Realogy Appeal of Bid to Seal SIRVA Deal Should Wait, Judge Says

Realogy Holdings Corp. failed to justify an immediate appeal of its bid to seal a $400 million deal Madison Dearborn Partners LLC affiliate SIRVA Worldwide Inc. backed out of over the Covid-19 pandemic, a Delaware judge said, urging the state’s top court not to review the case until it’s over.

The dismissal of Realogy’s claim for “specific performance” of the transaction—an order forcing SIRVA to close on it—"was based on straightforward interpretations of contractual terms,” Vice Chancellor Morgan T. Zurn wrote in a letter opinion. “Standard contract interpretation issues are not suited for interlocutory appeal,” she added.

The case is part of a wave of lawsuits asking courts to keep mergers on track as acquirers balking at coronavirus risks scramble deals worldwide. Most of those disputes are being heard in Delaware’s Chancery Court.

Some of the similar cases involve a $5.8 billion hotel deal; the purchase of Victoria’s Secret; a business unit sale from Bed Bath & Beyond to 1-800-Flowers; a CMX Cinemas merger; a franchise buyout by CorePower Yoga; and private equity transactions over a cybersecurity company and the world’s top cake decorations wholesaler.

Material Adverse Effect

The Realogy-SIRVA case concerns Cartus Corp., a moving services company SIRVA was supposed to acquire from Realogy, a real estate brokerage. SIRVA is also in the relocation business.

The suit accuses SIRVA of trying to renege over “buyer’s remorse” related to the coronavirus. The deal’s “material adverse effect” clause “squarely allocated the risk” of an “act of god” to SIRVA unless it disproportionately affects Cartus, but all moving companies have felt the pain, the suit says.

SIRVA and its private equity backers at Madison Dearborn countered by claiming Realogy hid “the devastating impact” of Covid-19 on Cartus—first by dragging its feet when they pressed for more information, then by making misleading disclosures on the eve of closing.

The pandemic’s effect on Cartus makes it an MAE justifying cancellation, they said.

Case-Specific Dismissal

Those arguments echo the issues being raised in the other similar suits, which will likely hinge in part on the details of each deal’s MAE clause.

But Zurn relied on case-specific reasoning in denying Realogy’s bid to close the deal, saying the claim didn’t turn on those broader questions.

Instead, she said, Realogy breached the purchase agreement by targeting Madison Dearborn directly solely to embarrass it, instead of confining its legal claims to SIRVA. That triggered a clause allowing the firm to pull its equity financing, which in turn terminated the debt financing as well, the judge found.

Realogy then asked the Delaware Supreme Court to consider that issue immediately, without awaiting the outcome of its other claims seeking a termination fee.

Argument ‘Rings Hollow’

Zurn urged the state’s justices to deny the petition Aug. 7. The case doesn’t involve issues of first impression, unresolved questions of legal interpretation, or other exceptions to the general rule limiting appeals to final rulings, the judge found.

“I applied well-established principles of contractual interpretation to an unambiguous contract,” she wrote, saying Realogy’s breach “pushed over the first domino.”

Zurn also suggested the company was trying to have it both ways after previously arguing that the specific performance claim should go last.

“Realogy’s new desire for speed rings hollow,” she wrote.

SIRVA and Madison Dearborn are represented by Morris, Nichols, Arsht & Tunnell LLP and Kirkland & Ellis LLP. Realogy is represented by Skadden, Arps, Slate, Meagher & Flom LLP.

The case is Realogy Holdings Corp. v. SIRVA Worldwide Inc., Del. Ch., No. 2020-0311, 8/7/20.