Chancery Keeps Alive Nuveen Seller's $278 Million Bonus Suit

Delaware's Chancery Court kept a suit alive Friday seeking the court's interpretation of the sale contract behind TIAA's 2014 purchase of global investment giant Nuveen, allowing the seller to battle for more of an up to $278 million post-deal bonus.

Vice Chancellor Morgan T. Zurn rejected financial services giant Teachers Insurance and Annuity Association of America’s bid for dismissal of all five counts of the suit, filed by seller Windy City Investments Holdings LLC last year after TIAA offered only $112 million out of a possible $278 million maximum. The vice chancellor rejected TIAA's dismissal bid, finding that the bonus — or earnout — provisions were open to more than one interpretation.

Windy City agreed to sell Nuveen Inc. — which has some $221 billion under management — to TIAA in April 2014 for $6.25 billion, along with commitments to a later earnout based on key advisory revenue and asset-change amounts in the first three full years after the sale. The transaction conveyed Nuveen to TIAA by way of a holding entity, Windy City Investments Inc.

TIAA paid the $112 million after revising an initial set of calculations for the bonus, which took into account cumulative advisory revenues and cumulative net flows from the purchased company. Windy City sued for books and records and conducted an investigation. It then asked the Chancery to interpret the contract, while leaving the actual calculation to a referee’s decision as called for in the Windy City-TIAA sales agreement.

"They have not come to this court for a final ruling on the amount itself," Vice Chancellor Zurn said. "The purchase agreement subjects that decision to an impartial referee process. Instead, they clash on how to read the contractual variables in the earn-out calculation."

In the decision, Vice Chancellor Zurn found that "the earn-out provision is susceptible to more than one interpretation at this early stage" of the case, sending it forward for further action.

Windy City’s suit requested a declaratory judgment on components to be used in the calculation, along with an "equitable adjustment" to the earnout based on allegations that TIAA wrongly diverted money from the multi-part, multi-step calculation, "or even intentionally depressed" the result.

In addition, the suit requested an order granting Windy City access to the TIAA and Nuveen books and records it requested, as well as two orders for specific compliance with Windy City’s interpretation of the agreement.

"The core disagreement is whether revenues or flows advised or managed solely by TIAA, but distributed through Nuveen, generate credit in the earn-out calculations," the vice chancellor wrote. "Windy City believes it gets 50% credit for all such gains, while TIAA believes that Windy City only receives credit where Nuveen advised on the financial products."

TIAA failed to show that its contract reading was the only reasonable one, Vice Chancellor Zurn wrote, adding that Windy City’s interpretation also fell short of being ironclad.

"Each party’s constructions leave something to be desired and would require the court to minimize deliberately placed language or, in some cases, import extra-contractual concepts to reconcile that language," the vice chancellor said, adding later: "At the motion to dismiss stage, no party has offered the only reasonable construction."

Neither party immediately responded to requests for comment.

Windy City is represented by David E. Ross and Eric D. Selden of Ross Aronstam & Moritz LLP, and K. Winn Allen, Kasdin M. Mitchell and Holly R. Trogdon of Kirkland & Ellis LLP.

TIAA is represented by Michael A. Pittenger, Jennifer C. Wasson and Tyler J. Leavengood of Potter Anderson & Corroon LLP, and Mary Eaton of Willkie Farr & Gallagher LLP.

The case is Windy City Investments Holdings LLC v. Teachers Insurance and Annuity Association of America, case number 2018-0419, in the Court of Chancery of the State of Delaware.