Chancery Orders Fast Track For Fraud-Tainted Hotel Sales

By Jeff Montgomery
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Law360 (May 8, 2020, 10:09 PM EDT) -- The Delaware Chancery Court agreed late Friday to expedite a trial on Dajia Insurance Co.'s suit requiring a buyer to close on a $5.8 billion sale of 15 luxury hotels that was tangled for months in a wider alleged scheme to fraudulently encumber property titles with more than $900 billion in fake damage awards.'

Vice Chancellor J. Travis Laster rejected arguments from attorneys for South Korea's Mirae Asset Global Investments Co. that it would need until early 2021 to prepare for a trial on its argument that China-based holding company Dajia — formerly Anbang Insurance — failed to produce clear titles to some of the properties Mirae agreed to buy. Dajia was also accused of violating a purchase agreement requiring the hotels to be operating in the "ordinary course" at closing, originally set for April 17.

Dajia, which won an order for a late August trial with Friday's ruling, accused Mirae of "getting into bed with fraudsters" in an attempt to avoid closing after the global pandemic disrupted the travel and hospitality market, as well as opportunities for lower-cost financing of the deal. The company also claimed that, despite hotel closings and employee layoffs, the properties comply with sale terms and have clear titles.

The vice chancellor swept away much of the alleged fraud entanglement that Mirae brought up in separate litigation on Jan. 15, ordering the removal of references to false arbitration awards and other documents from the record and barring interference with steps to vacate falsely filed judgments.

Dajia said it has since cleared the titles to the California sites involved in the scheme, which Mirae claims remain clouded, while Mirae says that scalebacks of hotel operations during the COVID-19 crisis violated contract terms obliging the sites to be operating "in the ordinary course" at closing.

Vice Chancellor Laster, who called for a three-day trial to begin on Aug. 24, said he believed "the real question is whether an ordinary course covenant means ordinary course on a clear day or ordinary course based on the hand you're dealt," such as flooding.

He added: "Here we obviously have a colossal and viral-based rainstorm, but that's really the question: Are people doing things that are ordinary course when one is in a pandemic, and is that what the contract contemplates?"

Adam H. Offenhartz of Gibson Dunn & Crutcher LLP, counsel to AB Stable VIII LLC, the Dajia affiliate handling the sale, argued that Mirae was attempting to exploit the unrelated fraud and COVID-19 conditions as a "self-help" measure to delay a trial for 10 months.

"It is our understanding that what really has changed is, even though we signed a deal on Sept. 10 of 2019, the defendants could not, would not lock down financing" during the following low-interest months, Offenhartz said. "The defendants bet they could get better terms if they waited and waited and negotiated, and low-and-behold, they bet big and the lost big" as interest rates rose and terms tightened.

Richard A. Edlin of Greenberg Traurig LLP, counsel to Mirae affiliate MAPS Hotels and Resorts One LLC and other companies involved in the deal, argued that three title companies had noted exceptions to titles on some of the properties in matters involving trademark disputes.

Edlin said some trademark issues were related to earlier disputes that led to Anbang changing its name to Dajia, however, and said that Mirae was not informed as required about the terms and title issues. He also said that the sale agreement was violated by Dajia's failure to inform Mirae about pandemic-related scalebacks at the six properties covered by the deal.

"There is no contingency that the plaintiff has to not deliver the hotels in the same shape they were in," Edlin said. "As of now, two of those hotels are closed, the balance are occupied less than 10%. There is no contingency that the plaintiff has to not to deliver the hotels in the same shape they were."

If nothing excuses Mirae from the requirement to obtain financing, Edlin said, nothing excuses Dajia from the obligations it made to deliver the hotels and operations in the conditions that Mirae thought it was buying .

Offenhartz said a default judgment by the vice chancellor early this year and the steps to clear titles afterward cleared up any baggage from falsely claimed and falsely documented arbitration awards involving Dajia's six California properties. More than $900 billion in claims were asserted at one point in six Delaware Superior Court proceedings launched after the use of a fake judgment entry from Chancery Court.

"The very counterparties that Mr. Eglin is hoping his fishing expedition will show somehow have a claim have been barred from asserting those claims," Offenhartz said.

The fraud effort, partly detailed in court documents, involved filings of bogus arbitration awards by allegedly fake arbitrators over false trademark judgments. Those maneuvers followed an earlier, failed effort in California to record false deeds changing the ownership of some Dajia hotels.

"The people who are involved with that, I know from first-hand experience, seem not to be showing interest in showing up for anything," Vice Chancellor Laster said. He said it was possible "those folks have vanished into the ether. It may be because they never existed in the first place. It may be they're somewhere in China."

In addition to the California properties, the deal involves the Four Seasons Resort Jackson Hole, the Four Seasons Hotel Washington, D.C., the Four Seasons Hotel Silicon Valley, and the InterContinental Miami.

AB Stable is represented by Raymond J. DiCamillo, Kevin M. Gallagher, Sarah A. Clark and John M. O'Toole of Richards Layton & Finger PA, and Adam H. Offenhartz, Marshall R. King, Shireen A. Barday, Nathan C. Strauss and Tyler H. Amass of Gibson Dunn & Crutcher LLP.

MAPS Hotels and the other buyer parties are represented by David C. McBride, C.Barr Flinn, Emily V. Burton and Peter J. Artese of Young Conaway Stargatt & Taylor LLP, Richard A. Edlin, Hal S. Shaftel and Maura E. Miller of Greenberg Traurig LLP, and Sharon L. Nelles and Brian T. Frawley of Sullivan & Cromwell LLP.

The case is AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC et al., case number 2020-0310, in the Court of Chancery of the State of Delaware.

--Editing by Adam LoBelia.

Correction: An earlier version of this story misidentified one of the attorneys for AB Stable. The error has been corrected.

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