“At the time the parties entered into the agreement in mid-February, the outbreak of Covid-19 in other countries was universally public knowledge, as was its potential to impact the economy,” the lawsuit says.
The transaction would make PersonalizedMall.com LLC, or PMall, a wholly owned subsidiary of 1-800-Flowers, which would also get an Illinois distribution facility.
It was supposed to close March 30, but 1-800-Flowers “abruptly” declared March 23 that it was putting the deal on hold “due to generalized uncertainty surrounding Covid-19,” according to the Chancery Court complaint.
A 1-800-Flowers spokeswoman denied that it was reneging on the transaction and said the company would “vigorously defend” itself in court.
“While we still desire to proceed with the transaction, we maintain that the conditions to closing the transaction have not been satisfied in light of the consequences of the COVID-19 pandemic, including the shut-down of the PersonalizationMall.com facilities until at least April 30, 2020,” the spokeswoman said.
But according to the complaint, the company initially requested a postponement until April 30, “without offering any assurances that the closing would happen on that date or on any date.” When Bed Bath responded by offering “to be flexible,” 1-800-Flowers allegedly decided “unilaterally” to postpone the deal indefinitely.
That move breached the purchase agreement, according to the complaint. Although the contract allowed the deal to be modified if a “material adverse event” (MAE) affected PMall in particular, it “specifically excluded” industrywide or marketwide changes, the suit says.
The exclusion allegedly covers “changes in general business, financial, political, capital market, or economic conditions (including any change resulting from any calamity, natural or man-made disaster or acts of God, hostilities, war, or military or terrorist attack).”
“1-800-Flowers is well aware that no MAE has taken place,” the suit says, “because PMall is in the same situation as millions of businesses worldwide facing the impact of Covid-19.”
The complaint acknowledges that it’s “a challenging time for all businesses (including Bed Bath).” But 1-800-Flowers is “a sophisticated counterparty” that “should not be permitted to unilaterally delay its obligations,” the suit says.
Cause of Action: Breach of contract.
Relief: Specific performance of the purchase agreement; costs and fees.
Attorneys: Bed Bath is represented by Richards Layton & Finger PA and Proskauer Rose LLP.
The case is Bed Bath & Beyond Inc. v. 1-800-Flowers.com Inc., Del. Ch., No. 2020-0245, complaint filed 4/2/20.