M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, December 17, 2007

URI Trial Delayed By One Day

Well -- I was all set to post up a pre-trial preview when I read this morning that the parties had agreed to postpone the trial date by one day in order to discuss a settlement.  The ostensible reason for this is Chancellor Chandler's statement that it was "exceedingly close" in his Friday letter order denying URI's motion for summary judgment.  It is being widely reported that this statement has been interpreted to mean Chandler was about to rule for URI, and that this has pushed Cerberus to the table.  I am not so sure about this.  First off -- Chandler was in his rights to rule the other way and grant summary judgment to Cerberus (Cerberus asked for this in fn 4 of its response brief) -- we don't know but it could have been that he was about to rule that way.  Moreover, Chandler is well aware of the possibility of an appeal.  Holding the trial -- which is only the week after -- is the rationale thing to do in order to make sure any opinion and order is bullet-proof on appeal.  Here, I believe his "exceedingly close" statement likely referred to whether the contract language was complete and unambiguous or not.  But once he rules that it is -- as he has done here -- it opens up the case to consideration of parol evidence and strengthens Cerberus's case.  So, I would guess that it is URI which is pushing a settlement.  Although, given how close this case is, Cerberus has its own incentives here too. 

In this regard, on Friday URI filed its reply brief in its motion for summary judgment.  It was a very good job.  First off, URI fills a hole in its argument by putting forth a proposal as to how a specific performance order could be enforced. URI proposes the appointment of a receiver for the corporation or an independent person or entity to prosecute an action against Cerberus.  Second, URI does not put forth any of its own parol evidence to meet Cerberus's arguments.  This may be a tactical move -- on summary judgment URI wants to limit the dispute to the contract and bring as few facts in as possible.  This is because facts create dispute and mitigate towards a denial of the motion.  So, URI argues here that the parol evidence of Cerberus adds nothing and that it does not contradict URI's own interpretation of the agreement.  In fact, URI argues that Cerberus's parol evidence actually supports URI since it speaks of the $100 million being the "sole and exclusive" remedy but nowhere does such language actually appear in the document.  [Addendum:  There is a bit of parol evidence in the URI reply brief including the statement that URI's board would not accept an option and the reinsertion of section 9.10 after several attempts to strike it -- again shifting the balance towards URI]

It's a good argument that is likely to appeal to Chandler, who just chastised Prof. Coates for justifying the use of sloppy language instead of clear, succinct drafting.  Nonetheless, the burden is on URI to show a breach, and I do believe that at a trial "if it occurs" URI still needs to show some parol evidence to rebut Cerberus's.  If they do, I believe the momentum will shift back to them as I believe the plain reading of the contract favors them.  For those who are looking for a smoking gun, I think it may arise from the exchange between Ehrenberg and Swedenburg on July 18.  According to Cerberus's response brief:

[i]n a final effort to snatch back something of what it had surrendered, Simpson deleted the phrase ‘equitable relief’ from the final sentence of Section 8.2(e).  [During the night of July 19 – after the main negotiating session during the day] the Lowenstein attorneys explained that the bar on ‘equitable relief’ had to be put back into Section 8.2(e) and Mr. Swedenburg stated in response, ‘I get it.’

URI has to provide a good explanation for this conversation, and hopefully some parol evidence supporting Swedenburg's statement.  Again, if they can provide a plausible one I believe they have a good case.  This is because Cerberus still has the problem that 9.10 must mean something and must explain its failure to delete the clause or include clear nullifying language.  They have attempted to do so with the Prof. Coates affidavit and its justification of short-hand drafting as common in the final stages of negotiation.  But Chandler appears dismissive of this argument -- something quite favorable to URI. 

This still leaves us wondering why this all unfolded this way.  Here are my latest thoughts.  In the final days, it appears that Lowenstein was being heavily pressured by Cerberus to get the deal done.  If you read the affidavits of the two Lowenstein associates, at the end is an email from Steven Mayer, the Cerberus MD on the deal, dated July 19 telling the Lowenstein lawyers to bring their lap-top to the end stage negotiations "in order that changes can be made real time to avoid disputes over language".  Ironic, but the email also has the tone you get sometimes from principals of "why are you lawyers holding up everything again?"  In Lowenstein's haste to finish off the deal and please their client they ended up negotiating language that was clearly sloppy and put them in this mess.  When I first started looking at the deal, I postulated two explanations for the ambiguous drafting 1) Cerberus put one over on URI, or 2) the parties were up late at night and simply resorted to sloppy drafting in their haste.  To this I now have to add a third explanation 3) Simpson via newly minted partner Swedenburg put one over on Cerberus -- he was far from over his head at all.  Interesting turn of events, to say the least. 


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