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Cooper Tire & Rubber Co. v. Apollo (Mauritius) Holdings Pvt. Ltd., C.A. No. 8980-VCG (Del. Ch. Oct. 25, 2013) (Glasscock, V.C.)

October 25, 2013

In this letter opinion, Vice Chancellor Glasscock denied a motion for judgment on the pleadings filed in connection with an expedited action in which the plaintiff Cooper Tire & Rubber Co. seeks specific performance of its merger agreement (the “Merger Agreement”) with Apollo (Mauritius) Holdings Pvt. Ltd., Apollo Tyres B.V., and Apollo Acquisition Corp. (collectively, “Apollo”).

The parties’ consummation of this transaction (the “Merger”) has been complicated by labor strikes occurring at certain of Cooper’s manufacturing facilities in the United States and China. In Cooper’s complaint, it indicated that, due to these labor strikes, it has been unable to obtain certain business and financial records associated with its Chinese joint venture (the “CCT”) and certain of Cooper-appointed managers have been unable to access the CCT’s facility. Similarly, following execution of the Merger Agreement, Cooper’s domestic union filed grievances alleging that the Merger Agreement violated the union’s collective bargaining agreements for certain Cooper plants in the United States. That dispute proceeded to arbitration and resulted in an arbitration decision requiring the collective bargaining agreements to be re-negotiated. Through this litigation, Cooper seeks to compel performance of the Merger Agreement and require Apollo to use its reasonable best efforts to negotiate a new contract with the union.

More specifically, Cooper seeks specific performance under Section 9.10 of the Merger Agreement. Section 9.10 provides, among other things, that Cooper may seek specific performance of Apollo’s obligations to consummate the Merger, if and only if, all of the closing conditions set forth in Sections 7.1 and 7.2 of the Merger Agreement have been satisfied. Section 7.1 contains certain customary closing conditions, including receipt of the requisite stockholder and governmental approval, and the absence of court orders enjoining the transaction. Similarly, Section 7.2 sets forth other conditions precedent to Apollo’s obligation to consummate the Merger. For example, Section 7.2(b) states that Cooper shall have performed, in all material respects, the covenants and agreements in Articles 5 and 6 of the Merger Agreement on or before the closing date, and Section 7.2(c) requires the absence of a Material Adverse Effect (as defined in the Merger Agreement). Importantly, however, in defining Material Adverse Effect, the parties specifically excluded any circumstances attributable to their execution of the Merger Agreement, announcement of the Merger, and any resulting impact on the relationship between Cooper and its employees and labor unions.

In this motion for judgment on the pleadings, Apollo initially argued that Cooper had failed to comply with a covenant in Section 5.1(a) of the Agreement, which governed the interim business operations of Cooper between signing and closing of the transaction. As a result, Apollo claimed that Cooper has failed to satisfy the closing condition in Section 7.2(b) and, thus, under the plain language of Section 9.10, is precluded from seeking specific performance. Vice Chancellor Glasscock heard oral argument on this motion telephonically and initially denied the motion from the bench. However, during oral argument, Apollo for the first time asserted an alternative argument in response to Cooper’s opposition brief that Cooper has also failed to comply with Section 6.5 of the Merger Agreement, thereby discharging Apollo of its obligation to close the Merger. In response, the Court permitted the parties to further brief the matter and then issued this letter opinion denying Apollo’s motion.

In so ruling, the Court explained that Section 6.5 requires Cooper to provide Apollo and its representatives “reasonable access” to its and its subsidiaries’ properties, books and records, and to provide such other information that Apollo “reasonably requests” regarding Cooper and its subsidiaries. Apollo argued in its brief that Section 6.5 is an absolute obligation, qualified by no limitation to use best or commercially reasonable efforts. Therefore, in its view, because Cooper stated in its complaint that it had limited access to the CCT’s manufacturing facility and records due to the labor strike, Cooper could not fully comply with the requirements of Section 6.5. In response, however, Cooper argued that Apollo’s prior requests for information involved records associated with the transaction’s financing and, thus, were governed by the terms of Section 6.11(e) of the Merger Agreement rather than Section 6.5. Cooper further denied that it had received any request from Apollo for access to Cooper’s or its subsidiaries’ books, properties and records that would fall within the scope of Section 6.5. In contrast to Section 6.5, Section 6.11(e) provides only that Cooper shall use reasonable best efforts to provide, and cause it subsidiaries to provide, to Apollo such legal, financial, and accounting information requested in connection with Apollo’s financing arrangement or any alternative financing required. Cooper also argued in the alternative that even if Section 6.5 were applicable to Apollo’s prior requests, those requests would still be limited by the terms “reasonable access” and “reasonably request” in Section 6.5, which would require a determination of fact not amenable to a motion for judgment on the pleadings.

In its analysis of the Merger Agreement, the Court noted that Apollo did not move for judgment on the pleadings with respect to Cooper’s performance under Section 6.11(e) and indicated that it could not have successfully done so, as the question of whether Cooper had used “reasonable best efforts” to provide the financial information requested would be an issue of fact not appropriate for such a motion. The Court also recognized that there remained a triable issue of fact with regard to whether Cooper had materially performed its obligations under Section 6.5 because Cooper’s obligations under Section 6.5 were triggered only by a request for access by Apollo, and Apollo had pointed to nothing in its pleadings to demonstrate that such a request had been made. Therefore, in light of the foregoing, the Court held that there remained issues of fact open for resolution at trial and denied Apollo’s motion. The full opinion is available here.

The full opinion is available here