Ordinary Course of Business in the Shadow of the Pandemic: Delaware Court Rules That Measures Resulted in Breach of Covenant

In its post-trial opinion in AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC (Nov. 30, 2020), Vice Chancellor J. Travis Laster of the Delaware Court of Chancery held that AB Stable VIII LLC (“Seller”) had breached its covenant to conduct the business of Strategic Hotels & Resorts LLC and its subsidiaries (collectively, “Strategic”) “only in the ordinary course of business consistent with past practice in all material respects” when Strategic took drastic measures in response to the COVID-19 pandemic, including, among other things, closing two of Strategic’s hotels and severely limiting services and operations at the other hotels owned by Strategic. As a result, the court determined that MAPS Hotel and Resorts One LLC (“Buyer”), a subsidiary of Mirae Asset Financial Group, had validly terminated the parties’ purchase agreement because Seller had failed to timely cure that breach and, therefore, Buyer’s closing condition requiring Seller to have complied with its covenants in all material respects had not been satisfied. This Legal Update further discusses the court’s decision and key takeaways.