AB STABLE VIII LLC, Plaintiff/Counterclaim-Defendant, v...., Not Reported in Atl.... 2020 WL 7024929 Only the Westlaw citation is currently available. MEMORANDUM OPINION UNPUBLISHED OPINION. CHECK *1 AB Stable VIII LLC (“Seller”) is an indirect subsidiary COURT RULES BEFORE CITING. of Dajia Insurance Group, Ltd. (“Dajia”), a corporation organized under the law of the People's Republic of China. Court of Chancery of Delaware. Dajia is the successor to Anbang Insurance Group., Ltd. (“Anbang”), which was also a corporation organized under AB STABLE VIII LLC, Plaintiff/ the law of the People's Republic of China. For simplicity, Counterclaim-Defendant, and because Anbang was the pertinent entity for much of v. the relevant period, this decision refers to both companies as MAPS HOTELS AND RESORTS ONE LLC, “Anbang.” MIRAE ASSET CAPITAL CO., LTD., MIRAE ASSET DAEWOO CO., LTD., MIRAE ASSET Through Seller, Anbang owns all of the member interests in GLOBAL INVESTMENTS, CO., LTD., and Strategic Hotels & Resorts LLC (“Strategic,” “SHR,” or the MIRAE ASSET LIFE INSURANCE CO., “Company”), a Delaware limited liability company. Strategic in turn owns all of the member interests in fifteen limited LTD., Defendants/Counterclaim-Plaintiffs. liability companies, each of which owns a luxury hotel. C.A. No. 2020-0310-JTL | Under a Sale and Purchase Agreement dated September 10, Date Submitted: October 28, 2020 2019 (the “Sale Agreement” or “SA”), Seller agreed to sell | all of the member interests in Strategic to MAPS Hotel and Date Decided: November 30, 2020 Resorts One LLC (“Buyer”) for a total purchase price of $5.8 billion (the “Transaction”). Buyer is a special purpose vehicle Attorneys and Law Firms formed to acquire Strategic. Buyer's ultimate parent company is Mirae Asset Financial Group (“Mirae”), a financial services Raymond J. DiCamillo, Kevin M. Gallagher, Sara A. Clark, conglomerate based in Korea with assets under management John M. O'Toole, RICHARDS LAYTON & FINGER, P.A., of over $400 billion. Three of Mirae's affiliates executed Wilmington, Delaware; Adam H. Offenhartz, Marshall R. equity commitment letters that bound them to contribute a King, Shireen A. Barday, Nathan C. Strauss, GIBSON, total of $2.2 billion to Buyer at closing. The balance of DUNN & CRUTCHER LLP, New York, New York; the purchase price would be funded with debt. Due to a Tyler A. Amass, GIBSON, DUNN & CRUTCHER LLP, combination of factors, Buyer was not able to obtain debt Denver, Colorado; Attorneys for Plaintiff and Counterclaim financing. Defendant AB Stable VIII LLC. A. Thompson Bayliss, Michael A. Barlow, Stephen C. On April 17, 2020, the scheduled closing date, Buyer asserted Childs, ABRAMS & BAYLISS LLP, Wilmington, Delaware; that a number of Seller's representations and warranties were Michael B. Carlinsky, Andrew J. Rossman, Christopher inaccurate and that Seller had failed to comply with its D. Kercher, Rollo C. Baker IV, QUINN EMANUEL covenants under the Sale Agreement. Buyer contended that URQUHART & SULLIVAN, LLP, New York, New as a result, Seller had failed to satisfy all of the conditions to York; Kap-You Kim, PETER & KIM ATTORNEYS AT closing, and Buyer was not obligated to close. Buyer informed LAW, Seoul, South Korea; Attorneys for Defendants and Seller that if the breaches were not cured on or before May Counterclaim Plaintiffs Maps Hotels and Resorts One LLC, 2, 2020, then Buyer would be entitled to terminate the Sale Mirae Asset Capital Co., Ltd., Mirae Asset Daewoo Co., Ltd., Agreement. Mirae Asset Global Investments, Co., Ltd., and Mirae Asset Life Insurance Co., Ltd. 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 © 2020 Thomson Reuters. No claim to original U.S. Government Works. 1 AB STABLE VIII LLC, Plaintiff/Counterclaim-Defendant, v...., Not Reported in Atl.... equity commitment letters. After Seller filed suit, Buyer changes, its business was not conducted only in the ordinary purported to terminate the Sale Agreement. Buyer then filed course of business, consistent with past practice in all material counterclaims seeking determinations that Seller failed to respects. The Covenant Compliance Condition therefore satisfy conditions to closing, breached its express contractual failed, relieving Buyer of its obligation to close. obligations, breached implicit obligations supplied by the implied covenant of good faith and fair dealing, and Unlike the COVID Issues, the DRAA Issues are factually committed fraud. complex. They relate to a fraudulent scheme whose origins date back to 2008, when Anbang began a series of disputes The initial set of issues involves Buyer's obligation to close. with a shadowy and elusive figure named Hai Bin Zhou. 1 The factual underpinnings of those issues fall into two largely At least one of Hai Bin Zhou's business strategies involves distinct categories: the “COVID Issues” and the “DRAA using otherwise passive entities to register trademarks Issues.” associated with established businesses, with the expectation that companies will settle to secure their marks. The COVID Issues are factually straightforward and result from the COVID-19 pandemic. First, Buyer was not obligated Hai Bin Zhou pursued this strategy against Anbang. Anbang to close if Seller's representations were inaccurate and fought back until 2018, when the insurance regulator in the the degree of the inaccuracy was sufficient to result in a People's Republic of China took over Anbang's operations contractually defined Material Adverse Effect (the “Bring and placed the company in receivership. The regulatory team Down Condition”). Seller represented that since July 31, decided to stop asserting Anbang's rights to its trademarks in 2019, there had not been any changes, events, states of facts, the United States. As a result, Anbang defaulted in litigation or developments, whether or not in the ordinary course of with Hai Bin Zhou before the United States Patent and business that, individually or in the aggregate, have had or Trademark Office (the “USPTO”). For Hai Bin Zhou, the would reasonably be expected to have a Material Adverse default judgment was a near-term tactical victory but a Effect. (the “No-MAE Representation”). long-term strategic defeat, because it undermined his ability to extract consideration from Anbang through trademark *2 According to Buyer, the business of Strategic and litigation in the United States its subsidiaries suffered a Material Adverse Effect due to the onset of the COVID-19 pandemic, rendering the No- To create a new source of leverage, Hai Bin Zhou turned MAE Representation inaccurate, causing the Bring-Down to fraud. He interwove the history of trademark disputes Condition to fail, and relieving Buyer of its obligation with the events that led to Anbang's regulatory takeover in to close. Assuming for purposes of analysis that Strategic what might be regarded begrudgingly as an inspired work suffered an effect that was both material and adverse, Seller of fiction. But instead of producing a captivating novella or nevertheless proved that the consequences of the COVID-19 screenplay, he generated a spurious agreement, purportedly pandemic fell within an exception to the definition for between Anbang and five of his affiliates. The ersatz contract effects resulting from “natural disasters and calamities.” ostensibly bound Anbang to pay billions of dollars, with Consequently, the business of Strategic and its subsidiaries the obligation secured by Anbang's ownership interests in did not suffer a Material Adverse Effect as defined in the Sale its subsidiaries and other assets. The apocryphal agreement Agreement. also contained a durable power of attorney that supposedly gave Hai Bin Zhou's affiliates the authority to transfer Second, Buyer was not obligated to close if Seller failed Anbang's assets to satisfy its liabilities. Ingeniously, Hai Bin to comply with its covenants between signing and closing Zhou recognized that the Delaware Rapid Arbitration Act (the “Covenant Compliance Condition”). Seller's covenants (the “DRAA”) contained few procedural protections against included a commitment that the business of Strategic and the confirmation and enforcement of fake arbitral awards. its subsidiaries would be conducted only in the ordinary Perceiving that the DRAA could be used to facilitate fraud, course of business, consistent with past practice in all material Hai Bin Zhou styled the counterfeit agreement as providing respects (the “Ordinary Course Covenant”). for arbitration under the DRAA and labeled it the “DRAA Blanket Agreement.” This decision shortens that term to the Buyer proved that due to the COVID-19 pandemic, Strategic “DRAA Agreement.” made extensive changes to its business. Because of those © 2020 Thomson Reuters. No claim to original U.S. Government Works. 2 AB STABLE VIII LLC, Plaintiff/Counterclaim-Defendant, v...., Not Reported in Atl.... *3 Beginning in summer 2018, Hai Bin Zhou filed a series Despite seeking emergency relief from three courts because of grant deeds in the county record offices in California of the threat that Hai Bin Zhou's activities posed to where Strategic owned hotels (the “Fraudulent Deeds”). the Transaction, Anbang did not disclose anything to The Fraudulent Deeds purportedly transferred ownership of Mirae. Instead, the lawyers for Mirae's financing syndicate the hotels from Strategic's subsidiaries to Hai Bin Zhou's discovered the proceedings just as Mirae was attempting to affiliates. secure financing. After the lawsuits were revealed, Anbang again failed to provide the full story about its history of In August 2019, Hai Bin Zhou caused four of his affiliates disputes with Hai Bin Zhou. to sue Anbang and the fifth affiliate in this court, ostensibly to appoint arbitrators to resolve a dispute under the DRAA For a time, Anbang managed to reassure Mirae, but the threat Agreement. World Award Found. v. Anbang Ins. Gp. Co., Ltd, posed by Hai Bin Zhou and his activities resurfaced when a C.A.