Usually, when doing due diligence, anything that might conceivably be a lawsuit or ongoing lawsuits results in a lower price or funds in escrow or similar agree

Usually, when doing due diligence, anything that might conceivably be a lawsuit or ongoing lawsuits results in a lower price or funds in escrow or similar agreements. So, even if there never was a big payoff, the mere potential is a big red flag for the due diligence team (and leverage for negotiations as well). They can add indemnification clauses on contracts (they won't do that for a small company like the OP I guess).