Naf Holdings, LLC v. Li & Fung (Trading) Ltd., 10 Civ. 5762 (PAE)

NAF HOLDINGS, LLC, Plaintiff, v. LI & FUNG (TRADING) LIMITED, Defendant.

10 Civ. 5762 (PAE)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

June 1, 2016

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

This breach of contract case is now before the Court on defendant's motion for summary judgment, following—on defendant's motion to dismiss—a trip to the Second Circuit and a detour to the Delaware Supreme Court. Plaintiff NAF Holdings, LLC ("NAF") sues Li & Fung (Trading) Limited ("Trading"). NAF, anticipating a merger between its subsidiary and an apparel company called Hampshire Group, Limited ("Hampshire"), contracted with Trading to provide "sourcing services" to the new company. NAF secured financing for the planned merger that was conditioned on Trading's providing such post-merger services. NAF's claim here is that when Trading backed away from its commitment at the eleventh hour, Trading caused the merger to fail and cost NAF some $49 million.

Trading moves for summary judgment on essentially two grounds: (1) lack of causation, i.e., that the merger's failure was caused by other factors, and not by any breach on Trading's part; and (2) inadequate proof of the amount of NAF's damages. For the following reasons, the Court denies Trading's motion.

I. Background¹

A. Parties

NAF is a Delaware limited liability company wholly owned by Efrem Gerszberg. NAF 56.1 ¶¶ 1-2. NAF has two non-party subsidiaries: NAF Holdings II LLC ("NAF II"), a wholly owned subsidiary of NAF; and NAF Acquisition Corp. ("NAF Acquisition"), a wholly owned subsidiary of NAF II (collectively, "NAF Subsidiaries"). Id. ¶¶ 4-5. (The Court henceforth uses "NAF" to encompass NAF and its subsidiaries, save that, where the identity of a particular entity is important, the Court so specifies.)

Trading is a Hong Kong company that provides "sourcing" services to apparel companies. Such services include identifying factories that meet an apparel company's needs and assisting it in placing orders with such factories. Id. ¶¶ 6-7.

B. Undisputed Facts

Many facts relevant to this motion are undisputed. The Court summarizes these chronologically.

1. Oct.-Nov. 2008: The Planned Merger with Hampshire

NAF was formed for the purpose of buying Hampshire, a public company in the apparel business. Id. ¶ 3. In 2008, Hampshire's business was in decline. Id. ¶ 8.

On or about October 23, 2008, NAF sent Hampshire's Board of Directors a letter of intent offering to buy Hampshire through a public tender offer at $8 per share. Id. ¶ 16. About two weeks later, Hampshire and NAF entered into a letter agreement under which NAF could proceed with diligence in contemplation of acquiring Hampshire. Id. ¶ 17.

2. December 2008: NAF's Agreement with Trading; NAF Secures Post-Merger Financing

In December 2008, following the NAF/Hampshire letter agreement, NAF and Trading entered into a "buying agency agreement" ("BAA") whereby Trading would provide sourcing services for Hampshire after its acquisition by NAF.² See id. ¶ 18; Hay Decl., Ex. B ("BAA"). NAF believed that Trading could help negotiate better prices and terms of payment with Hampshire's factories. NAF 56.1 ¶ 15. Also in December, Wells Fargo Trade Capital, LLC ("Wells") provided NAF with a loan commitment letter for $75 million to finance Hampshire's post-merger operations, under which Wells would provide $37.5 million and would help secure third-party financing for the balance. See id. ¶¶ 19-21.

3. Jan.-Feb. 2009: NAF Secures Tender Offer Financing; NAF and Hampshire Enter into Merger Agreement

In January 2009, Keba, LLC ("Keba") agreed to provide NAF with up to $40 million of financing for the tender offer, contingent on NAF's financing for post-merger operations. Id. ¶ 12;³ see also Hay Decl., Ex. K ("Yagoda Decl."), ¶ 6 ("Prior to any obligation to fund the bridge loan, Keba also required that post-merger Hampshire have a working capital line of creditin place."). In February 2009, after NAF and Wells were unable to obtain third-party financing, they reached a new financing arrangement whereby Wells provided a revised loan commitment letter for a $40 million credit facility to finance Hampshire's post-merger operations.⁴ See id. ¶¶ 22-25. These financing commitments—both Wells's and Keba's—were expressly conditioned on the existence of NAF's contract with Trading. Id. ¶ 26; see Yagoda Decl. ¶¶ 6-8.

On or about February 23, 2009, the NAF Subsidiaries entered into a merger agreement with Hampshire. Id. ¶ 31; see also Hay Decl., Ex. G, Def. Ex. 27 ("Merger Agreement"). (NAF itself was not a party to this agreement.) The Merger Agreement contemplated that NAF Acquisition would commence a tender offer to acquire all of Hampshire's outstanding shares of common stock and that NAF Acquisition would merge into Hampshire. NAF 56.1 ¶ 32. The agreed price set forth in the Merger Agreement was $5.55 per share, or $30,353,865 for all Hampshire shares. Id. ¶ 35.

The Merger Agreement provided that NAF's offer to purchase Hampshire stock would expire at midnight on the date 20 business days after the offer was commenced. See Merger Agreement § 1.1(d). The parties agree that this "Expiration Date," which was extended several times, was March 27. See NAF 56.1 ¶ 42. The Merger Agreement separately defines as the "Termination Date" the last date that either party could, pursuant to certain conditions, terminate the agreement. See Merger Agreement § 8.2(a). The Merger Agreement initially set the Termination Date for June 23, 2009. See id.

4. March 2009: Trading Terminates Its Relationship with NAF

In an email on March 23, 2009, Trading sought additional security from NAF. NAF 56.1 ¶ 37. Specifically, Trading sought a cash deposit of $5 million and a standby letter of credit, opened in Trading's favor, in the amount of $11.5 million. Id. ¶ 38.

On March 25, 2009, Gerszberg, on behalf of NAF, sent an email to Trading refusing to provide the requested additional security. Id. ¶ 39.

On or about March 30, 2009, Trading ended its relationship with NAF, including the relationship under the BAA.⁵ Id. ¶ 40. For the purposes of this motion, the Court assumes that Trading thereby breached the BAA on March 30, 2009. See Tr. 7.

5. April 2009: NAF Attempts to Proceed with the Merger

As of March 27, 2009, the Expiration Date set in the Merger Agreement, an insufficient number of Hampshire's shares had been tendered. NAF 56.1 ¶ 43. Therefore, even if Trading had not breached, it was impossible for NAF to complete the merger on that date. (Trading's obligations under the BAA were not evidently conditioned on the merger being ready to close, or having closed, on March 27 or by any specific date thereafter.)

The tender offer's Expiration Date was extended until March 31, 2009 and then again until April 17, 2009, as NAF tried to secure the necessary shares. Id. ¶ 44. As of April 17, 2009, the necessary shares had been tendered, but Hampshire did not have enough cash on hand to satisfy a separate condition of the Merger Agreement. Id. ¶ 45. The NAF Subsidiaries and Hampshire therefore again extended the Expiration Date, this time to April 24, 2016. Id. ¶ 46.

On April 20, 2016, the NAF Subsidiaries and Hampshire amended the Merger Agreement to reflect that the BAA with Trading was no longer in force. See id. ¶¶ 47-48; Hay Decl., Ex. G,Def. Ex. 56 ("Amendment"). The Amendment reflected that the NAF Subsidiaries knew of no circumstance suggesting they would be unable to get financing from Wells. See NAF 56.1 ¶ 49. Apparently anticipating that financing could be promptly secured even though Trading was out of the picture, the Amendment moved the Termination Date—the last date either party could terminate the Merger Agreement—up from June 23, 2009 to April 26, 2009. See Amendment § 2(c).

In the meantime, throughout April 2009, NAF tried to secure financing, taking steps to assure Wells that the Hampshire venture remained viable. For instance, Gerszberg recruited an individual named Ruby Azrak, who was well regarded by Wells, to replace Trading as a sourcing provider. See Hay Decl., Ex. G ("Gerszberg Dep."), at 482; Trading 56.1 ¶ 51.⁶

On or about April 8, 2009, Gerszberg submitted a proposal to Wells seeking a $40 million loan commitment unconditioned on any participation by Trading. NAF 56.1 ¶ 50. On April 24—a Friday, two days before the Termination Date—Wells decided to extend the loan facility, but required additional collateral from NAF in light of Hampshire's deteriorating financial condition. See Trading 56.1 ¶¶ 52-54; Hay Decl., Ex. F ("Austin Decl."), ¶¶ 4-7; Hay Decl., Ex. G, Def. Ex. 76 ("4/24/09 Emails"). A Wells senior vice president, Peter Austin, informed Gerszberg that Wells had the necessary approvals and would begin drafting a revised commitment letter. NAF 56.1 ¶ 55; see also 4/24/09 Emails at 2 (Austin email at 2:20 p.m.). Gerszberg then asked Austin when the commitment letter would be ready, to which Austin replied "Monday." 4/24/09 Emails at 1-2 (Gerszberg email at 2:50 p.m.; Austin email at 2:51 p.m.). Gerszberg asked Austin if he could get the commitment letter sooner, explaining, "I haveto accept the shares [S]unday . . . . We need to have it to buy the shares." Id. at 1 (Gerszberg email at 3:55 p.m.). Austin responded, "Earliest Monday on commitment letter. Needs to be reviewed and signed by appropriate party. Let me know what you need in lieu of that." Id. at 1 (Austin email at 4:09 p.m.). The email exchange concludes with Gerszberg and Austin agreeing that the closing could occur on Wednesday, April 29, 2009. Austin commented, "There are some ends to tie up but we will get there." Reihner Decl., Ex. U (Austin email at 4:52 p.m.).

6. NAF Terminates the Merger Agreement

Gerszberg, on behalf of the NAF Subsidiaries, terminated the Merger Agreement on April 26, the last day to do so under the April 20 Amendment. See NAF 56.1 ¶ 58. At or around this time, Gerszberg attributed the termination to Hampshire's breach of various...