Nearly half the purchase price refunded
Background
H paid about $150,000 to buy a Sichuan restaurant in Orange County. Before the sale, the seller showed him a year of cash register reports and bank statement screenshots, which showed steady monthly revenue. In the third month after taking over, H found that actual sales were nearly 40% lower than the reports showed. Shortly after, California tax authorities wrote that the previous owner had unpaid sales tax, and that the new buyer could be held responsible.
Challenges
- The purchase agreement stated that the buyer had "independently verified the business operations." The seller insisted this was H's own decision.
- H had only screenshots, and the seller argued they proved nothing.
- Most of H's money was already in the restaurant, and he also faced the previous owner's sales tax debt.
Strategy
- In August 2025 we sent a demand letter, and in October we sued the seller for fraud and breach of contract. The "independently verified" clause did not protect a seller who deliberately used false records to deceive a buyer.
- Screenshots were not enough, so we went after the seller's own sales figures reported to the tax authority. In March 2026 the court ordered production of his two years of sales tax filings. The reported sales were far below the figures shown to H. The seller now had to explain either that he had deceived the buyer or that he had underreported taxes.
- We handled the sales tax issue separately. We helped H explain his situation to the tax authority and asked it to pursue the seller first. The escrow company had released funds without a tax clearance certificate, and that gap became a point of leverage in negotiations.
Case Timeline
| Date | Milestone |
|---|---|
| April 2025 | H took over the restaurant |
| August 2025 | Retained Lingtu Law; demand letter sent |
| October 2025 | Lawsuit filed against the seller for fraud and breach |
| March 2026 | Seller's sales tax filings obtained through the court |
| Early September 2026 | Mediated agreement performed; back taxes paid, refund received |
Outcome
At mediation, the seller's attorney reviewed the filings and agreed to refund nearly half of the purchase price. The seller paid the back taxes. The payment arrived in a single transfer in early September 2026. H withdrew his lawsuit and did not pursue the escrow company.