In Metcap Securities LLC ,et al. v. Pearl Senior Care, Inc., et al., Del. Ch., No. 2129-VCN (Feb. 27, 2009), the Chancery Court granted summary judgment in a case involving a dispute about the payment of a $20 million fee for a financial advisor to a merger deal. Prior decisions in this case were summarized here.
Kevin Brady, a highly respected Delaware litigator, prepared the following review of this case.
One of the Plaintiffs, North American Senior Care, Inc. (“NASC”), a Delaware corporation formed solely for the purpose of acquiring Defendant Beverly Enterprises, Inc. (“Beverly”), entered into a merger agreement on August 16, 2005, pursuant to which Beverly would be acquired for $2 billion. Leonard Grunstein, a partner at the law firm of Troutman Sanders LLP, was a principal of NASC and a principal of the other plaintiff MetCap Securities LLC. Before the merger agreement between NASC and Beverly, MetCap had entered into an Advisory Agreement with NASC to act as NASC’s financial advisor in connection with the Beverly transaction. Under the Advisory Agreement, MetCap was to receive a $20 million fee for its services upon closing of that transaction. However, as the negotiations to finalize the merger documents were winding down, a change was made to the merger agreement by a law partner of Grunstein which in effect deleted the language that permitted MetCap to get the $20 million fee for the transaction.
NASC and MetCap filed this action to recover the $20 million fee from the Defendants. The Defendants moved for summary judgment on two issues: (1) whether NASC can reform the merger agreement and return to the earlier version of the agreement which acknowledged a potential right to compensation regarding MetCap; and (2) whether the Defendants were unjustly enriched by work performed by MetCap after the amendment to the merger agreement.
In discussing the issues, Vice Chancellor Noble went through a very detailed analysis of the plaintiff’s claim for reformation of the merger agreement. There is an interesting discussion about the role of “deal counsel” and whether Grunstein’s law partner (who made the final changes to the merger agreement, deleting the references to MetCap getting the fee), was a “dual or common” agent and thus “conflicted’ thereby having no authority to bind his principal by agreeing to the deletion. The Court decided that he was not conflicted.
The Court also went through a very detailed analysis of the Plaintiffs’ claim for unjust enrichment, including discussions about an “unclean hands” defense and whether MetCap conferred a benefit on the Defendants after the amended merger agreement. In a prior decision, the Court had determined that before the amendment to the merger agreement, MetCap’s relationship to the Beverly transaction was governed by the Advisory Agreement which would preclude an unjust enrichment claim. Vice Chancellor Noble concluded that any work done by MetCap after the amendment did not benefit the Defendants, so MetCap was not entitled to any recovery for that work.
The Defendants also argued that if MetCap had conferred a benefit upon the Defendants, it did so officiously and therefore the Defendants’ retention of the benefit was not unjust. The Court, in agreeing with the Defendants, stated that because there was no “mistake, coercion, or request” as required by the Restatement of Restitution § 112 (which Delaware has expressly adopted), any benefit which MetCap may have conferred upon the Defendants was done so officiously. As a result, the Court granted the Defendants’ motion for summary judgment on the reformation issue and the unjust enrichment claim.