What happens if due diligence reveals the seller has been sued by former customers?

It depends on the deal structure and whether the claims are resolved or ongoing. In a share sale, past and pending litigation against the corporation generally comes with it, since you're acquiring the same legal entity that was sued — settled claims and their costs, and unresolved claims that could still result in liability, are effectively part of what you're buying unless specifically priced or addressed in the agreement. In an asset sale, claims against the seller for things that happened before closing generally stay with the selling corporation, since the buyer is a separate legal entity that wasn't a party to the underlying conduct.

Either way, a pattern of customer litigation is worth understanding on its own terms, not just as a legal liability question — repeated lawsuits from customers can point to a product, service, or business practice issue that will keep generating claims after you take over, regardless of which entity is technically on the hook for the old ones.

Get full disclosure of past and pending litigation, understand what's driving it, and make sure your representations, warranties, and indemnity provisions reflect the structure you've chosen. A Treadstone business lawyer can review this and structure appropriate protections.