IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE AB STABLE VIII LLC, ) ) Plaintiff/Counterclaim-Defendant, ) ) v. ) C.A. No. 2020-0310-JTL ) MAPS HOTELS AND RESORTS ONE LLC, MIRAE ) ASSET CAPITAL CO., LTD., MIRAE ASSET ) DAEWOO CO., LTD., MIRAE ASSET GLOBAL ) INVESTMENTS, CO., LTD., and MIRAE ASSET ) LIFE INSURANCE CO., LTD., ) ) Defendants/Counterclaim-Plaintiffs. ) MEMORANDUM OPINION Date Submitted: October 28, 2020 Date Decided: November 30, 2020 Raymond J. DiCamillo, Kevin M. Gallagher, Sara A. Clark, John M. O’Toole, RICHARDS LAYTON & FINGER, P.A., Wilmington, Delaware; Adam H. Offenhartz, Marshall R. King, Shireen A. Barday, Nathan C. Strauss, GIBSON, DUNN & CRUTCHER LLP, New York, New York; Tyler A. Amass, GIBSON, DUNN & CRUTCHER LLP, Denver, Colorado; Attorneys for Plaintiff and Counterclaim Defendant AB Stable VIII LLC. A. Thompson Bayliss, Michael A. Barlow, Stephen C. Childs, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Michael B. Carlinsky, Andrew J. Rossman, Christopher D. Kercher, Rollo C. Baker IV, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; Kap-You Kim, PETER & KIM ATTORNEYS AT LAW, Seoul, South Korea; Attorneys for Defendants and Counterclaim Plaintiffs Maps Hotels and Resorts One LLC, Mirae Asset Capital Co., Ltd., Mirae Asset Daewoo Co., Ltd., Mirae Asset Global Investments, Co., Ltd., and Mirae Asset Life Insurance Co., Ltd. LASTER, V.C. AB Stable VIII LLC (“Seller”) is an indirect subsidiary of Dajia Insurance Group, Ltd. (“Dajia”), a corporation organized under the law of the People’s Republic of China. Dajia is the successor to Anbang Insurance Group., Ltd. (“Anbang”), which was also a corporation organized under the law of the People’s Republic of China. For simplicity, and because Anbang was the pertinent entity for much of the relevant period, this decision refers to both companies as “Anbang.” Through Seller, Anbang owns all of the member interests in Strategic Hotels & Resorts LLC (“Strategic,” “SHR,” or the “Company”), a Delaware limited liability company. Strategic in turn owns all of the member interests in fifteen limited liability companies, each of which owns a luxury hotel. Under a Sale and Purchase Agreement dated September 10, 2019 (the “Sale Agreement” or “SA”), Seller agreed to sell all of the member interests in Strategic to MAPS Hotel and Resorts One LLC (“Buyer”) for a total purchase price of $5.8 billion (the “Transaction”). Buyer is a special purpose vehicle formed to acquire Strategic. Buyer’s ultimate parent company is Mirae Asset Financial Group (“Mirae”), a financial services conglomerate based in Korea with assets under management of over $400 billion. Three of Mirae’s affiliates executed equity commitment letters that bound them to contribute a total of $2.2 billion to Buyer at closing. The balance of the purchase price would be funded with debt. Due to a combination of factors, Buyer was not able to obtain debt financing. On April 17, 2020, the scheduled closing date, Buyer asserted that a number of Seller’s representations and warranties were inaccurate and that Seller had failed to comply with its covenants under the Sale Agreement. Buyer contended that as a result, Seller had 1 failed to satisfy all of the conditions to closing, and Buyer was not obligated to close. Buyer informed Seller that if the breaches were not cured on or before May 2, 2020, then Buyer would be entitled to terminate the Sale Agreement. On April 27, 2020, Seller filed this action seeking a decree of specific performance (i) compelling Buyer to perform its obligations under the Sale Agreement and (ii) directing Buyer’s three affiliates to contribute $2.2 billion under the equity commitment letters. After Seller filed suit, Buyer purported to terminate the Sale Agreement. Buyer then filed counterclaims seeking determinations that Seller failed to satisfy conditions to closing, breached its express contractual obligations, breached implicit obligations supplied by the implied covenant of good faith and fair dealing, and committed fraud. The initial set of issues involves Buyer’s obligation to close. The factual underpinnings of those issues fall into two largely distinct categories: the “COVID Issues” and the “DRAA Issues.” The COVID Issues are factually straightforward and result from the COVID-19 pandemic. First, Buyer was not obligated to close if Seller’s representations were inaccurate and the degree of the inaccuracy was sufficient to result in a contractually defined Material Adverse Effect (the “Bring Down Condition”). Seller represented that since July 31, 2019, there had not been any changes, events, states of facts, or developments, whether or not in the ordinary course of business that, individually or in the aggregate, have had or would reasonably be expected to have a Material Adverse Effect. (the “No-MAE Representation”). 2 According to Buyer, the business of Strategic and its subsidiaries suffered a Material Adverse Effect due to the onset of the COVID-19 pandemic, rendering the No-MAE Representation inaccurate, causing the Bring-Down Condition to fail, and relieving Buyer of its obligation to close. Assuming for purposes of analysis that Strategic suffered an effect that was both material and adverse, Seller nevertheless proved that the consequences of the COVID-19 pandemic fell within an exception to the definition for effects resulting from “natural disasters and calamities.” Consequently, the business of Strategic and its subsidiaries did not suffer a Material Adverse Effect as defined in the Sale Agreement. Second, Buyer was not obligated to close if Seller failed to comply with its covenants between signing and closing (the “Covenant Compliance Condition”). Seller’s covenants included a commitment that the business of Strategic and its subsidiaries would be conducted only in the ordinary course of business, consistent with past practice in all material respects (the “Ordinary Course Covenant”). Buyer proved that due to the COVID-19 pandemic, Strategic made extensive changes to its business. Because of those changes, its business was not conducted only in the ordinary course of business, consistent with past practice in all material respects. The Covenant Compliance Condition therefore failed, relieving Buyer of its obligation to close. Unlike the COVID Issues, the DRAA Issues are factually complex. They relate to a fraudulent scheme whose origins date back to 2008, when Anbang began a series of 3 disputes with a shadowy and elusive figure named Hai Bin Zhou.1 At least one of Hai Bin Zhou’s business strategies involves using otherwise passive entities to register trademarks associated with established businesses, with the expectation that companies will settle to secure their marks. Hai Bin Zhou pursued this strategy against Anbang. Anbang fought back until 2018, when the insurance regulator in the People’s Republic of China took over Anbang’s operations and placed the company in receivership. The regulatory team decided to stop asserting Anbang’s rights to its trademarks in the United States. As a result, Anbang defaulted in litigation with Hai Bin Zhou before the United States Patent and Trademark Office (the “USPTO”). For Hai Bin Zhou, the default judgment was a near-term tactical victory but a long-term strategic defeat, because it undermined his ability to extract consideration from Anbang through trademark litigation in the United States 1 Hai Bin Zhou appears to work with a number of other individuals in the United States and in the People’s Republic of China. It is therefore more precise to refer to Hai Bin Zhou and his associates. For simplicity, this decision refers to Hai Bin Zhou. Hai Bin Zhou and his associates are not parties to this action. Although both sides served subpoenas on Hai Bin Zhou and many of his entities, no one produced discovery or appeared for deposition. Anbang likely could have filled some of the gaps in the record, because Anbang has repeatedly investigated Hai Bin Zhou in connection with their long- running disputes. During this litigation, however, Anbang maintained that counsel conducted the investigations and invoked the attorney-client privilege to shield them from discovery. The record for purposes of this litigation is therefore thinner than it might have been. The record is nevertheless sufficient for the court to make findings with a high degree of confidence regarding Hai Bin Zhou and the fraudulent nature of his activities. 4 To create a new source of leverage, Hai Bin Zhou turned to fraud. He interwove the history of trademark disputes with the events that led to Anbang’s regulatory takeover in what might be regarded begrudgingly as an inspired work of fiction. But instead of producing a captivating novella or screenplay, he generated a spurious agreement, purportedly between Anbang and five of his affiliates. The ersatz contract ostensibly bound Anbang to pay billions of dollars, with the obligation secured by Anbang’s ownership interests in its subsidiaries and other assets. The apocryphal agreement also contained a durable power of attorney that supposedly gave Hai Bin Zhou’s affiliates the authority to transfer Anbang’s assets to satisfy its liabilities. Ingeniously, Hai Bin Zhou recognized that the Delaware Rapid Arbitration Act (the “DRAA”) contained few procedural protections against the confirmation and enforcement of fake arbitral awards. Perceiving that the DRAA could be used to facilitate fraud, Hai Bin Zhou styled the counterfeit agreement as providing for arbitration under the DRAA and labeled it the “DRAA Blanket Agreement.” This decision shortens that term to the “DRAA Agreement.” Beginning in summer 2018, Hai Bin Zhou filed a series of grant deeds in the county record offices in California where Strategic owned hotels (the “Fraudulent Deeds”). The Fraudulent Deeds purportedly transferred ownership of the hotels from Strategic’s subsidiaries to Hai Bin Zhou’s affiliates. In August 2019, Hai Bin Zhou caused four of his affiliates to sue Anbang and the fifth affiliate in this court, ostensibly to appoint arbitrators to resolve a dispute under the DRAA Agreement.