Monday, January 3, 2022


              Dajia Insurance, a corporation organized under laws of the People’s Republic of China, owns Strategic Hotels & Resorts, a Delaware LLC, through an intermediary entity, AB Stable VIII. Strategic owns 15 other LLCs, each of which, in turn, own a luxury hotel in USA.

            After leadership changes and new regulations restricted Chinese companies from investing in non-China assets, Dajia decided to sell the hotels and instructed AB Stable to open bidding for Strategic in April 2019. Mirae Asset Financial Group from South Korea tendered a bid of $5.8 billion to acquire 100% of Strategic. During the purchase and sale process, Mirae created MAPS Hotels to buy and own Strategic.

            MAPS Hotel (Buyer) and AB Stable VIII (Seller), executed a Contract in September 2019. In it, Stable agreed to sell its membership interests in Strategic to MAPS Hotel after title issues were resolved.

            April 6, 2020 was the proposed closing date. But then, COVID 19 struck. Worldwide market upheaval was rampant by February 2020, which was the time that Goldman Sachs informed MAPS that previously committed financing is no longer available.

            Stable’s hotels business started to feel the effects of COVID 19 cancellations.

            As contractual negotiations stretched into March 2020, COVID 19 continued to wreak havoc on all markets, and debt funding became unavailable. Bridge lending seemed to be the only alternative, but even those lenders retreated.

            Due to travel decreases, Stable temporarily closed two USA hotels on March 24, 2020. Others continued to operate in a “closed but open” manner, offering only room service dining. All other amenities, such as restaurants, health clubs, pools, spas, lounges, valets, concierge, bellhops, and retail stores were closed.

            More than 5,200 full-time employees were either fired or furloughed by Stable. Remaining employees saw their work week shortened, and pay increases deferred.

            MAPS proposed delaying closing for three months. Stable insisted on closing by April 8, 2020, but otherwise Stable would consider a three-month extension if MAPS: (a) doubled its earnest money deposit; (b) agreed that all closing conditions were waived; (c) acknowledged that no further pricing adjustments would be considered; and (d) compensated Stable with an additional $400 million in funding costs.

            Stable’s extension proposal was rejected the day it was proposed.

            When MAPS failed to conclude the deal, Stable filed a lawsuit on April 27, 2020 for specific performance. MAP’s response was to terminate the Contract, claiming Stable had breached.

            Then, MAPS filed counterclaims.

            The lower court convened a trial in August 2020, at which the court concluded that Stable breached the “Ordinary Course Covenant” of the Contract by making “extraordinary changes to its business” that “departed radically from the normal and routine operation of the Hotels and were wholly inconsistent with past practice.”      

            The trial court found that it was Stable’s duty to maintain commercially reasonable levels of assets and services such as food and beverage, furniture, toiletries, amenities, and similar items required in luxury hotel operations.

            The trial court then determined that Stable had significantly altered the operations of the business, which were inconsistent with past practice.

            On appeal, Stable contends that the trial court should have permitted reasonable, industry-standard responses to systemic risks that MAPS was also experiencing at its own properties.           

            MAPS disagreed, claiming that the changes were a drastic departure from past practice. It was the appellate Court’s burden to determine what Buyer and Seller intended.

            Section 5.1 of the Contract obligated Seller, absent Buyer’s prior written consent, to continue business operations “consistent with past practices in all material respects.” Stable’s “closed but open” strategy was far from consistent with past practices.           

            Buyer (MAPS) wins; Seller (Stable) loses. See AB Stable VIII v. MAPS Hotels and Resorts; Case 71,2021; Supreme Court of Delaware; December 8, 2021:,44

            Lessons / Questions / Observations:

1.      Question. This Seller was confronting an absolute standard of continuing business operations as it had been in the past. What would have been the result if Seller had leeway to alter business practices if it was reasonable to do so, perhaps as evidenced by its industry peers?

2.      Lesson. Continuation of business operations is a standard clause in most Contracts. It’s high time to review those clauses, to be sure it is fair to both parties when unanticipated situations arise.

3.      Observation. Wishing all my readers a healthy and Happy New Year!

                                                                                    Stuart A. Lautin, Esq.*



* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.


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