RE: County case23 Sep 2021 11:44
The Issue of Consent from the AB Stable ruling I mentioned.
Direct lift from what is a 242 page judgement.
Those following the case will be familiar with constant reference points throughout to the issue of gaining consent.
4. Seller’s Argument About Buyer Consent
Finally, Seller suggested in a footnote in its reply brief that any deviation from the
ordinary course of business could not constitute a breach of the Ordinary Course Covenant
because that provision permitted deviations if Buyer consented and further provided that
Buyer’s consent “shall not be unreasonably withheld.” Dkt. 472 at 51 n.34 (citing SA
§ 5.1(a)). During post-trial argument, Seller’s counsel returned to this argument at
somewhat greater length. See Dkt. 481 at 116. Seller admitted that it never sought Buyer’s
consent, but argued that if it had, then Buyer could not reasonably have withheld its
consent. According to Seller, consent therefore should be deemed given, meaning that
Seller did not breach the Ordinary Course Covenant.
Compliance with a notice requirement is not an empty formality. Notice to the buyer
is a prerequisite because it permits the buyer to engage in discussions with the seller and if
warranted, seek information about the situation under its access and information rights.
The buyer then can protect its interests. For example, it can propose reasonable conditions
to its consent, and it can anticipate and account for the implications of the non-ordinarycourse actions when planning for post-closing operations.
Seller did not cite any authority to support its Buyer-would-have-been-obligated-toconsent theory, much less any case involving an ordinary course covenant. Vast bodies of
188
case law, commentary, and scholarship address the giving of notice in other contexts. The
parties did not cite or discuss any of these authorities.
Absent authority suggesting a different outcome, the most logical reading of the
Ordinary Course Covenant is that Seller was required to seek Buyer’s consent before taking
action outside of the ordinary course. If Seller asked, and if Buyer refused, then Seller
could litigate the reasonableness of Buyer’s refusal. Seller admitted that it did not seek
Buyer’s consent under Section 5.1 until April 2, 2020, after it had already made major
operational changes.281
Seller waived this argument by not presenting it in a meaningful fashion. The notion
that Buyer might have been obligated to consent if asked does not provide grounds to
excuse the breach of the Ordinary Course Covenant.
Dyor, as always
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