Kirkland partners Andrew Kassof and Timothy Knapp were recognized as The Am Law Litigation Daily's "Litigators of the Week" for their win for Madison Dearborn Partners and its portfolio company SIRVA Worldwire Inc.
It’s a rare thing for the Delaware Court of Chancery to allow buyers to bow out of merger agreements between signing and closing.
It’s rarer still for the nation’s preeminent venue for merger litigation to grant a buyer’s motion to dismiss a deal driven lawsuit by adopting the buyer’s oral argument presentation as its own opinion.But that’s essentially what Vice Chancellor Morgan Zurn did last Friday, July 17, handing a major win to Kirkland & Ellis partners Andrew Kassof and Timothy Knapp and their client, global moving company SIRVA Worldwide Inc.
Zurn’s ruling put to rest a lawsuit filed by lawyers at Skadden, Arps, Slate, Meagher & Flom on behalf of Realogy Holdings Corp., the parent company of real estate brands including Century 21 and Coldwell Banker, seeking to force SIRVA to consummate a $400 million deal for Realogy’s relocation-services business. After three hours of arguments via Zoom on SIRVA’s motion to dismiss last Friday, Zurn told the parties that the “exposition, explanation, and reasoning” outlined by Kirkland’s Kassof “aligned with what I would write in a written opinion.”
That’s about as good as it’s going to get after an oral argument. The Litigation Daily caught up with Kassof, who is picking up his second Litigator of the Week honors in as many months, and Knapp to discuss the ruling and what it might mean for other private equity-backed deals in the current climate.
Lit Daily: Who is your client and what was at stake?
Timothy Knapp: SIRVA and Madison Dearborn Partners (MDP). At stake was a $400 million acquisition. Realogy agreed to sell its relocation-services business Cartus to SIRVA, an MDP portfolio company, for $400 million. On April 25, SIRVA advised Realogy that it believed certain conditions to closing were not satisfied—namely that it believed there had been a material adverse effect or MAE. Realogy sued both SIRVA and MDP two days later. Our motion asked the court to dismiss Realogy’s claims for specific performance.
How did the Kirkland team get involved?
Andrew Kassof: Our corporate partners Rick Campbell, Jon Micheal-Wheat and Aisha Lavinier represented SIRVA and MDP in the transaction and negotiated the agreements that gave rise to our arguments. They did a terrific job on the deal documents—especially in drafting the limitations on Realogy’s ability to get to specific performance to force a closing—and then worked seamlessly with us as litigation ensued.
How did you make the case that it was Realogy’s own court filing that torpedoed the deal?
Kassof: Realogy’s complaint improperly alleged that not just SIRVA but also MDP breached the parties’ purchase agreement. The transaction documents expressly prohibited that claim, which makes sense because MDP was not a party to the agreement. The consequence of Realogy’s filing was clear: The instant Realogy asserted what the documents called “non-Retained Claims,” it automatically and immediately terminated the equity financing for the transaction, which in turn unraveled the debt. And without any financing, Realogy could not force a closing because the debt financing was an express condition to an award of specific performance. In other words, Realogy’s lawsuit made satisfying that condition impossible and rendered the MAE issues irrelevant to whether the parties had to close. It all turned on what Realogy alleged in its filing.
Twenty minutes after your three-hour Zoom hearing on the matter, Vice Chancellor Zurn said that your “exposition, explanation, and reasoning aligned with what I would write in a written opinion.” She then “adopted” your presentation as grounds for granting your motion to dismiss. Don’t take this as a slight, but that had to be a first, right?
Kassof: Lots of firsts seem to be happening in the pandemic. But I hope it’s not the last.
How did you adapt to handling this argument on Zoom?
Kassof: I actually enjoyed it quite a bit. One huge (hidden) benefit was that I was able to have my iPad right in front of me but not on camera, so I could not only scroll through areas of my argument quickly, but I also had the agreement provisions and case quotes immediately available. I’ve always wondered how arguing a significant motion with an iPad might work, and this presented a great opportunity for it.
What was your reaction to that ruling?
Kassof: Poker face on the outside. Inside, I was pumping my fist like the Cubs won the pennant.
Knapp: I wasn’t showing my video on Zoom so I wasn’t as restricted. I’m sure I said some things I can’t repeat here. The fact that the judge said she would “save everyone the wait and duplicative effort and adopt his presentation” as her grounds for dismissing Realogy’s specific performance claims was awesome and such a great result for our clients and our entire team.
Delaware courts rarely let buyers bow out of merger agreements between closing and signing. What got you over that hump with the court here?
Kassof: The court held the parties to their deal terms. Realogy insisted on suing SIRVA’s private equity owner and asking the court to find MDP in breach of the purchase agreement. The plain terms of the transaction documents prohibited it. And the filing had direct contractual consequences, so there was no basis to give Realogy a free pass. Realogy’s filing blew up the equity, breached the purchase agreement, and caused the deal to fail. The court held Realogy to what it put in its filing and applied the contract terms as written.
This was a private equity-backed deal. What elements of this decision are important to folks in the private equity world?
Knapp: There are really two. First, the court enforced provisions regarding the filing of non-retained claims, which are commonly used in private equity deals to protect sponsors who are not actually parties to the purchase agreement, but simply provide equity funding for the deal. Second, the court enforced the debt financing limitation to specific performance. In private equity deals that rely on debt, these provisions are critical to ensure that a private equity sponsor cannot be forced to close without financing. Realogy’s argument threatened not only the limitations on suits against private equity sponsors, but also contractual remedies agreed to by the parties. The court’s ruling allowed these provisions to work exactly as intended.
How were you able to push back against Realogy’s argument that it was a “scrivener’s error” to include Madison Dearborn Partners as a defendant? And why was that important?
Kassof: Realogy launched a press release as soon as it filed the complaint headlining its claims against MDP and vowing to enforce the purchase agreement against it. How could the allegations in the complaint be an inadvertent “scrivener’s error” when the press release said the same thing? Whether an error or deliberate, the contractual consequences were the same either way: Realogy’s filing terminated MDP’s equity commitment and killed the deal. There was no way for Realogy to put the pieces back together.
What else should we be asking about?
Knapp: How has Andrew won this Litigator of the Week honor twice in the last month? We’ve worked together in health care cases, oil and gas, sports, and now M&A. He’s able to so persuasively distill complex concepts into easy to understand arguments. That’s led to success in all sorts of different matters and industries, and it was great to be a part of that here.
Kassof: It won’t be long until Tim wins this again. As a team, this one was especially gratifying because it was a terrific cross-practice effort at the firm, with the full litigation and corporate teams working side-by-side to drive home the right result for our clients. That’s something we pride ourselves on—delivering for our clients—and this really illustrated that teamwork and collaboration.