M&A litigators and merger agreement drafters will long remember the ruling Monday by Delaware Vice Chancellor Travis Laster in AB Stable VII v. MAPS Hotels and Resorts for its exhaustive interpretation of whether the worldwide pandemic permitted South Korea’s Mirae Asset to walk away from a $5.8 billion deal to buy luxury hotels in the U.S. from a successor to China’s Anbang Insurance.

To make a very, very long story short – the decision is 243 pages! – the Chancery Court judge held that Mirae could not invoke the material adverse event clause in its purchase agreement with Anbang because COVID-19 is encompassed in the MAE clause’s exception for calamities or natural disasters. That’s good news, broadly speaking, for sellers: The MAE clause in the Anbang/Mirae deal didn’t include a specific carve-out shifting pandemic risk onto Mirae, but Laster found the more broadly-worded exception applied to COVID-19.

But the news for buyers was even better. Vice-Chancellor Laster ruled that under Delaware precedent, “ordinary course of business” provisions in M&A deals require sellers to maintain routine operations. Anbang had argued that its response to the COVID-19 pandemic, which included widespread staff layoffs and partial hotel shutdowns, was necessary, reasonable and comparable to actions by its competitors. The judge, however, said Delaware cases don’t compare a target company’s extraordinary actions to those of its competitors but rather to its own ordinary business conduct. “A company breaches an ordinary course covenant by departing significantly from that routine,” the judge wrote.

Those headline legal conclusions are sure to be cited in countless busted-deal cases for decades to come. But they’re not the only important story in Monday’s decision. There’s also Vice Chancellor Laster’s unsparing account of the conduct of Anbang’s lawyers at Gibson, Dunn & Crutcher.

According to Laster, Gibson Dunn deliberately withheld key information from Mirae and its lawyers at Greenberg Traurig, instead providing “misleadingly incomplete” representations about disputed deeds on some of the Anbang hotel properties. The firm also “sadly … misled the court,” about Anbang’s own investigation of the disputed deeds, the vice-chancellor wrote.

“Put bluntly, (Anbang and Gibson Dunn) committed fraud about fraud,” the judge said.

Ultimately, Laster found, the decision by Anbang and its lawyers to withhold critical information from Mirae and the lenders that were slated to provide billions in financing ended up backfiring when the information came to light. The funders were spooked, the closing was delayed and COVID-19 proceeded to decimate the hotels’ business. If Gibson Dunn and its client had been “candid” from the beginning, Vice Chancellor Laster wrote, “the transaction likely would have closed, and this litigation would never have happened.”

Instead, Mirae is walking away from a $5.8 billion deal with its $582 million deposit refunded – and Anbang is stuck not only with its underperforming hotels but a bill for millions of dollars in fees and costs awarded to Mirae.

I sent a detailed email requesting comment on Vice Chancellor Laster’s specific assertions to Gibson Dunn’s communications director and to partners Stephen Glover and Andrew Lance. The firm did not respond to my questions. In Anbang’s final post-trial brief, the firm said that the disclosure issue was a red herring because the disputed deeds were obvious fakes. It also said that Mirae hadn’t shown any impact from any delay in revealing the extent of the fake deed dispute, since “those matters were disclosed before a closing date had been set.”

Mirae counsel Michael Carlinsky of Quinn Emanuel Urquhart & Sullivan said in an email statement, “We are extremely gratified with Vice Chancellor Laster’s thorough and detailed opinion finding that Mirae Asset was justified in terminating the transaction based on (Anbang’s) breaches and pattern of deception.”

The Anbang deal’s downfall began with a “shadowy and elusive” fraudster who, according to Laster, concocted an “elaborate scheme” to claim ownership of some of the properties in the Mirae deal. Anbang had a complicated history with the alleged fraudster, who had attempted to extract payments from the company in return for ceding trademarks he had registered on names related to Anbang businesses. When Anbang went into Chinese government receivership in 2018, Laster wrote, the fraudster forged deeds and other ownership documents that purportedly gave him title to Anbang hotels. He then went to Delaware Chancery Court to attempt to obtain judgments confirming his ownership. That case, captioned World Award Foundation v. Anbang, was litigated in front of Vice-Chancellor Laster.

Anbang and Gibson Dunn decided not to disclose the fraudster’s history with the company in the World Award case, even as Gibson Dunn launched an investigation of the fake deeds.

At a status conference before Vice Chancellor Laster in January 2020, a Gibson Dunn lawyer said that the firm didn’t actually know much about the fake deed scheme or the man who had orchestrated it.

That turned out not to be true, Laster said: “Gibson Dunn had … embarked on a massive investigation in August 2019, and it had uncovered considerable information,” the judge wrote.

Nor did Anbang or its lawyers tell Mirae the truth about the alleged fraudster, the judge said. Anbang and Mirae had entered a purchase agreement in September 2019, a month after the purported fraudster brought his Delaware Chancery Court case. Gibson Dunn did not reveal the Delaware case to Mirae’s lawyers at Greenberg Traurig.
Instead, Gibson partner Lance mentioned in a conversation with Mirae counsel Robert Ivanhoe that “a twenty-something-year-old Uber driver with a criminal record had recorded deeds against the California hotels.” Lance told Ivanhoe the matter was just a nuisance.

That representation “was not true,” Vice Chancellor Laster wrote in Monday’s ruling. “Anbang had received multiple indications that the deeds were part of a larger fraudulent scheme.”

Anbang and its lawyers nevertheless stuck to the Uber driver story with Mirae, even as they tried to persuade San Francisco law enforcement officials to investigate the fake deeds — and as Mirae’s lenders and title insurers raised questions about ownership of the California properties. Gibson Dunn did not tell Mirae about the ongoing Chancery Court litigation over the fake deeds. The law firm continued to provide what Laster called “anodyne” assurances to Mirae and its lenders and title insurers.

Anbang and Gibson Dunn won the Chancery Court case over the deeds in January 2020, without ever revealing its existence to Mirae or Mirae’s lenders, according to Laster’s opinion. The Mirae deal seemed to be on track for a closing in April 2020.

Then, in February, Goldman Sachs investigators discovered filings from the fake deed litigation in Delaware. Mirae’s lenders were on the verge of signing commitment letters, but Goldman postponed the signing.
And although Gibson Dunn, according to Laster’s opinion, continued to downplay the risk of the fake deeds,

Mirae’s lawyers from Greenberg Traurig found a worrisome letter in the Delaware case file about the fraudster’s history with Anbang. Mirae counsel Ivanhoe later testified that the letter was “a very serious problem” because it directly contradicted what Anbang and Gibson Dunn had told him about the fraudster.

With COVID roiling the markets, Mirae’s lenders backed away from the deal. The title insurers, meanwhile, refused to grant full coverage for the properties, insisting on a broad exception for the fraudulent deeds. Concerned that it wasn’t getting the full story from Anbang, Mirae pressed throughout the spring for answers to its questions about the fake deeds.

In April, Anbang filed a suit in Chancery Court to force Mirae to close the deal. That case, like the previous litigation over the fake deeds, was assigned to Laster.

Quinn Emanuel entered the case for Mirae after Vice-Chancellor Laster granted Anbang’s motion to expedite the trial last May. Quinn highlighted Gibson Dunn’s role in the deal, apparently betting that the Vice-Chancellor would not be happy to find out that even as Gibson Dunn urged him to rule for Anbang in the fake deed case, the firm didn’t tell Mirae about the case.

Based on Monday’s opinion, Quinn’s bet paid off.

One final point. Mirae claimed that in addition to breaching its obligation to conduct business in the ordinary course, Anbang also breached the merger agreement by failing to obtain unconditional title insurance. Anbang responded that it was Mirae counsel Ivanhoe who had engaged in wrongdoing. Ivanhoe, Gibson Dunn argued, had sabotaged the deal by pressing the title insurers to issue coverage with an exception for the fake deeds – giving Mirae an out if the buyer wanted to exit the deal.

Vice-Chancellor Laster roundly rejected Gibson Dunn’s attempt to discredit its opposing counsel: “Unlike the Gibson Dunn lawyers, who had eschewed candour throughout the deal process, Ivanhoe provided the complete, unvarnished truth,” the vice-chancellor wrote.

Ivanhoe told me by email that he regards Monday’s opinion as vindication. “The plaintiff and its counsel attempted to pin their case on what they asserted was my improper behaviour,” Ivanhoe said. “Instead, it was Gibson Dunn’s conduct that was put under the spotlight and found to be improper.”