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Law360 (April 17, 2020, 8:38 PM EDT) -- The Delaware chancellor on Friday denied a WeWork special committee's bid for an August trial over SoftBank's canceled deal to buy $3 billion's worth of the company's shares, saying instead the trial would begin in January 2021.
During a telephone hearing, Chancellor Andre G. Bouchard said it would be difficult to grant the WeWork special committee's request for an expedited trial in the "best of circumstances," let alone during the coronavirus pandemic.
The chancellor noted the complexity of the case and discovery issues make it so the court simply can't hold trial in August, instead setting it for January 2021. He told counsel to confer on scheduling matters as motions to dismiss the case have already been submitted to the court.
The WeWork special committee sued SoftBank Group Corp. earlier this month over a canceled deal to buy $3 billion of the company's shares, saying the Japanese investment giant is reaping the benefits of their bailout agreement but is now backtracking on its end of the contract.
The committee, which was set up by WeWork's board to review the transaction, also sued SoftBank Vision Fund LP, which its complaint said is a "venture capital fund formed in 2017 and run by SBG."
In the complaint, WeWork's special committee accused SBG of breaching an October 2019 deal by failing to buy about $3 billion in shares from the workspace-sharing company's stockholders as promised, despite SoftBank already benefiting from the deal by gaining control of the company.
SBG attorney Elena C. Norman of Young Conaway Stargatt & Taylor LLP argued during Friday's hearing that a trial should be held next spring, saying that was a "reasonable" timeline given the circumstances. She said there are so many moving parts at play as SBG plans to challenge whether the special committee even has standing to bring derivative claims on behalf of the company.
Under "normal circumstances," the complexity of the case and fact-gathering required would make it tough for an expedited trial to be held, Norman asserted. And the COVID-19 outbreak creates issues that make it impractical to try to hold a trial in August, she said.
"These are certainly not normal times," Norman said. However, she added the public health crisis was far from the lone reason SBG opposed the speedy trial bid. Moving toward an August trial would create a "significant burden" on SBG as it moves forward with its defense in the case, she argued.
SBG filed a motion Friday to toss the suit, but a supporting brief was not filed as of Friday evening. Norman said SBG asserts that it backed out of the $3 billion share tender offer because certain deal conditions weren't met.
On April 2, SBG said it was canceling its $3 billion purchase of WeWork shares, citing reasons like the New York-based company not earning certain antitrust approvals, the fallout from the deadly coronavirus pandemic, and a failure to sign and close the rolling up of a joint venture in China.
Additionally, SBG said its decision came because of "multiple, new and significant pending criminal and civil investigations" related to WeWork's financing activities, communications with investors, and business dealings with WeWork co-founder and ex-CEO Adam Neumann. Neumann, who would have received a significant portion of proceeds from the $3 billion tender offer, resigned last year after pressure from investors.
About $450 million of the stock purchase would have gone to current and former WeWork employees, according to a source familiar with the matter.
A representative for SBG said the company "disputes the $450M figure and says it should be closer to $300M" because of a pro-rata cutback that resulted from the tender offer being oversubscribed.
The WeWork committee asserted SBG is backtracking on its deal now because it has "buyer's remorse," compounded by the fact that the investor now has financial difficulties of its own and is looking for reasons to avoid paying out.
"Instead of abiding by its contractual obligations, SoftBank, under increasing pressure from activist investors, has engaged in a purposeful campaign to avoid completion of the tender offer," the committee said in a statement.
The WeWork committee said the canceled share purchase also puts in jeopardy a $1.1 billion debt financing that SoftBank previously committed to but is contingent on the closing of the tender offer.
Committee attorney David J. Berger of Wilson Sonsini Goodrich & Rosati PC contended that a speedy trial was necessary because WeWork is suffering "irrevocable harm" by losing "immediate liquidity," and there is a "real risk" that SBG's financial position may be worsening to a point it may not be able to pay damages if the court rules it needs to do so.
Chancellor Bouchard said it is "too speculative" at this point to suggest that SBG can't finance the share buy or pay damages if it is ordered to do so.
Among other things, the committee in its suit is seeking a finding that SoftBank breached its contract and its duties to WeWork and its minority shareholders. The committee also wants SoftBank to close the tender offer or in the alternative award compensation for its alleged breaches, attorney fees and costs, according to the filing.
SoftBank Vision Fund has also filed a motion to toss the suit, with its attorney John B. Quinn of Quinn Emanuel Urquhart & Sullivan LLP arguing Friday the limited partnership has no place in the suit and had no obligation to buy any shares per the tender offer.
The WeWork committee is represented by Lori W. Will, Brad Sorrels, David J. Berger, Lindsay Kwoka Faccenda, Dylan G. Savage, Michael S. Sommer and Leah E. Brenner of Wilson Sonsini Goodrich & Rosati PC.
SBG is represented by Elena C. Norman, Rolin P. Bissell and Nicholas J. Rohrer of Young Conaway Stargatt & Taylor LLP, and Erik J. Olson, James Bennett and Jordan Eth of Morrison & Foerster LLP.
SoftBank Vision Fund is represented by Michael A. Barlow and E. Wade Houston of Abrams & Bayliss LLP, and John B. Quinn and Molly Stephens of Quinn Emanuel Urquhart & Sullivan LLP.
The case is The We Company v. SoftBank Group Corp. et al., case number 2020-0258, in the Court of Chancery of the State of Delaware.
--Additional reporting by Benjamin Horney, Tom Zanki and Mike LaSusa and McCord Pagan. Editing by Adam LoBelia.
Update: This story has been updated with a comment from an SBG representative and to differentiate the SoftBank Vision Fund entity on certain references.
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