Explore a cautionary tale from the world of mergers and acquisitions. Learn about a case where a buyer’s commitment to pay $6.5 million in liquidated damages became the focal point of legal action. Understand the significance of well-negotiated clauses in M&A agreements and their enforcement in deals involving experienced parties.
M&A Stories
September 25, 2020
Introduction:
In the world of mergers and acquisitions (M&A), it’s common to finalize the acquisition agreement but delay closing until necessary approvals are secured. However, a cautionary tale arises from a case where a buyer pledged to pay the seller $6.5 million if they couldn’t close on time.
The Story:
In this instance, a Manhattan surgical center was selling its assets to a buyer who owned multiple surgical centers. The deal was signed in August 2015 but hinged on the buyer obtaining a health department certificate by possibly June 2016. To ensure commitment, the buyer had to provide $6 million collateral by September 1, 2015. Struggling to secure this from a bank, the buyer requested a deal renegotiation.
Legal Action:
The agreement stated that if the buyer failed to close on time, the seller could claim $6.5 million in liquidated damages. With financial challenges, a lawsuit followed. The court granted the seller’s request for damages, which the buyer appealed. The higher court upheld the decision, highlighting that a well-negotiated liquidated damages clause among experienced parties is usually upheld.
This case is known as Center for Specialty Care, Inc. v. CSC Acquisition I, LLC v. Fontanella, 2020 NY Slip Op 04522, Appellate Division of the Supreme Court of New York, First Department, (Decided August 13, 2020) (Link: https://law.justia.com/cases/new-york/appellate-division-first-department/2020/653849-16-652927-16-11802.html)
Key Point:
Buyers should realize that in deals involving knowledgeable business parties and informed lawyers, agreements to pay liquidated damages are likely to be enforced.
By John McCauley: I help people manage M&A risks involving privately held companies.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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