MAPS Hotels and Resorts One LLC (“MAPS”), a subsidiary of Mirae Asset Financial Group, had been in negotiations to purchase Strategic Hotels & Resorts LLC (“Strategic”), a hotel real estate investment trust, totaling $5.8 billion.
Shortly before closing and after MAPS paid the $600 million non-refundable deposit, the COVID-19 pandemic hit – substantially impacting the hospitality industry and Strategic’s operations. Simultaneously, underhanded practices came to light that complicated this proposed acquisition further.
FTI Consulting was engaged by Quinn Emanuel Urquhart & Sullivan LLP, counsel to MAPS, to analyze the financial and operational impact of COVID-19 and the fraudulently filed deeds related to the proposed acquisition.
FTI Consulting expert testimony showed that Strategic’s business was not conducted in the “ordinary course of business,” resulting in MAPS being relieved of its obligation to close, thus entitling it to the refund of its deposit and an award of legal expenses.
Vice Chancellor Lasater of the Delaware Court of Chancery ruled that the ordinary course covenant had been violated and that Strategic had misled MAPS and withheld critical information regarding prior litigation involving fraudulent deeds.
The court agreed with FTI Consulting’s assessment that the Seller “departed from the normal and customary routine of its business as established by past practice” noting that counsel and FTI Consulting had presented “overwhelming evidence.”
The landmark case set a precedent for defining the “ordinary course of business” in the hospitality industry and in all commercial transactions. As the Court explained, “an ordinary course covenant is not a straitjacket, but it nevertheless constrains the seller’s flexibility to the business’s normal range of operations.”
FTI Consulting reviewed, analyzed and compared Strategic’s current and historic financial performance, cash flows and other operating metrics and practices.
Our team investigated whether Strategic Hotel Capital was operating “in accordance with past practices.”
FTI Consulting experts analyzed the deeds and demonstrated to the court how title insurance — or the lack thereof — might impact a lender or buyer's ability to consummate a real estate transaction.
In an expedited trial, the court ruled quickly in the midst of COVID-19, rendering its decision wholly in favor of FTI Consulting’s client – the Plaintiff. The proceedings included millions of pages of documents, 49 depositions in 35 days in five time zones, and 17 expert reports. The court later referred to this “Herculean effort.”
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