Taubman/Simon to face push to settle ahead of unprecedented trial

30 July 2020 - 07:52 pm UTC

Author(s): by Jonathan Guilford and Yiqin Shen
As Taubman Centers [NYSE:TCO] prepares to square off with Simon Property Group [NYSE:SPG], the parties will have to contend with a Michigan court system that prizes settlements over forced performance, said three attorneys who practice in the state.
 
In early June, Indianapolis-based commercial property REIT Simon Property moved to terminate its USD 3.6bn deal to acquire Bloomfield Hills, Michigan-based Taubman, a REIT that owns a collection of high-end malls.
 
Simon filed a complaint in the circuit court for the sixth judicial circuit in Michigan, seeking a declaration that Taubman has suffered a material adverse effect due to the COVID-19 pandemic, has violated its ordinary course covenants, and that Simon validly terminated the trusts’ merger agreement. Taubman subsequently filed a response defending itself from these charges and asking the court to enforce specific performance of the merger agreement.
 
The judge assigned to the case, James Alexander, ordered that the case be referred to “facilitative mediation” to be completed by 31 July. Judge Alexander is holding a conference on Friday for the parties to provide a scheduling and status update.
 
Jordan Bolton, a partner in the litigation practice at Clark Hill, said that a key characteristic of Michigan’s Business Court, which will hear the case, is that "in practice, they have become very focused on alternative dispute resolution mechanisms,” urging parties to participate in mediation and resolve matters short of trial.
 
Although Judge Alexander will take the matter through dispositive motion practice and trial if necessary, he will likely continue to encourage the parties to find a business solution along the way, Bolton said.
 
Michigan courts require mandatory alternative dispute resolution of all cases, and in business docket cases, this almost always takes the form of facilitative mediation, said Jon Bylsma, chair of litigation group at Varnum, noting that close to 80% of cases end up in settlement through this process.
 
“In most cases, business parties could almost always fashion a better resolution that both sides are comfortable with than a court can,” he said. 
 
The dynamics of major court cases like this tend to lead to out-of-court settlements, said Justin Klimko, president of law firm Butzel Long, adding that the judge in a case will often signal which way they are leaning when responding to various motions. Parties will try to read how the case is going from these actions, and then often use that to inform whether and when to pursue a settlement, he said.
 
The first major pandemic MAE dispute scheduled to be heard in Delaware, ForeScout [NASDAQ:FSCT] vs. Advent International, settled days ahead of a late July trial. Under the settlement, Advent will proceed with its acquisition of cyber-security company ForeScout at a lower valuation than what was originally agreed to.
 
While significant dispute litigation in Michigan business courts like this can often take around a full year to proceed from initial filing to judgement, with the pandemic further slowing this timeline, Bolton noted that this case is set to be ready for trial in November.
Notably, Judge Alexander is expected to retire at the end of this year.
 
The judge’s intent to conduct the trial before his retirement may be driving a quick schedule, Bylsma said. Michigan courts are now holding limited in-person arguments only when absolutely necessary in criminal matters or emergency matters, Bylsma added.
 
If the parties continue to litigate rather than settle, any outcome is likely to be appealed, extending the likely timeline for reaching any definitive resolution, said a separate person familiar with the case.
 
The three attorneys agreed that the crux of the argument will come down to the merger agreement’s MAE definition.
 
Unlike most corporate disputes of this nature, which are adjudicated in Delaware court, the merger agreement specifically defines Michigan as the jurisdiction for any litigation between the parties.
 
Most notable cases MAE cases have played out in Delaware. This includes the landmark case between Fresenius [NYSE:FMS] and drug maker Akorn [OTC:AKRXQ], which in 2018 saw the Delaware Court of Chancery for the first time rule that an MAE had occurred, allowing Fresenius to walk away from a deal to buy Akorn.
 
Conventions for determining whether an MAE has occurred have emerged from Delaware jurisprudence, including threshold tests for whether a claimed event had a disproportionate impact on the target, and whether this impact is durationally significant, as this news service has previously reported.
 
While there is little precedent in Michigan regarding major MAE cases, courts in the state often look to other jurisdictions as a guide, including Delaware, said Klimko.
 
The court in the Taubman case may look to Delaware, but one of the primary issues in the case is the interpretation of the specific contract language used by the parties and their intent when negotiating certain clauses of their merger agreement, which will depend on the Michigan court’s fact-specific analysis, Klimko said.
 
Bolton agreed: “The absence of [Michigan] precedent may not be all that consequential because, at the end of the day, it’s about the terms of the merger agreement, and the application of the facts to those terms. Michigan does not materially differ from other jurisdictions in the U.S. with respect to the rules of contract interpretation.”
 
“This is a more of a contract interpretation issue than a what is in Michigan law issue,” added Bylsma. He said the court has a fair number of specific performance decisions with regards to automotive supply chain disputes, but not a sufficient level of precedent for it to rely upon in ruling on the dispute between Taubman and Simon.
 
If the court determines that applicable provisions of the merger agreement are ambiguous, Bolton said that key evidence will include communications, including those discussing prior iterations of the MAE provision and applicable definitions, between the parties as negotiations went on and the merger agreement took shape.
 
This is not the first time Simon and Taubman have faced off in Michigan court. In 2003, Simon sued Taubman to prevent the Taubman family, who are major shareholders, from taking various defensive measures against a hostile bid by Simon. Taubman eventually prevailed in that case.
Taubman and Simon declined to comment. 
 
The case is Simon Property Group vs. Taubman Centers, 2020-181675-CB. Miller Canfield Paddock and Stone and Paul Weis Rifkind Wharton & Garrison are advising Simon. Honigman, Wachtell Lipton Rosen & Katz, Brooks Wilkins Sharkey & Turco and Kirkland & Ellis are advising Taubman and a special committee of its board of directors.