On May 22, 2020, Judge Paul G. Gardephe of the Southern District of New York, in Kirschner v. JPMorgan Chase, reaffirmed that syndicated bank loans are not securities. In Kirschner, the plaintiff alleged that a $1.77 billion syndicated bank loan made to Millennium Laboratories LLC (Millennium), a California-based urine testing company and subsequently sold to 70 institutional investors was, in fact, a security — affording it additional protections under the certain state “blue sky” securities laws. The plaintiff alleged that defendants J.P. Morgan Chase Bank, N.A., J.P. Morgan Securities LLC, Citibank, N.A., Citigroup Global Markets, Inc., Bank of Montreal, BMO Capital Markets Corp., SunTrust Bank and SunTrust Robinson Humphrey, Inc., sold debt obligations to the investors but “misrepresented or omitted…material facts in the offering materials they provided and communications they made to Investors regarding the legality of [Millennium’s] sales, marketing, and billing practices” and “the known risks posed by a pending government investigation into the illegality of such practices.” Shortly after the closing of the loan transaction, Millennium lost an important litigation matter that resulted in a $500 million decrease to its valuation and, in addition, entered into a $256 million settlement with the Department of Justice (DOJ) over claims related to alleged healthcare law violations. Within a month of finalizing the DOJ settlement, Millennium defaulted on the loan and filed for bankruptcy. (more…)
The U.S. and many other countries are stuck in, or just emerging, from stay-at-home orders that, among countless other consequences, have largely shut down the pipeline for new investment in early stage ventures. According to PitchBook, after a robust investment market in the 4th quarter of 2019 and 1st quarter of 2020, the amount of new financings since the pandemic began has fallen off a cliff, with steep declines in both numbers of completed deals and total dollars invested compared to April 2019. To those of us who lived through previous downturns, this change feels a lot like the dot com bust circa 2000 or the “Great Recession” that followed the global financial crisis of 2008 all over again.
In our August 2017 alert, we cautioned that Delaware choice-of-law provisions standing alone will not confer jurisdiction in Delaware. To best support an argument for litigating in Delaware, we advised that a combination of contractual provisions distinctly establishing consent to Delaware law, forum and jurisdiction should be incorporated into the parties’ agreement. A pair of recent decisions ratify this advice, and serve as further reminder that failure to expressly cover selection of venue and consent to jurisdiction, in addition to choice of governing law, could frustrate a party’s ability to litigate in Delaware. (more…)
Just as no human being is naturally immune to the COVID-19 virus, no industry is immune to its economic effects—and related M&A activity across all industries proves no exception. In the weeks following the issuance of stay-at-home orders in states across the country, multiple lawsuits have been filed by parties to agreements whose terms have been rendered economically dubious, impracticable or contrary to the fundamental assumptions on which the parties relied because of the pandemic: in the Delaware Court of Chancery alone, WeWork has filed suit to compel a Japanese investor to close a $3 billion tender offer; Bed Bath & Beyond has attempted to force 1-800-Flowers to complete a $252 million purchase of its subsidiary, PersonalizationMall.com; and a franchisee has sued its franchisor, CorePower Yoga LLC, for specific performance of a pre-pandemic agreement to buy its thirty-four yoga studios. Though all three of these cases are in the early stages of litigation—only the complaints have been filed—they involve issues and circumstances that are certain to recur in actions throughout the country. These cases represent only the tip of the iceberg when considering the types of litigation that are likely to arise from both pending and closed M&A deals and the issues that M&A attorneys and commercial litigators should be considering in addressing upheaval to the deal market caused by COVID-19. (more…)
The COVID-19 pandemic has sent massive shockwaves throughout the global economy. This crises requires business leaders to confront a host of deleterious effects on an emergency basis – the likes of which many companies have never experienced. Boards of directors must remain cognizant of their oversight responsibilities in these trying times. This post offers guidance to directors of Delaware companies for addressing emergency circumstances occasioned by the COVID-19 pandemic. (more…)
The Environmental Protection Agency (EPA) announced in a memo released on Thursday, March 26, 2020 that it will relax its enforcement of environmental legal obligations under certain circumstances during the COVID-19 pandemic.
Applicable retroactively to March 13, 2020, the EPA will use enforcement discretion in specific situations where a company or governmental entity is unable to comply with an obligation usually required by the EPA due to the consequences of the COVID-19 pandemic, if the company takes certain steps to mitigate and document its noncompliance. This enforcement discretion only applies to civil violations of environmental legal obligations and explicitly does not extend to any criminal violations or conditions of probation in criminal sentences, activities that are carried out under Superfund and RCRA Corrective Action enforcement instruments or imports.
Increasingly, M&A transactions are using representation and warranty insurance (RWI) to bridge the gap between a buyer’s desire for adequate recourse to recover damages arising out of breach of representations in the purchase agreement and a seller’s desire to minimize post-closing risk and holdbacks or purchase price escrows traditionally used as the means to satisfy such obligations. When it works, RWI provides a significant benefit to both parties: it mitigates the buyer’s risk in the event that the seller’s representations and warranties prove untrue, and it permits the seller to reduce the portion of the purchase price that it would otherwise have to leave in escrow to cover future claims for breach of those representations and warranties. However, as the coronavirus pandemic ravages the global economy, insurers are now expressly adding COVID-19 exclusions to their RWI policies. If RWI insurers decline coverage for these losses, the allocation of risk in the representations and warranties (and related indemnity provisions) will be more critical than the parties contemplated when they negotiated the transaction documents.
On March 19, 2020, Dave & Buster’s Entertainment, Inc. (D&B) announced that it adopted a takeover-defense poison pill to deter activist investors from taking control of the company by accumulating its shares on the open market. This measure came after the stock of D&B decreased almost 90% over a one-month period due to concerns related to the coronavirus and after Kohlberg Kravis Roberts, an investment firm that made its name as a corporate raider in the 1980s, disclosed a 12.7% ownership interest in D&B (including certain cash-settled forward contracts). With experts predicting that shareholder activism will rise as stock prices plummet in the wake of the coronavirus pandemic, other potentially vulnerable public companies should consider following D&B’s lead. (more…)
On Wednesday, March 18, 2020, the Delaware Supreme Court overturned a Chancery Court decision that had prohibited Delaware corporations from adopting federal forum selection provisions for actions arising under the federal Securities Act of 1933 (Securities Act). In its opinion in Salzberg v. Sciabacucchi, the Court held that allowing federal forum selection provisions in a corporation’s governing documents advanced the goals of achieving judicial efficiency in resolving claims and offering flexibility to engage in private ordering. (more…)
- Southern District of New York Reaffirms That Syndicated Bank Loans Are Not Securities
- Are We Entering Another “Nuclear Winter” for Venture Capital Financing?
- M&A Risk Allocation: Drafting and Litigation Considerations in the Era of COVID-19
- Choosing Delaware Law Does Not Mean You Can Litigate In Delaware – The Sequel
- M&A Litigation Rising Amidst COVID-19 Uncertainty: Considerations for Litigators and Deal-Makers