SHARE

December 31, 2021

Hotel Group Seller's COVID-19 Response Breaches 'Ordinary Course' Covenant, Excusing Buyer's Performance

You've Reached Your
Free Article Limit This Month
Register for free to get unlimited access to all Law.com OnPractice content.
Register Now

Delaware's Supreme Court held this month that a buyer's obligation to close a hotel group purchase was excused where the seller adopted what it described as "proportional changes in response to extraordinary circumstances-like the responses of other hotel owners in response to the pandemic." The case is AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, No. 71, 2021 (Del. Dec. 8, 2021).

In affirming the Delaware Chancery Court's holding that the seller violated a covenant to conduct its business "only in the ordinary course of business consistent with past practice," the Delaware Supreme Court held the covenant meant that the seller's "compliance is measured by its operational history, and not that of the industry in which it operates."

The parties entered into the sale agreement in early September 2019, with closing deferred to provide time to quiet title and arrange financing. In response to the Covid-19 pandemic, which hit in February 2020, the seller temporarily closed two properties and substantially reduced operations and headcount for others. On the April 17, 2020 closing date, the buyer notified the seller it was in default and refused to close. Although the sellers "actions might have been reasonable in response to a world-wide pandemic," the Court held, "they were inconsistent with past practice and far from ordinary," and required the buyer's approval "which could not be unreasonably withheld."

The case underscores the risk that "ordinary course" covenants may be triggered by unforeseeable circumstances and teaches the need for sellers and buyers to specifically consider the allocation of such risks.

Ballard Spahr Securities Enforcement and Corporate Governance Litigation attorneys can assist businesses in negotiating contracts to address risks and challenges stemming from such unexpected events, and, where necessary, in resolving disputes under such contracts through litigation and/or ADR.

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

More From Ballard Spahr

New York Restricts Automated Decision Making in Employment

By Timothy Dickens Ballard Spahr August 29 , 2022

Businesses operating in New York City should be aware of a local law addressing the use of automated employment screening and decision-making tools coming into effect on January 1, 2023.

Status Update: Federal Contractor Vaccine Mandate Injunction Narrowed

By Lila A. Sevener Ballard Spahr August 29 , 2022

On August 26, 2022, the United States Court of Appeals for the Eleventh Circuit narrowed the nationwide injunction of Executive Order 14042, which requires federal contractors and employees who work on or in connection with a covered federal contract, or share a workplace with another employee who works on or in connection with such contracts, to be fully vaccinated against COVID-19.

Unions Cannot Force OSHA to Issue Permanent COVID Standard

By Shannon D. Farmer Ballard Spahr August 26 , 2022

On August 26, 2022, the U.S. Court of Appeals for the District of Columbia Circuit turned back efforts by a group of unions seeking to force the Occupational Safety and Health Administration (OSHA) to quickly issue a permanent rule establishing protections for healthcare workers from COVID-19.

More From Corporate Governance

FINRA Files Amendments to Proposed Rule Change That Will Allow Remote Inspections

By William B. Mack Greenberg Traurig January 25 , 2023

Last summer, the Financial Regulatory Authority (FINRA) proposed a rule change to its supervision rule (FINRA Rule 3110) to allow member firms to conduct remote inspections of some or all branch offices and locations.

SEC Proposes to Establish a New Best Execution Standard

By William B. Mack Greenberg Traurig January 20 , 2023

On Dec. 14, 2022, Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), released a statement announcing a proposal to establish an SEC rule setting forth a best execution standard for broker-dealers.

5 Trends to Watch in 2023 in Texas Health Care

By Joseph F. Coniglio Greenberg Traurig January 19 , 2023

Observers believe that the COVID-19-related public health emergency (PHE) will be extended until April of 2023.

Featured Stories
Closeclose
Search
Menu

Working...