Realogy Says Madison Dearborn, SIRVA Breaking Deal Over Pandemic

Realogy Holdings Corp. sued SIRVA Worldwide Inc. and Madison Dearborn Partners in Delaware, trying to stop them from backing out of a $400 million business unit sale over the Covid-19 pandemic.

“The world (and world economy) is besieged by the novel coronavirus,” the lawsuit says. “Despite the fact that the purchase agreement plainly allocated the risk of just such an event to the buyer, the buyer has seized on Covid-19 to justify its 11th hour refusal to close the transaction.”

The Chancery Court suit accuses relocation services company SIRVA and its private equity owners—various Madison Dearborn funds—of using the Covid-19 pandemic to renege on their planned acquisition of Cartus Corp. from Realogy, a nationwide real estate brokerage. Cartus, a wholly owned Realogy subsidiary, also provides moving services.

The case is the latest in a wave of suits asking courts to keep mergers on track as the pandemic scrambles business deals worldwide.

Some of others involve the $5.8 billion acquisition of a luxury hotel chain; the purchase of Victoria’s Secret; a business unit sale from Bed Bath & Beyond to 1-800-Flowers; a franchise buyout by CorePower Yoga; and a private equity transaction involving the world’s top cake decorations wholesaler.

‘Buyer’s Remorse’

According to Realogy’s complaint, SIRVA and Madison Dearborn have cited the “material adverse event” clause in the Cartus purchase agreement in their bid to break the deal. The coronavirus pandemic is just such a contingency, they’ve allegedly said.

But those “makeweight” arguments “smack of ‘buyer’s remorse,’ not a legitimate right to avoid closing,” the suit says. The MAE clause “squarely allocated the risk” of “an act of god, or a natural disaster,” so long as they don’t disproportionately affect Cartus relative to its peers, according to the complaint.

“Covid-19 is adversely affecting every similarly situated participant in Cartus’ industry, and at least one worse than others,” the suit says: “SIRVA itself.”

The complaint was made public Thursday after being filed under seal April 27.

Echoes of Similar Suits

SIRVA said in an April 27 statement—issued before the case was unsealed—that it “strongly disagrees” with the suit’s allegations and would “vigorously defend” itself in court.

The pandemic has made certain deal conditions impossible to perform, according to the statement, which argued that Realogy actually breached the purchase agreement by suing.

SIRVA declined to comment further Friday. Madison Dearborn had no comment.

The arguments previewed in Realogy’s complaint and SIRVA’s statement echo those being made in the other similar suits.

The outcome in each case will likely hinge in part on whether the deal’s MAE clause excludes “general” business downturns—even those based on unforeseen calamities—and whether the reneging party can show the deal has been disproportionately affected by the pandemic, relative to the broader economy.

Cause of Action: Breach of contract.

Relief: Specific performance; costs and fees.

Attorneys: 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, complaint unsealed 4/30/20.