December 3, 2007
URI -- Some Thoughts and Questions
I read the URI brief for summary judgment and Richards, Layton's letter to Judge Chandler again over the weekend (RL is counsel to RAM Holdings). I'm going to wait for Cerberus's response for a full analysis, but a few thoughts and questions:
- The URI brief was a good job -- the best they could do under the circumstances. And it repeated ad infinitum Cerberus's Achilles heel: basic contract interpretation rules require that the merger agreement be interpreted so the specific performance clause has meaning. URI addressed only in footnote 12 the effect of the limited guarantee and the equity commitment letter on this -- here URI adopted largely the argument I thought they would. But waiting to address this component of the dispute is good strategy -- URI will wait until their reply brief to see Cerberus's arguments on this point.
- I think URI makes an important point that "equitable remedies" includes monetary damages to justify including it in the second part of the last sentence in Section 8.2(e) rather than the enforcement of the terms of the contract itself, i.e. specific performance isn't a remedy (for a failure to enforce or a breach) it is something different. That would mean URI could agree to limit its equitable remedies without giving up enforcement of the contract itself.
- I'm not sure their arguments for summary judgment were convincing -- there is ambiguity here, something Cerberus is doing everything to highlight.
- This leads me to a question -- do Delaware courts commonly issue summary judgment when a party to the dispute insists that parole evidence is necessary? In particular, has Chancellor Chandler done this -- I suspect that both parties are researching this item -- if anyone has any thoughts on this let me know.
- Both parties here are trying to seize the equity mantle, but URI is ultimately the aggrieved party -- something Chandler undoubtedly knows, and given Cerberus's stretched reading of some of the documents he might be tempted to invoke.
I have more significant, further comments on RL's letter.
- RL's claim that the reverse termination fee was doubled as a trade-off for specific performance is not believable. A $50 million reverse term fee would be an outlier low fee (1.6%) in the context of a hotly contested auction. URI was simply demanding something that Cerberus knew it had to give.
- The letter and the references to earlier drafts and contemporaneous notes are interesting; however, no explanation is given then for why section 9.10 remained in the final contract--i.e. Cerberus has of yet failed to address harmony. Moreover, the parol evidence they cite is more consistent with URI bargaining for a pure claim of specific performance in all circumstances and falling back to section 8.2(e) as a resolution.
- The "all" versus "one" party statement on page 5. Does Mr. Williams expect to find any kind of paper in the hands of the bankers or board members indicating someone thought there was no specific performance right? Or is this just trying to make discovery last as long as possible? I suspect the latter. Surely in 2007, nothing like that should exist (particularly given the disclosure on this in the proxy statement)
- RL continues to make the misleading argument that because the limited guarantee was "URI's sole and exclusive" remedy against the Cerberus entities the merger agreement should be read to exclude specific performance. They have yet to address RAM Holding's ability to enforce the limited guarantee. As I said on Friday "So, the limited guarantee says nothing about Parent [RAM Holdings] being able to go after Cerberus, which is precisely URI's argument that Parent has the ability to specifically enforce the equity commitment letter against Cerberus. Cerberus appears a bit off here."
Final note: For those who think Cerberus would never agree to specific performance read the GMAC transaction documents.
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