

Title III of the act applies to public places of accommodations, which encompasses most businesses with a physical location open to the public. The intent of the ADA is to eliminates barriers which otherwise prevent the full participation of people with disabilities in several areas of living and working in America. 

There are many aspects of the ADA, many of which are covered in our article.  As explained in the article, some have weaponized the ADA against businesses by filing lawsuits based on fake or exaggerated ADA violations. 

Our article today addresses a very specific issue—what should business owners do when entering into a business transaction while an ADA lawsuit is pending and claims physical barriers? Here are a few important points to consider.

1. Minimize attorney’s fees exposure.

Like other ADA accessibility cases, the primary motivating factor of plaintiff’s attorneys is to maximize the amount of attorney’s fees. Accordingly, the defense attorney’s primary goal is to minimize the amount of attorney’s fees exposure. Several ADA plaintiff’s attorneys (not all) will be nonresponsive or take unreasonable positions to cause delay or increase the amount of work (and thus the amount of billable hours). Many will also refuse to provide you with a copy of their timesheets (contrary to what they claim in the media). Your goal should be to get a quick assessment by your own expert of any alleged violations, determine whether anything needs to be remediated, and if so, work out a settlement agreement (preferably before a formal response is due in Court).

2. Is this a sale of only a business entity, only real estate, or both?

This is an important distinction to make. 

If the business entity itself is being sold, the existence of the lawsuit needs to be disclosed to the buyer to avoid claims of fraudulent concealment or misrepresentations. This can result in damages, and potentially, rescission of the Purchase and Sale Agreement. Additionally, there needs to be a clear agreement as to who will take responsibility for defending the case.

If only real estate is being sold, you still need to disclose the lawsuit to the buyer because resolution of these lawsuits usually requires remediations of any violations to occur. Depending on the type of remediations, this can either be a minimal cost or may be a great cost (for example if it requires extensive concrete work on a parking lot) to the new owner. Failure to disclose can result in damages, and potentially, rescission of the Purchase and Sale Agreement. Additionally, a failure to agree who will take responsibility for any remediations or for defending the case, may result in ancillary litigation between the buyer and seller.

If both a business entity and related real estate are sold, both of these issues need to be considered.

3. Review Contract Representations/Warranties.

Many Purchase and Sale Agreements contain one or more sections which include representations and warranties by the parties. Oftentimes, the parties make contractual representations regarding compliance with federal, state, and local laws. If a seller is being sued for an alleged ADA violation, the seller wants to make sure that you are not breaching your contract by making a representation that turns out to be wrong.

4. Disclosure Requirements.

Some transactions require that the parties disclose certain information to each other. For example, in a real estate transaction, the seller is required to disclose to the buyer certain information about the property. If you are served with an ADA lawsuit, you should check with the attorney representing you in the transaction whether you are required to disclose the lawsuit, or the alleged violations, to the buyer or plaintiff. It is preferable not to disclose to the plaintiff if there is no known disclosure requirement. 

5. Check Contract Deadlines.

An ADA lawsuit might delay your closing. If you are buying or leasing the property being sued upon, you might want the lawsuit resolved and the alleged ADA violations fixed before closing on the purchase or lease. Both the property owner and any tenants on she property can be liable for ADA violations. So, check your contract to determine whether you need to extend deadlines to give enough time to resolve the ADA lawsuit.

6. Contract Addendums and/or Additional Closing Documents.

As a business owner, you want to continue working your business even if you are fighting against a lawsuit. So, to continue your transaction(s), you may want to consider whether you need amend your contract(s) to account for the lawsuit and/or sign additional closing documents to account for who is responsible to fix the ADA violations. For example, a buyer of the property may be planning to remodel the whole place. So, he/she may be willing to accept the responsibility of fixing the alleged violations. But, if you are the buyer and are looking to move in right away, you may want the seller to fix the issues before closing or give you a credit for the repairs. Such precautionary efforts may, however, concern the seller that the buyer will back out of the deal. Alternatively, such addendums or additional agreements may nonetheless result in unwanted litigation. Accordingly, the seller may prefer to attempt to negotiate an extension of the closing, in order to have additional time resolve the case and make as many remediations as possible prior to the date of closing.

At Trembly Law Firm, we have experience navigating our clients’ important business transactions while also resolving their ADA lawsuits. If you are experiencing this, time is of the essence, so please call us at (305) 431-5678 and tell us what is happening.

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