Hogan Lovells Publications | Quarterly Corporate and M&A Decisions Update | February 2021
2020 Q4 Decisions Update
AB Stable VIII LLC v. MAPS Hotels and Resorts One, LLC, No. 2020-0310-JTL (Del. Ch. Nov. 30, 2020)
Summary
On September 10, 2019, a subsidiary of a Chinese conglomerate (the Seller) agreed to sell its interests in Strategic Hotels & Resorts LLC, a company that owns fifteen luxury hotels, to Mirae Asset Financial Group (the Buyer), a Korean financial services company, for US$5.8 billion. Closing was to occur on April 17, 2020, but the Buyer declined to close, asserting that the pandemic constituted an MAE excusing the Buyer from performing and that the Seller had not satisfied its obligation to operate the business in the ordinary course, including because the Seller had taken extraordinary steps, such as shutting down hotels, in response to the pandemic. On April 27, 2020, the Seller sued in an attempt to force the sale, and the Buyer responded by filing for declaratory relief.
The court rejected the Buyer’s MAE argument, finding that the pandemic fell within a contractual MAE exclusion for “calamities” even though the exclusion did not cover pandemics expressly. Applying principles of contract interpretation, the court held that a plain reading of the exception for “calamities” encompassed the effects resulting from the COVID-19 pandemic with reference to certain dictionary definitions of the term, among other things. The court agreed with the Buyer, however, on the issue of whether the Seller had operated the target business in the ordinary course. The court found that the Seller had operated the business in an extraordinary manner that was not consistent with the Seller’s past practice in response to the pandemic, thus violating the Seller’s ordinary course covenant, satisfaction of which was a condition to closing. In so holding, the court rejected the Seller’s argument that management must be afforded flexibility to engage in “ordinary responses to extraordinary events[,]” such that management should be deemed to have “operated in the ordinary course of business based on what is ordinary during a pandemic.”
The court also found that the Seller was not able to produce clean title insurance, as required in the contract, after failing to disclose numerous pending lawsuits.
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