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
Subscribe now to get unlimited access to all Law.com OnPractice content. Your subscription is free.
Subscribe 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

Federal Regulation for Digital Assets Could Be Coming Soon

By Scott L. Diamond Ballard Spahr July 22 , 2022

Significant federal regulation may be coming soon for cryptocurrencies, blockchain, and non-fungible tokens (NFTs).

Closing the Gate: House Adopts ENABLERS Act Amendment to 2023 NDAA

By Peter D. Hardy Ballard Spahr July 21 , 2022

Amendment Focuses on Professional “Gatekeepers” – Lawyers, Accountants, Payment Processors, and Those Providing Corporate Formation and Trust Services

Pennsylvania Cuts Corporate Income Tax Rates, Makes Other Significant Tax Changes

By Wendi L. Kotzen Ballard Spahr July 19 , 2022

Pennsylvania’s budget season just ended and Act 53 of 2022 (Act 53), made many significant changes to the Commonwealth’s business and individual taxes.

More From Corporate Governance

DOJ Brings Charges in First Insider Trading Case Involving Cryptocurrency Markets, as Parallel SEC Complaint Categorizes Crypto Assets as Securities

By Jason P. Bologna Buchanan Ingersoll & Rooney July 28 , 2022

On July 21, the U.S. Attorney’s Office for the Southern District of New York and the Securities and Exchange Commission (SEC) announced insider trading allegations against three defendants related to the trading of crypto assets, in what U.S. Attorney Damian Williams heralded as the “first ever insider trading case involving cryptocurrency markets.”

EEOC Updates Its COVID-19 Guidance to Reflect Current State of COVID-19 in the U.S.

By Tara K. Burke Jackson Lewis P.C. July 20 , 2022

As the pandemic continues to evolve, so does the EEOC’s guidance. On July 12, 2022, the EEOC once again updated its COVID-19 guidance: What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws to reflect the pandemic’s changing state. The updated guidance follows CDC’s June 10, 2022 statements regarding the current state of the COVID-19 pandemic.

Responsible Financial Innovation Act: Proposed Tax and Reporting for Digital Assets

By Andrea S. Kramer McDermott Will & Emery July 15 , 2022

On June 7, 2022, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced the highly anticipated Responsible Financial Innovation Act (the bill), which sets out to create the first complete regulatory and bipartisan framework for digital assets.

Featured Stories
Closeclose
Search
Menu

Working...