Borel Fields: CYDY's lawsuit raises stakes for 13D group. Thanks to Mark S's savvy and diligence, I have been able to review the complaint filed in the District of Delaware (federal court) and the Order entered by Judge Noreika giving Rosenbaum 5 business days to reply to CYDY's motion for a preliminary injunction, to answer CYDY interrogatories (formal questions), and to submit available dates for CYDY depositions of 13D participants.
The filed documents referenced above suggest several things to me, but I must reiterate from my previous post that I have no experience, let alone expertise, in the fields of SEC practice, securities law, or corporate governance law -- and when you don't know what you don't know in practice areas as specialized as these ones, your opinions or suggestions are not reliable, and should not be relied upon for any reason. Moreover, I have no inside info, nor have I been in communication with any CYDY employee or representative. So the following comments are merely speculation or hunches on my part.
I originally felt that the 11 page letter from Sidley Austin (SA) to Rosenbaum detailing a list of deficiencies in Rosenbaum's nominating notice would be sufficient to block the Rosenbaum slate and require Rosenbaum to retain counsel and seek a preliminary injunction (pi) to continue the takeover bid. (My hunch was that the SEC had no speedy internal method to resolve a fact based dispute.) However, the CYDY lawsuit, with its request for a pi and permanent injunction, implies the possibility of SEC relief available to Rosenbaum (perhaps simply by resubmitting a sanitized version of his nominating notice, if time allows). Then again, the lawsuit may simply be intended as a final, but expensive, nail in Rosenbaum's coffin.
Borel Fields, you are absolutely correct (this is more than a hunch) that the Delaware lawsuit, if it plays out into full discovery, will be very expensive for both parties. ( That could change quickly, however, if Rosenbaum defaults by not responding to the court's pending order.)
CYDY has retained Sidley Austin, one of the premier international law firms in the world, and SA has retained Potter Anderson (PA), one of the premier corporate litigation law firms in the state of Delaware, as local counsel. Potter Anderson signed the complaint listing SA as "of counsel."
That means PA has, or shortly will, file a motion to admit SA's lawyers "pro hac vice" in Delaware for purposes of handling this case. It's possible the lawyers from PA will play a major role, but in the dozens of cases in which I retained local counsel and was admitted pro hac vice in jurisdictions throughout the country, I acted as lead counsel throughout the litigation. So my hunch is that SA's lawyers will do likewise here. In any event, there is the likelihood that both firms will be billing substantial hours at substantial hourly rates.
Rosenbaum, of course, is also facing substantial legal expenses if he responds to the Delaware lawsuit. The 30 page CYDY complaint is very professionally drafted (as expected), and his lawyers must fie a detailed answer to each paragraph and also list affirmative defenses. Discovery will likely be extensive and involve many billable hours. The CYDY claims of material misrepresentations and omissions against Patterson, Beaty, and Rosenbaum appear daunting and will not be easily dismissed as trivial or de minimus. I doubt Rosenbaum will be hitting the golf course anytime soon.
The actions of CYDY management in rejecting Rosenbaum's nominating notice do not surprise me nearly as much as management's subsequent commencement of a lawsuit and its retention of SA and AP to litigate it. In firepower terms, CYDY has brought in a couple of battleships to repel a pt boat. Assuming typical practice, PA will submit its monthly bills to SA for approval, and SA will then submit its and PA's bills to CYDY for payment within 30 days.
For CYDY to have successfully retained SA here, management not only had to be confident in its ability to pay for these premium legal services, it had to convince SA that payment for its services would be based on far more than good intentions. It is more than a hunch that the SA lead attorney on CYDY's file would have explored CYDYs means of paying for its services as part of the new client vetting process. The fact that management was persuasive in this regard increases my confidence that good news lies ahead, and probably in the not so distant future. And while SA no doubt earns substantial client fees from handling proxy fights, my hunch is that it earns far greater fees from handing mergers and acquisitions.
GLTA
The filed documents referenced above suggest several things to me, but I must reiterate from my previous post that I have no experience, let alone expertise, in the fields of SEC practice, securities law, or corporate governance law -- and when you don't know what you don't know in practice areas as specialized as these ones, your opinions or suggestions are not reliable, and should not be relied upon for any reason. Moreover, I have no inside info, nor have I been in communication with any CYDY employee or representative. So the following comments are merely speculation or hunches on my part.
I originally felt that the 11 page letter from Sidley Austin (SA) to Rosenbaum detailing a list of deficiencies in Rosenbaum's nominating notice would be sufficient to block the Rosenbaum slate and require Rosenbaum to retain counsel and seek a preliminary injunction (pi) to continue the takeover bid. (My hunch was that the SEC had no speedy internal method to resolve a fact based dispute.) However, the CYDY lawsuit, with its request for a pi and permanent injunction, implies the possibility of SEC relief available to Rosenbaum (perhaps simply by resubmitting a sanitized version of his nominating notice, if time allows). Then again, the lawsuit may simply be intended as a final, but expensive, nail in Rosenbaum's coffin.
Borel Fields, you are absolutely correct (this is more than a hunch) that the Delaware lawsuit, if it plays out into full discovery, will be very expensive for both parties. ( That could change quickly, however, if Rosenbaum defaults by not responding to the court's pending order.)
CYDY has retained Sidley Austin, one of the premier international law firms in the world, and SA has retained Potter Anderson (PA), one of the premier corporate litigation law firms in the state of Delaware, as local counsel. Potter Anderson signed the complaint listing SA as "of counsel."
That means PA has, or shortly will, file a motion to admit SA's lawyers "pro hac vice" in Delaware for purposes of handling this case. It's possible the lawyers from PA will play a major role, but in the dozens of cases in which I retained local counsel and was admitted pro hac vice in jurisdictions throughout the country, I acted as lead counsel throughout the litigation. So my hunch is that SA's lawyers will do likewise here. In any event, there is the likelihood that both firms will be billing substantial hours at substantial hourly rates.
Rosenbaum, of course, is also facing substantial legal expenses if he responds to the Delaware lawsuit. The 30 page CYDY complaint is very professionally drafted (as expected), and his lawyers must fie a detailed answer to each paragraph and also list affirmative defenses. Discovery will likely be extensive and involve many billable hours. The CYDY claims of material misrepresentations and omissions against Patterson, Beaty, and Rosenbaum appear daunting and will not be easily dismissed as trivial or de minimus. I doubt Rosenbaum will be hitting the golf course anytime soon.
The actions of CYDY management in rejecting Rosenbaum's nominating notice do not surprise me nearly as much as management's subsequent commencement of a lawsuit and its retention of SA and AP to litigate it. In firepower terms, CYDY has brought in a couple of battleships to repel a pt boat. Assuming typical practice, PA will submit its monthly bills to SA for approval, and SA will then submit its and PA's bills to CYDY for payment within 30 days.
For CYDY to have successfully retained SA here, management not only had to be confident in its ability to pay for these premium legal services, it had to convince SA that payment for its services would be based on far more than good intentions. It is more than a hunch that the SA lead attorney on CYDY's file would have explored CYDYs means of paying for its services as part of the new client vetting process. The fact that management was persuasive in this regard increases my confidence that good news lies ahead, and probably in the not so distant future. And while SA no doubt earns substantial client fees from handling proxy fights, my hunch is that it earns far greater fees from handing mergers and acquisitions.
GLTA
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