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Speaker 1: You're listening to Bloomberg Law with June Grasso from Bloomberg Radio.

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Speaker 1: Don't you just love it? Tiffany's isn't wonderful? You see

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Speaker 1: what I mean? Nothing bad could have happened to you

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Speaker 1: in a place like this. Isn't that I can root

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Speaker 1: about jeweler except diamonds, of course, Tiffany is the most

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Speaker 1: storied jeweler in the country. The name alone evoaks images

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Speaker 1: of Audrey Hepburn in a black evening gown looking into

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Speaker 1: the window of its famed Fifth Avenue store in breakfast.

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Speaker 1: The Tiffany's the iconic robin, a blue box with the

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Speaker 1: white ribbon and flawless diamond engagement rings. LVMH, the luxury conglomerate,

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Speaker 1: thought Tiffany would be the jewel in its crown of

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Speaker 1: iconic brands like Louis Vutan, Javanti and Christian Dior, and

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Speaker 1: made a deal to buy the jeweler for sixteen million dollars,

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Speaker 1: the largest takeover ever in the luxury goods sector. But

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Speaker 1: then the luster wore off the deal for LVMH as

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Speaker 1: the coronavirus pandemic devastated retailers. Still, LVMH surprised investors last

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Speaker 1: week when it said the French government had essentially demanded

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Speaker 1: the deal be postponed because of a dispute over US

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Speaker 1: tariff threats. Tiffany responded by filing suit in Delaware Chancery

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Speaker 1: Court to enforce the agreement. Joining me is Andrew Rossman,

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Speaker 1: a partner at Quinn Emmanuel Andy. We've seen other deals

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Speaker 1: collapse during the pandemic. What's unique about this is that

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Speaker 1: LVMH says it received a letter from the French Foreign

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Speaker 1: Minister asking it to delay the deal for reasons related

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Speaker 1: to a trade dispute. What impact will that letter have

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Speaker 1: on the legal case is six four thousand dollar question

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Speaker 1: in the case at the moment, which is what is

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Speaker 1: the government asking LVMH to do and what does that

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Speaker 1: implicate in terms of the party's rights under the agreement.

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Speaker 1: It raises the question of is this a binding government

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Speaker 1: order that has to be followed or is this simply

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Speaker 1: kind of a polite request. So I haven't seen the letter.

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Speaker 1: I'm not sure that the letter is available at this point,

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Speaker 1: and I think it very much turns on what government

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Speaker 1: agency is asking LVMH to do what, and then to

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Speaker 1: filter that through the rights and obligations in the agreement. Well,

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Speaker 1: Tiffany apparently said that it saw the letter briefly and

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Speaker 1: wasn't allowed to take a picture of it, and they

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Speaker 1: compared it to you know how you see the Mona

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Speaker 1: Lisa for a few minutes and then they show you along.

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Speaker 1: But that letter will have to be revealed if the

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Speaker 1: lawsuit continues. I would think that a judge is going

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Speaker 1: to eventually want to see that letter if the letter

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Speaker 1: to come. The future and laws, this case has gotten

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Speaker 1: ugly fast. Tiffany has accused LVMH of unclean hands. LVMH

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Speaker 1: says Tiffany has been poorly on during the pandemic. What

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Speaker 1: is performance during the pandemic something that the court is

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Speaker 1: going to consider, Well, it is an important question they

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Speaker 1: are june about what Tiffany's operations have been and what

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Speaker 1: their financial results have been. Because typical merger agreements and

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Speaker 1: I'm sure that there's a similar provision here in this one,

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Speaker 1: they do provide for out, if you will, for the

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Speaker 1: parties if there has either been a deviation from the

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Speaker 1: ordinary course operations of the business or if the company's

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Speaker 1: performance has suffered so much that's considered to be a

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Speaker 1: material adverse effect, and that very much depends on how

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Speaker 1: the businesses run with results. So material adverse effect in

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Speaker 1: this instance, is COVID considered a material adverse effect? Well,

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Speaker 1: I think the question is not so much COVID or

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Speaker 1: no COVID, but what is the impact on the company.

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Speaker 1: So these are comply provisions and you've got to look

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Speaker 1: at them carefully in their own language. But the starting

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Speaker 1: point is going to be how does the company's performance

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Speaker 1: suffered in a significant way, And then you have to

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Speaker 1: look at the language of that provision to see whether

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Speaker 1: or not the pandemic is specifically provided for, not specifically

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Speaker 1: provided for, if there's some other general broad catch all

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Speaker 1: what's called carve out that applies to COVID. And there's

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Speaker 1: all kinds of debate going on in these cases right now,

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Speaker 1: depending on the specifics of the language. So I don't

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Speaker 1: think courts are approaching it as well, you know, as

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Speaker 1: COVID terminate all contracts, I think they're dialing in in

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Speaker 1: a much more precise way to think about what's the

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Speaker 1: impact on this particular company and did the parties bargain

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Speaker 1: for getting out of the contract of the event of

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Speaker 1: a pandemic? And then often, how does this company's performance

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Speaker 1: compared to others in the industry. So if the industry

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Speaker 1: is doing badly, as retailers and especially luxury goods retailers

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Speaker 1: are during the pandemic, well the court take that into account.

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Speaker 1: It all depends on James. How the parties wrote the

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Speaker 1: contract right. So courts like to, particularly in Delaware, they

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Speaker 1: like to give parties the freedom to have whatever bargain

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Speaker 1: they want to have about the risks of doing a deal,

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Speaker 1: so they can put specific language in that says, you know,

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Speaker 1: even if there's a pandemic, the deal has to close,

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Speaker 1: or they could put specific language in that says, in

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Speaker 1: the event of a pandemic, the deal doesn't have to close. Now,

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Speaker 1: the way corporate lawyers typically draft these things is in

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Speaker 1: a much more general, much more of two sway. So

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Speaker 1: that's why the litigators and judges have to pour through

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Speaker 1: the particular language, look at the company's specific performance, and

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Speaker 1: then make judgments. And you're going to hear sophisticated arguments

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Speaker 1: on book sides. Prior to COVID, was pandemic language found

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Speaker 1: generally in contracts or merger agreements. That's a great question, June.

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Speaker 1: What we have seen is there are examples of contracts

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Speaker 1: that specifically have pandemic language, and that there are examples

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Speaker 1: of contracts that don't have pandemic language. And you've got

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Speaker 1: to look at the whole contract, and sometimes you've got

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Speaker 1: to consider the negotiating history of how the parties got there.

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Speaker 1: So it's not a one size fits all. These aren't

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Speaker 1: identical boiler plate provisions. But we have seen example of

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Speaker 1: the book. There's going to be a hearing on September one.

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Speaker 1: Tiffany wants to fast track the lawsuit. What would it

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Speaker 1: have to show in order to get the court to

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Speaker 1: fast track it? Well, what you essentially have to show

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Speaker 1: is that there's some external reasons why the courts should

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Speaker 1: set aside its other business and put this case to

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Speaker 1: the front of the line. So what is the emergency

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Speaker 1: to this deal that requires that? And I expect that

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Speaker 1: what Tithany is gonna argue here is that it's facing

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Speaker 1: a termination date in late November UM and that you

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Speaker 1: know it will want to get heard in time to

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Speaker 1: get a ruling in advance of that termination date. Sometimes

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Speaker 1: you know it relates to the availability of outside financing

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Speaker 1: or not. In courts want to act quickly before that

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Speaker 1: expires here, If it's just a question of the termination

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Speaker 1: date of the agreement, then it really is up to

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Speaker 1: the parties UH if they want to extend that or

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Speaker 1: they want to stick to that date. So you know

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Speaker 1: that's going to be what the court's wrestling with. And

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Speaker 1: you've got a judge here who's got two other cases

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Speaker 1: in the COVID era about you know, whether or not

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Speaker 1: transactions can be terminated, so you know a lot of

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Speaker 1: experience there in terms of making exoditions. Do you know

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Speaker 1: how he ruled in those cases? One of the small

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Speaker 1: cases following a yoga studio. The other one of the

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Speaker 1: larger cases, the m X travel case, which which my firm,

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Speaker 1: Quita Manuel is actually involved in. So I'll tread lightly,

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Speaker 1: but the fact they are just simply on the records

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Speaker 1: that motion to expedite was denied. UM. There have been

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Speaker 1: other judges that have granted motion UH to expedite UH

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Speaker 1: in this era by chance or last or did it

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Speaker 1: in the Marae case which we were also involved in

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Speaker 1: that result in a trial a couple weeks ago. There

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Speaker 1: are lots of other deals that have collapsed recently. Is

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Speaker 1: there any conclusion you've drawn from those cases, I would

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Speaker 1: say a couple of conclusions. One is the Delaware course

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Speaker 1: will react with great dispatch when they need to. Um So,

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Speaker 1: it's been impressive how they've responded to the commercial needs

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Speaker 1: of the parties. And too, they're very fact dependent every case.

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Speaker 1: You know, the core is going to dig in understand

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Speaker 1: how the business was impacted by the pandemic or other factors,

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Speaker 1: what the specifics of the agreements are um and you know,

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Speaker 1: the parties are going to have to expect to go

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Speaker 1: to court and tell their stories in a in a

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Speaker 1: very persuasive way. Can you compare this to the two

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Speaker 1: thousand eight financial crisis and the deals that collapsed during that, Yeah,

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Speaker 1: it's quite different. The two thousand eight financial crisis was

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Speaker 1: a bank centered crisis. It was about you know, a

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Speaker 1: lot of it was started around the unavailability of credit.

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Speaker 1: Um so companies were facing liquidity issues and not fundamental

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Speaker 1: questions about value. And it was it was across the board. Here.

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Speaker 1: There's a lot of specific industries. Um you know, luxury

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Speaker 1: retail is one of them. Um you know, certainly travel

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Speaker 1: hospitality is another that have really been hit in a

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Speaker 1: in a severe way, while other industries, you know, tech

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Speaker 1: for example, have not as a result of this of

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Speaker 1: this pandemic. So you know, it's um. You know, it's

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Speaker 1: quite different in the differential impact on the companies, and

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Speaker 1: in some way it's a severity. Uh. This is something

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Speaker 1: that affects everything. Every single person that you know that

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Speaker 1: I know has been affected by this pandemic. Um. Whereas

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Speaker 1: you know two thousand eight uh was you know, it

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Speaker 1: was really more of a Wall Street event, you know,

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Speaker 1: followed by recession. After all this enmity and legal name calling,

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Speaker 1: is the deal still possible? Absolutely. One of the things

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Speaker 1: that we observed in two thousands eight is n A

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Speaker 1: s for Examp Apple were declared in cases weren't litigated,

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Speaker 1: but the deals were recut, So you have price negotiations.

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Speaker 1: I've been involved in two deals, one very public involving

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Speaker 1: for Scout, where my client I've been with a couple

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Speaker 1: of days away from trial and they reached the settlement

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Speaker 1: that resulted in a very substantial reduction in the deal price.

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Speaker 1: So people like to say there's always buyer at some price.

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Speaker 1: So there could be resolution of this or any other

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Speaker 1: deal case, you know, based on recut terms. Is there

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Speaker 1: still a bad connotation to reneging on a deal or

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Speaker 1: has COVID sort of erased that idea. I've had this

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Speaker 1: conversation a lot, and I think this is a very

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Speaker 1: different era. I really don't believe that there is a

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Speaker 1: reputational hit, if you will, from people exercising their contract

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Speaker 1: right in light of this pandemic. That's what they're there for.

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Speaker 1: Thanks Andy. That's Andrew Rossman of Quinn Emmanuel. There's no

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Speaker 1: doubt that City Group made a mistake, a nine hundred

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Speaker 1: million dollar mistake, but unfortunately for the bank, the courts

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Speaker 1: don't follow the schoolyard rule of finders keepers. City Group

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Speaker 1: is the administrator on a loan to Revlon and paid

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Speaker 1: out more than nine hundred million dollars of its own

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Speaker 1: money to a group of lenders who were expecting an

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Speaker 1: interest payment on behalf of Revlon. The bank says an

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Speaker 1: employee error caused it to mistakenly pay out a some

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Speaker 1: roughly one hundred times larger than the interest payment the

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Speaker 1: creditors were expecting. One of the lenders has given the

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Speaker 1: money back, but the others, including Brigade Capital Management, HPS

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Speaker 1: Investment Partners and Symphony Asset Management, have not, saying the

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Speaker 1: money should be regarded as payment for Revlon's debt. The

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Speaker 1: bank has filed lawsuits against eleven creditors to recover the money.

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Speaker 1: My guest is a nat Allen Beck, a professor at

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Speaker 1: Case Western Reserve School of Law. As a general rule,

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Speaker 1: people who misstay canly receive things they're not entitled to

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Speaker 1: have to give them back. Why isn't that true here? Well,

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Speaker 1: the issue here is more complicated than that because traditionally

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Speaker 1: with undertustin Richmond, what happens is that one person is

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Speaker 1: amative expense of another. But here the issue is there's

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Speaker 1: already a debt, they have an agreement that they entered into.

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Speaker 1: So it makes it more complicated than a traditional untrust

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Speaker 1: in Richmond case because we do have a situation where

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Speaker 1: we have a debtor and a creditor and they gave

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Speaker 1: money to have one as alone, and they were supposed

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Speaker 1: to get paid. The question is when city banks stand

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Speaker 1: out the money by mistake and you're not supposed to

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Speaker 1: get the principle and now we're only supposed to get

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Speaker 1: the interests, and that's why there's unjust and Richmond. What

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Speaker 1: you're trying to do is you're trying to get paid

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Speaker 1: over the other creditors. There's other creditors here, right, there's

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Speaker 1: a line of creditors, So all the creditors are trying

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Speaker 1: to get paid. Why would you get paid before everybody else?

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Speaker 1: What are some of the things that trial judge will

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Speaker 1: be considering. So here I think the judge will have

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Speaker 1: to use discretion and decide whether he's going to compel

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Speaker 1: the other parties to return the money or not. And

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Speaker 1: that depends on French or say the company. Is there

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Speaker 1: a bankrupt superseding, is there a reorganization? What's happening? And

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Speaker 1: what was the origement with cit banks? What was city

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Speaker 1: banks supposed to do? What was citty banks responsibility here?

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Speaker 1: What about the issue of whether the lenders knew the

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Speaker 1: payment was a mistake. There seems to be some focus

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Speaker 1: on that, Oh, definitely. One of the things is that,

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Speaker 1: for example, let's say somebody accidentally transferred money to your

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Speaker 1: bank account. I wanted to transfer money to my sister,

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Speaker 1: and by accident I transferred money to your bank account. Okay,

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Speaker 1: all of a sudden you have another ten thousand dollars.

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Speaker 1: So the question is did you know that that money

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Speaker 1: was a mistake? And if you didn't, and you already

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Speaker 1: spend that money. What's my recourse against you of giving

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Speaker 1: that money back? So here, that's why they ordered the

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Speaker 1: parties that received the money not to use the money,

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Speaker 1: so that they don't say, oh, well, we were supposed

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Speaker 1: to get paid. We did that paid fully, and we

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Speaker 1: didn't know it was a mistake and we spent the money.

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Speaker 1: So here, clearly they know that this was a mistake,

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Speaker 1: that they were not supposed to get such a large amount.

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Speaker 1: But again, in situations like this, the judges have discretion.

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Speaker 1: They're gonna look at the case and they're going to

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Speaker 1: describe the creditors are asking the judge to allow them

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Speaker 1: to present testimony from an expert in the corporate loan market.

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Speaker 1: They said the expert would appine on how lenders in

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Speaker 1: the market and their managers would respond to the receipt

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Speaker 1: of wires such as those at issue in the case.

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Speaker 1: What are they trying to do here? They're trying to

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Speaker 1: show that for them to receive something like that might

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Speaker 1: be customary under other constensus, to show that they are

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Speaker 1: not acting in that space, that they shouldn't be perceived

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Speaker 1: that way by wanting to keep the money because the

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Speaker 1: money is owe to them. Because with your judgment, and

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Speaker 1: they use is the reasonable person objectives, so that other

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Speaker 1: institutions in their shoes, other reasonable people also assume that

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Speaker 1: they're being paid for what they're owed. And what would

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Speaker 1: they do in situations like this, And that's very important.

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Speaker 1: How much advantage does it give the lenders that they

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Speaker 1: have the money in hand, The fact that the creditors

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Speaker 1: are now in possession of the money, that puts them

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Speaker 1: in a powerful position because they can negotiate. They can

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Speaker 1: say no, wait a minute, we're holding it, we're not

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Speaker 1: giving it back, or how much are we're willing to

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Speaker 1: give back if at all, So the other parties have

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Speaker 1: to basically beg them for it. City Bank Revlon. They're

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Speaker 1: trying to mitigate their mistakes now, even in situations where

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Speaker 1: it wasn't the case where money was owed. In situations

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Speaker 1: where there was just a purely clerical mistake, for example,

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Speaker 1: all the parties view that an assistant or secretary by

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Speaker 1: accident subtracted two zeros from a sum. Those cases can

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Speaker 1: get litigated for years in court, and just the litigation

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Speaker 1: costs should be an incentive for the party to settle,

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Speaker 1: because litigation is expensive. The parties who hold the money

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Speaker 1: know that, so again that's in their favor because they

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Speaker 1: know that if this case gets litigated the bank's breason,

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Speaker 1: they could be spending millions of dollars in litigation costs.

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Speaker 1: So they're gonna want to reach an agreement as soon

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Speaker 1: as possible against to mitigate their exposure, to mitigate their expenses,

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Speaker 1: and to have closure on this issue. Thanks for being

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Speaker 1: on Bloomberg Law. That's a Natt Alan Beck of Case

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Speaker 1: Western Reserve Law School. I'm June Grasso. Thanks so much

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Speaker 1: for listening, and please tune into the Bloomberg Law Show

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Speaker 1: every weeknight at ten pm Eastern on Bloomberg Radio. The

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Speaker 1: printing PTEN the Agent of the f