Cinema Owner Says Mexican Co. Used COVID-19 To Slip Sale

By Katie Pohlman
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Law360 (April 2, 2020, 4:57 PM EDT) -- A Mexican cinema company can't use the coronavirus pandemic as an excuse to back out of a deal to acquire a Houston dine-in movie theater chain, the Houston company's owner told a Texas federal court in a new lawsuit Thursday.

Omar Khan is asking a Southern District of Texas judge to enforce his deal with Mexican company Cinemex and its U.S. subsidiary, Cinemex USA Holdings Inc., arguing the company can’t rely on the global health crisis as an excuse to not follow through because the parties discussed the coronavirus at length during negotiations, according to the complaint.

In fact, citing the pandemic, Cinemex was able to negotiate a 10% discount from its initial nonbinding offer, the amount of which was not disclosed in the court documents. If the deal falls through, Khan says it would not only hurt the goodwill and reputation of his company, Star Cinema Grill, but also his more than 1,000 employees and their families, according to the complaint.

"Far from being unforeseen, the potential impact of the coronavirus was a significant factor discussed by the parties during their negotiation of the agreement," Khan said. "There is no doubt that Cinemex entered into the agreement with its eyes wide open to the pandemic and its potential effects."

Star Cinema Grill, which operates nine theaters in Texas and one in Illinois, is currently closed under a state shutdown of nonessential businesses. The coronavirus has forced closures of movie theaters and other entertainment venues across the country. 

Khan accuses Cinemex of using "sham" excuses — including claiming that the deal's closure had to be completed in Houston and could not be conducted because of travel restrictions — to breach the contract. Cinemex also claimed it could not close on the deal because it would not be able to perform physical inspections of the theaters, according to the suit. Khan says both of these conditions were never negotiated parts of the deal.

Khan started soliciting deals for Star Cinema Grill in December, according to the complaint. Cinemex first sent a letter of interest to Khan in early January with a nonbinding offer.

The two parties started discussing a potential purchase and entered into an exclusivity deal March 6, a day after major news outlets began to warn that the U.S. was on the verge of a pandemic. Khan claims the coronavirus was discussed significantly during negotiations, but the deal moved forward and was agreed to March 10.

"The coronavirus loomed over the parties' negotiations nearly every step of the way," Khan said.

It wasn't until March 24, when Khan's attorney emailed counsel for Cinemex with the closing deliverables, that the Mexican company balked at the deal due to the coronavirus, according to the complaint. Khan claims Cinemex responded later that day that "in light of the COVID-19 related fallout, Cinemex will not and is not obligated to close the transaction."

The company cited the travel restrictions as a barrier to closing the deal and also expressed concern for the safety of its personnel if it attempted to close "under these circumstances," according to the complaint.

Despite some back-and-forth between the attorneys, Khan claims Cinemex still contends it is excused from following through with the deal. Khan requested that the federal judge order Cinemex to continue with the deal as well as an injunction requiring the company to complete it, according to court documents.

Khan's attorney Jeff M. Golub of Beck Redden LLP declined to comment on the filing. Representatives for Cinemex could not be reached for comment Thursday.

Khan is represented by Jeff M. Golub of Beck Redden LLP and Nick Gorga and Mohamed Awan of Honigman LLP.

Counsel information for Cinemex was not immediately available Thursday.

The case is Omar Kahn et al. v. Cinemex USA Real Estate Holdings Inc. et al., case number 4:20-cv-01178, in the U.S. District Court for the Southern District of Texas.

--Editing by Abbie Sarfo.

For a reprint of this article, please contact reprints@law360.com.

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Case Information

Case Title

Khan et al v. Cinemex Holdings USA, Inc. et al


Case Number

4:20-cv-01178

Court

Texas Southern

Nature of Suit

190(Contract: Other)

Judge

Judge Andrew S Hanen

Date Filed

April 01, 2020

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