Explore the legal intricacies of a deferred closing in the world of business acquisitions, as we analyze a case involving a Las Vegas casino and hotel sale during the COVID-19 pandemic. Discover how legal proceedings unfolded and the outcome in this M&A story.
M&A Stories
September 10, 2023
Introduction:
In the world of business acquisitions, delays can be inevitable. This story highlights a case where a seller, amid a global pandemic, found themselves in a deferred closing situation. Let’s delve into the details.
Background:
Our story revolves around a Las Vegas casino and hotel seller who had entered into an asset purchase agreement with a buyer back in April 2019. This agreement involved a deferred closing, contingent on the approval of the Nevada Gaming Commission. To seal the deal, the buyer had submitted a $350K earnest money deposit as security.
In March 2020, the COVID-19 pandemic prompted the Nevada Governor to issue a mandate for the temporary closure of nonessential businesses, including our seller’s casino and hotel. Responding to this, the buyer terminated the purchase agreement on April 14, 2020, demanding the return of the earnest money deposit. The seller, however, declined.
Legal Proceedings:
The dispute escalated to a state trial court. Here, a critical issue arose: had the seller’s pandemic-induced closure materially breached their promise to operate the business as usual, a condition of the purchase agreement?
Outcome:
The state trial court initially ruled in favor of the buyer, ordering the return of the $350K earnest money deposit. However, the seller appealed to the Nevada Supreme Court, which subsequently overturned the decision. The Supreme Court held that the seller’s compliance with state law was aimed at preserving the casino’s gaming license, and therefore, it did not constitute a material breach of the purchase agreement. Consequently, the seller retained the earnest money deposit.
Comment:
A noteworthy aspect of this case is that the earnest money deposit was intended as compensation for the seller’s commitment to keep the casino/hotel business off the market during the transaction with the buyer.
Case Reference:
See Lucky Lucy D LLC v. LGS Casino LLC, Nos. 83833, 84257, Supreme Court of Nevada (Filed August 24, 2023).
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Podcasts https://www.buzzsprout.com/2142689/12339043
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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