LVMH Leaves Tiffany at Altar & $900 Million Bank Error

The Tiffany's the iconic robin, a blue box with the white ribbon and flawless diamond engagement rings. LVMH, the luxury conglomerate, thought Tiffany would be the jewel in its crown of iconic brands like Louis Vutan, Javanti and Christian Dior, and made a deal to buy the jeweler for sixteen million dollars, the largest takeover ever in the luxury goods sector. But then the luster wore off the deal for LVMH as

the coronavirus pandemic devastated retailers. Still, LVMH surprised investors last week when it said the French government had essentially demanded the deal be postponed because of a dispute over US tariff threats. Tiffany responded by filing suit in Delaware Chancery Court to enforce the agreement. Joining me is Andrew Rossman, a partner at Quinn Emmanuel Andy. We've seen other deals

collapse during the pandemic. What's unique about this is that LVMH says it received a letter from the French Foreign Minister asking it to delay the deal for reasons related to a trade dispute. What impact will that letter have on the legal case is six four thousand dollar question in the case at the moment, which is what is the government asking LVMH to do and what does that implicate in terms of the party's rights under the agreement.

It raises the question of is this a binding government order that has to be followed or is this simply kind of a polite request. So I haven't seen the letter. I'm not sure that the letter is available at this point, and I think it very much turns on what government agency is asking LVMH to do what, and then to

filter that through the rights and obligations in the agreement. Well, Tiffany apparently said that it saw the letter briefly and wasn't allowed to take a picture of it, and they compared it to you know how you see the Mona Lisa for a few minutes and then they show you along. But that letter will have to be revealed if the lawsuit continues. I would think that a judge is going to eventually want to see that letter if the letter to come. The future and laws, this case has gotten

ugly fast. Tiffany has accused LVMH of unclean hands. LVMH says Tiffany has been poorly on during the pandemic. What is performance during the pandemic something that the court is going to consider, Well, it is an important question they are june about what Tiffany's operations have been and what

their financial results have been. Because typical merger agreements and I'm sure that there's a similar provision here in this one, they do provide for out, if you will, for the parties if there has either been a deviation from the ordinary course operations of the business or if the company's performance has suffered so much that's considered to be a material adverse effect, and that very much depends on how the businesses run with results. So material adverse effect in

this instance, is COVID considered a material adverse effect? Well, I think the question is not so much COVID or no COVID, but what is the impact on the company. So these are comply provisions and you've got to look

at them carefully in their own language. But the starting point is going to be how does the company's performance suffered in a significant way, And then you have to look at the language of that provision to see whether or not the pandemic is specifically provided for, not specifically provided for, if there's some other general broad catch all what's called carve out that applies to COVID. And there's all kinds of debate going on in these cases right now,

depending on the specifics of the language. So I don't think courts are approaching it as well, you know, as COVID terminate all contracts, I think they're dialing in in a much more precise way to think about what's the impact on this particular company and did the parties bargain for getting out of the contract of the event of a pandemic? And then often, how does this company's performance

compared to others in the industry. So if the industry is doing badly, as retailers and especially luxury goods retailers are during the pandemic, well the court take that into account. It all depends on James. How the parties wrote the

contract right. So courts like to, particularly in Delaware, they like to give parties the freedom to have whatever bargain they want to have about the risks of doing a deal, so they can put specific language in that says, you know, even if there's a pandemic, the deal has to close, or they could put specific language in that says, in the event of a pandemic, the deal doesn't have to close. Now, the way corporate lawyers typically draft these things is in

a much more general, much more of two sway. So that's why the litigators and judges have to pour through the particular language, look at the company's specific performance, and then make judgments. And you're going to hear sophisticated arguments on book sides. Prior to COVID, was pandemic language found generally in contracts or merger agreements. That's a great question, June.

What we have seen is there are examples of contracts that specifically have pandemic language, and that there are examples of contracts that don't have pandemic language. And you've got to look at the whole contract, and sometimes you've got to consider the negotiating history of how the parties got there. So it's not a one size fits all. These aren't identical boiler plate provisions. But we have seen example of the book. There's going to be a hearing on September one.

Tiffany wants to fast track the lawsuit. What would it have to show in order to get the court to fast track it? Well, what you essentially have to show is that there's some external reasons why the courts should set aside its other business and put this case to the front of the line. So what is the emergency

to this deal that requires that? And I expect that what Tithany is gonna argue here is that it's facing a termination date in late November UM and that you know it will want to get heard in time to get a ruling in advance of that termination date. Sometimes you know it relates to the availability of outside financing

or not. In courts want to act quickly before that expires here, If it's just a question of the termination date of the agreement, then it really is up to the parties UH if they want to extend that or they want to stick to that date. So you know that's going to be what the court's wrestling with. And you've got a judge here who's got two other cases in the COVID era about you know, whether or not transactions can be terminated, so you know a lot of

experience there in terms of making exoditions. Do you know how he ruled in those cases? One of the small cases following a yoga studio. The other one of the larger cases, the m X travel case, which which my firm, Quita Manuel is actually involved in. So I'll tread lightly, but the fact they are just simply on the records

that motion to expedite was denied. UM. There have been other judges that have granted motion UH to expedite UH in this era by chance or last or did it in the Marae case which we were also involved in that result in a trial a couple weeks ago. There are lots of other deals that have collapsed recently. Is there any conclusion you've drawn from those cases, I would say a couple of conclusions. One is the Delaware course

will react with great dispatch when they need to. Um So, it's been impressive how they've responded to the commercial needs of the parties. And too, they're very fact dependent every case. You know, the core is going to dig in understand how the business was impacted by the pandemic or other factors, what the specifics of the agreements are um and you know, the parties are going to have to expect to go to court and tell their stories in a in a

very persuasive way. Can you compare this to the two thousand eight financial crisis and the deals that collapsed during that, Yeah, it's quite different. The two thousand eight financial crisis was a bank centered crisis. It was about you know, a lot of it was started around the unavailability of credit. Um so companies were facing liquidity issues and not fundamental questions about value. And it was it was across the board. Here. There's a lot of specific industries. Um you know, luxury

retail is one of them. Um you know, certainly travel hospitality is another that have really been hit in a in a severe way, while other industries, you know, tech for example, have not as a result of this of this pandemic. So you know, it's um. You know, it's quite different in the differential impact on the companies, and in some way it's a severity. Uh. This is something that affects everything. Every single person that you know that

I know has been affected by this pandemic. Um. Whereas you know two thousand eight uh was you know, it was really more of a Wall Street event, you know, followed by recession. After all this enmity and legal name calling, is the deal still possible? Absolutely. One of the things that we observed in two thousands eight is n A s for Examp Apple were declared in cases weren't litigated, but the deals were recut, So you have price negotiations.

I've been involved in two deals, one very public involving for Scout, where my client I've been with a couple of days away from trial and they reached the settlement that resulted in a very substantial reduction in the deal price. So people like to say there's always buyer at some price. So there could be resolution of this or any other deal case, you know, based on recut terms. Is there still a bad connotation to reneging on a deal or

has COVID sort of erased that idea. I've had this conversation a lot, and I think this is a very different era. I really don't believe that there is a reputational hit, if you will, from people exercising their contract right in light of this pandemic. That's what they're there for. Thanks Andy. That's Andrew Rossman of Quinn Emmanuel. There's no doubt that City Group made a mistake, a nine hundred million dollar mistake, but unfortunately for the bank, the courts

don't follow the schoolyard rule of finders keepers. City Group is the administrator on a loan to Revlon and paid out more than nine hundred million dollars of its own money to a group of lenders who were expecting an interest payment on behalf of Revlon. The bank says an employee error caused it to mistakenly pay out a some roughly one hundred times larger than the interest payment the

creditors were expecting. One of the lenders has given the money back, but the others, including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, have not, saying the money should be regarded as payment for Revlon's debt. The bank has filed lawsuits against eleven creditors to recover the money. My guest is a nat Allen Beck, a professor at Case Western Reserve School of Law. As a general rule, people who misstay canly receive things they're not entitled to

have to give them back. Why isn't that true here? Well, the issue here is more complicated than that because traditionally with undertustin Richmond, what happens is that one person is amative expense of another. But here the issue is there's already a debt, they have an agreement that they entered into.

So it makes it more complicated than a traditional untrust in Richmond case because we do have a situation where we have a debtor and a creditor and they gave money to have one as alone, and they were supposed to get paid. The question is when city banks stand out the money by mistake and you're not supposed to get the principle and now we're only supposed to get the interests, and that's why there's unjust and Richmond. What you're trying to do is you're trying to get paid

over the other creditors. There's other creditors here, right, there's a line of creditors, So all the creditors are trying to get paid. Why would you get paid before everybody else? What are some of the things that trial judge will be considering. So here I think the judge will have to use discretion and decide whether he's going to compel the other parties to return the money or not. And that depends on French or say the company. Is there

a bankrupt superseding, is there a reorganization? What's happening? And what was the origement with cit banks? What was city banks supposed to do? What was citty banks responsibility here? What about the issue of whether the lenders knew the payment was a mistake. There seems to be some focus on that, Oh, definitely. One of the things is that, for example, let's say somebody accidentally transferred money to your bank account. I wanted to transfer money to my sister,

and by accident I transferred money to your bank account. Okay, all of a sudden you have another ten thousand dollars. So the question is did you know that that money was a mistake? And if you didn't, and you already spend that money. What's my recourse against you of giving that money back? So here, that's why they ordered the parties that received the money not to use the money, so that they don't say, oh, well, we were supposed

to get paid. We did that paid fully, and we didn't know it was a mistake and we spent the money. So here, clearly they know that this was a mistake, that they were not supposed to get such a large amount. But again, in situations like this, the judges have discretion. They're gonna look at the case and they're going to describe the creditors are asking the judge to allow them to present testimony from an expert in the corporate loan market.

They said the expert would appine on how lenders in the market and their managers would respond to the receipt of wires such as those at issue in the case. What are they trying to do here? They're trying to show that for them to receive something like that might be customary under other constensus, to show that they are not acting in that space, that they shouldn't be perceived that way by wanting to keep the money because the

money is owe to them. Because with your judgment, and they use is the reasonable person objectives, so that other institutions in their shoes, other reasonable people also assume that they're being paid for what they're owed. And what would they do in situations like this, And that's very important. How much advantage does it give the lenders that they have the money in hand, The fact that the creditors are now in possession of the money, that puts them

in a powerful position because they can negotiate. They can say no, wait a minute, we're holding it, we're not giving it back, or how much are we're willing to give back if at all, So the other parties have to basically beg them for it. City Bank Revlon. They're trying to mitigate their mistakes now, even in situations where it wasn't the case where money was owed. In situations where there was just a purely clerical mistake, for example, all the parties view that an assistant or secretary by

accident subtracted two zeros from a sum. Those cases can get litigated for years in court, and just the litigation costs should be an incentive for the party to settle, because litigation is expensive. The parties who hold the money know that, so again that's in their favor because they know that if this case gets litigated the bank's breason, they could be spending millions of dollars in litigation costs.

So they're gonna want to reach an agreement as soon as possible against to mitigate their exposure, to mitigate their expenses, and to have closure on this issue. Thanks for being on Bloomberg Law. That's a Natt Alan Beck of Case Western Reserve Law School. I'm June Grasso. Thanks so much for listening, and please tune into the Bloomberg Law Show every weeknight at ten pm Eastern on Bloomberg Radio. The printing PTEN the Agent of the f