IMO, there is no lawsuit and will be none. Merging company just needs time to check out the threat.
I believe that threat was made in anger by DM.
I also believe the potential merging company did their initial DD, was aware of the relationship between Guard Dog and Assurance, as well as the extent of Guard Dog's legal involvement with them and whether any outstanding contract could legally be cancelled.
In short, I think this delay has nothing to do with a potential lawsuit but rather the threat of a regulatory investigation.
That's what they need time to sort out, and find out.
All JMHO of course