M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, December 13, 2007

URI: Where Does it Stand?

An update on my thoughts on the URI dispute and where it stands.  URI filed its latest briefs under seal so we, unfortunately, have to stop at the Lowenstein, Sandler affidavits. 

  1. From just a reading of the merger agreement, I felt this was a difficult decision because of poor drafting and too much circularity.  A harmony reading as required under rules of contract interpretation would favor URI; but the caveats in section 8.2(e) and section 9.10 favored Cerberus. My ultimate read of the merger agreement was that it favored URI's position -- section 9.10 would have to mean something absent parol evidence to the contrary -- in no case was it a slam dunk for either party.
  2. I suspected that there was no parol evidence on this matter, and that if that was the case it would favor URI. 
  3. URI's motion and brief on summary judgment was as good a job as could be done, clearly indicating that it had little support from parol evidence. URI's harmony argument, though, glossed over some of the problematical language and it was not dispositive. The difficulty of making this case on summary judgment was still apparent even after this brief.
  4. I had thought the John C. Coates, IV affidavit a non-event and not persuasive. I was mistaken.
  5. Coates affidavit justified sloppy practices in the heat of battle and simply made the statement that, in this light, section 9.10 is written to be dominated by section 8.2(e). It didn't address the harmony viewpoint.  But Coates' viewpoint must now be read with the affidavit of Cerberus' lead counsel Peter Ehrenberg which is the first chance we have to see any parol evidence. And here we have some evidence of an auction process being rushed by Cerberus's high bid to a seller that might have only been concerned with an extra $3, sell-side counsel who may have been understaffed dealing with more than one markup by more than one party, and the many little small protections Cerberus's counsel inserted in all the documents to protect Cerberus's very limited guarantee of Ram's obligations. Reading the Coates affidavit (despite my theoretical and general disagreement with the practices it justifies) now explains why the offending language of section 9.10 was left in the document that seems so diametrically opposed to Cerberus' claim that the limited guarantee is all its exposure is. Cerberus' counsel parol evidence explains that this side's intent was to make that language meaningless and that ultimately Cerberus and Simpson gave it up without redrafting section 9.10. This is what the Richards Layton letter to Chancellor Chandler on summary judgment was pointing to and Chandler allowed them to get the testimony in. No doubt he is going to treat the affidavits seriously.
  6. Consequently, URI tried to paper over the problem in the proxy statement. This doesn't work and no doubt Cerberus' counsel pointed that out at the time and Simpson (and likely the same people at Simpson) were handling the proxy. I am wondering again about URI's proxy disclosure practices in light of the affidavits.
  7. Obviously the URI Brief for summary judgment on specific performance may be their best shot, but if it is and they cannot answer the Coates/Ehrenberg affidavits, all the ambiguity in the document itself now works against URI.  I await their response.  This is a great case -- much better than any Law & Order episode. 


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