This post was prepared by Frank Reynolds, who has been following Delaware corporate law, and writing about it for various legal publications, for over 30 years.

The Delaware Chancery Court recently ruled that municipal bond powerhouse Nuveen LLC improperly used “lies” and “threats” in a successful campaign to damage the business of much smaller rival Preston Hollow Capital LLC but it declined to enjoin the alleged wrongs because Nuveen had discontinued them in Preston Hollow Capital LLC v. Nuveen LLC, et al. , No.2019-0169-SG memorandum opinion (Del. Ch. April 9, 2020). A prior Chancery decision in this case handed down last year, highlighted on these pages, addressed defamation claims, among other issues.

Vice Chancellor Sam Glasscock’s April 9 post-trial memorandum opinion found key Nuveen employees tortiously interfered with the Dallas-based PHC’s vital business relationships and opportunities with a half dozen major banks and bond broker-dealers by intentionally mispresenting PHC’s “predatory” investment practices and pushing them to drop PHC to keep Nuveen, self-serving and disingenuous

Both parties are Delaware-chartered finance companies that specialize in municipal bonds–debt securities issued by cities, counties, states and other governmental entities to finance public works projects–but while PHC had $1.3 billion in equity capital, Nuveen and two sister companies headquartered in Chicago had assets of $150 billion in its municipal bond division alone.

The players

The main players in the $3.82 trillion municipal securities market are issuers–the municipalities who sell the bonds, investors–including financing companies like the litigants, banks and smaller buyers, and broker-dealers that provide marketing, pricing and underwriting services.

The type of municipal bonds at issue in the litigation, private placements bought by one investor, are called “100% placements” and are more lucrative, carry a higher risk, require fast-paced communications with trusted broker-dealer connections and are highly competitive.

PHC’s relatively small but fast-growing share of such 100% placements caused Nuveen to see the company as a threat, prompting a series of written and oral warnings from Nuveen officials to brokers and banks that regularly participate in high-yield municipal bond offerings.

That in turn, motivated PHC to file a February 2019 Chancery Court suit claiming Nuveen tortiously interfered with its business relationships by maliciously launching a campaign to wreck its bond business, sabotaging its vital relations with banks and institutional investors, the opinion said.

Predatory practices?

Vice Chancellor Glasscock found evidence that several high-ranking Nuveen bond specialists warned Goldman Sachs, Deutsche Bank and J.P. Morgan units about “predatory” practices that they said PHC commonly employed and threatened to stop doing business with them unless they dropped PHC.

As to the tortious interference charge, the opinion said, first, PHC proved it had a reasonable probability of a business opportunity with those clients because it could demonstrate a “bona fide expectancy“ of opportunity since it could “identify a specific party who was prepared to enter into a business relationship but was dissuaded” by the defendant.

Concerning the second prong required to prove the tort, the vice chancellor found Nuveen intentionally interfered with PHC’s business expectations, despite Nuveen’s contention that it was merely targeting problematic 100% placements rather than PHC’s business in general and that Nuveen officials’ references to getting rid of “Preston Hollow” were just a “shortcut” for eliminating those deals.

“Self-serving and disingenuous”

The court found that testimony “both self-serving and disingenuous” because it was clear that “Nuveen personnel meant what they said…Stop doing business with Preston Hollow or face the consequences,” including time in a type of virtual corporate penalty box and losing their business with Nuveen.

The vice chancellor prominently noted that Nuveen’s witnesses routinely employed numerous “circumlocutions for falsehoods” such as: “hedge,” “bluff,” “exaggeration,” “role-play,” “scenario,” “overstatement,”  blustering,” “short-cutting,” “puff,” “shorthand,” and “overblowing,” causing him to wonder whether the word “lie” was in their vocabulary.

He found that Nuveen’s interference caused PHC demonstrable harm because the defendant’s “lies” and “threats” pressured banks and brokers to change policies and behavior in a way that “curtailed the business expectancies of Preston Hollow.”

The court rejected Nuveen’s defense that its actions were shielded by the business competition exception because to excuse liability under Section 768 of the Second Restatement of Torts regarding the privilege to compete, the defendant must show: the matter in dispute involved the competition, the actor did not employ a wrongful means and did not create or continue an unlawful restraint of trade and the actor’s purpose was only to advance competition.

Since he found that Nuveen clearly employed a wrongful means–the second factor of the list, Vice Chancellor Glasscock said it was unnecessary to examine the rest because of Nuveen’s misrepresentation and economic pressure.

“Reckless indifference to the truth”

Nuveen’s statements to a half-dozen banks and brokers that it had evidence to support its allegations that PHC lied to issuers when It actually had only rumors “amounts to a reckless indifference to the truth” and its use of economic pressure to drive a competitor out of business constitutes wrongful means, the court said.

“I find that Nuveen was not simply attempting to achieve a competitive edge: it meant to use the leverage resulting from its size in the market to destroy Preston Hollow,” the vice chancellor wrote.

The court declined to consider PHC’s claim that Nuveen violated New York’s Donnelly CT OF 1899 (N.Y. Gen. Bus. Law §§ 340–47.) by allegedly organizing a boycott among broker-dealers (many of whom are based in New York).  He found it would be “an imprudent determination” of an unclear New York law.

No mea culpa, no money damages

As to the normally requested remedy in such cases–money damages–the vice chancellor noted PHC has not requested that here, although it has a related suit pending in the Delaware Superior Court for defamation—which must be heard by a jury and where damages are an available remedy.

He said he could not grant the injunction PHC seeks barring Nuveen from further wrongs and ordering it to issue a mea culpa apology letter disavowing its tortious behavior because Nuveen stopped the wrongs PHC sued over and clarified its statements, removing the necessary threat of irreparable harm.