Delaware Chancery Court Rules that Rival Bidder’s Lawsuit against Harbinger Capital Partners Hedge Funds Alleging Use of Non-Public Information to Hinder Bidder’s Acquisition Efforts May Proceed
Hedge Fund Law Report
On December 22, 2009, Vice Chancellor J. Travis Laster of the Delaware Chancery Court, refused to dismiss a lawsuit brought by NACCO Industries, Inc., a Delaware holding company that owns the firm which markets Hamilton Beach appliances, against Applica, Inc., a Florida corporation that markets appliances under the Black & Decker label, as well as Harbert Management Corporation, an investment manager, and its affiliated Harbinger Capital Partners hedge funds (collectively, Harbinger). The suit arises out of NACCO’s failed bid to purchase Applica in 2006 – a bid that began with Applica’s execution of a merger agreement with NACCO, continued with Applica’s termination of that agreement and ended with Harbinger winning Applica in a bidding contest. NACCO complained that Harbinger’s success purportedly resulted from its advanced receipt of non-public tips through an intermediary from Applica insiders regarding the proposed Hamilton Beach-Applica merger, its resultant quiet and inexpensive accumulation of a controlling shareholder stake in Applica before Applica entered into and then terminated that agreement and its concomitant allegedly fraudulent Schedule 13D and 13G filings which failed to disclose its competing interest in Applica. As a result, NACCO asserted claims against Applica for breach of contract and breach of the implied covenant of good faith and fair dealing; against Harbinger for tortious interference with contract, fraud, equitable fraud and aiding and abetting a breach of fiduciary duty; and against all defendants for civil conspiracy. The court, though recognizing that potentially legitimate reasons existed for Harbinger’s conduct, nonetheless allowed the tortious interference and fraud counts to proceed against it. In contrast, the court had “no difficulty” finding evidence inferring that Applica breached its contract with NACCO. This article details the background of the action and the most salient portions of the court’s legal analysis.