Nuveen agrees to mediation to resolve anti-competitive accusations

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Preston Hollow Capital LLC will report back to the court before Jan. 10 on mediation efforts aimed at resolving its lawsuit accusing Nuveen Investments of trying to block its access to capital and pipeline of high-yield deals.

The last-ditch talks came after Delaware Chancery Court Vice Chancellor Sam Glasscock III pressed to renew mediation as the preferred resolution during a telephonic hearing earlier this month. Glasscock said he was close to rendering a decision likely to favor the private Dallas-based lender over the Chicago-based investment powerhouse.

Glasscock ordered the two sides to report back by Dec. 24 on whether mediation was a possibility. Glasscock told the lawyers to inform him whether they would like to attempt a mediation, they were rejecting a mediation and would like an opinion, or whether more time was needed to discuss the mediation parameters.

“Following the teleconference with the court on Dec. 13, Preston Hollow proposed to Nuveen that the parties conduct face-to-face negotiations or a mediation to be completed by January 10. Nuveen has accepted the proposal and chosen mediation,” PHC lawyer R. Judson Scaggs Jr., of Morris Nichols, Arsht & Tunnell, wrote in a letter to the judge last week. “Preston Hollow will report to the court on the outcome of the mediation prior to January 10.”

Both sides have incentive to resolve the lawsuit through mediation, which has been the court’s favored choice.

Such an agreement would allow Nuveen to avoid a formal court opinion that the judge warned would not look favorably on Nuveen.

“It's apparent to me that Nuveen's behavior is very likely to be found tortious,” Glasscock told lawyers for the two firms during the recent telephonic court hearing. “I am going to issue a decision, if I need to. And I'm, as I say, prepared to do it quickly. It won't be very complimentary toward Nuveen's behavior.”

PHC is not seeking monetary damages on claims of tortious interference with prospective business relations and violations of the New York Donnelly Antitrust Act. Instead it seeks an injunction ordering Nuveen to cease the alleged conduct, and to rectify the harm already allegedly caused, by withdrawing and disavowing retaliatory threats.

PHC also wants supervisory safeguards in place that it believes are needed to stave off any further alleged attempts by Nuveen high-yield officials, including its head of municipals John Miller, to choke off its access to capital or deals. During the course of the lawsuit filed in February, recorded transcripts were presented of conversations between Miller or members of his team and banks and broker-dealers in which Nuveen told them to choose between a relationship with PHC or Nuveen.

Glasscock has warned of the difficulties for the court in both imposing and enforcing PHC’s proposed remedy. “I still haven't determined how I put in place a proper remedy in this case that will not lead to unfortunate results and will not lead to court entanglement going forward with the behavior of the defendants,” Glasscock said during the recent hearing.

Two of four counts remain before the court. A two-day, non-juried trial was held in July and then post trial arguments were heard in September. Dozens of documents, affidavits, and testimony from expert witnesses from high-profile municipal market witnesses were submitted to the court.

Glasscock’s revelations and fresh push for mediation came during a hearing held to issue a ruling on a motion by Nuveen to reopen the trial record and supplement it with information regarding PHC’s recent trades of its Chicago-based Roosevelt University bonds it claimed showed profiteering in support of its defense. Glasscock denied the motion.

PHC is represented by Morris, Nichols, Arsht & Tunnell LLP and Wollmuth Maher & Deutsch LLP. Nuveen is represented by Potter, Anderson & Corroon LLP and Winston & Strawn LLP.

The case pits the newer and smaller non-bank finance company specializing in high-yield municipal specialty finance against an institutional powerhouse.

Preston Hollow contends its model offers issuers an affordable and flexible borrowing choice. Nuveen says the firm engages in “predatory” lending practices that damage the market with weak covenants and overcharges issuers and contends its actions seeking to protect its access to high-yield deals was legal.

The case originally was brought with four causes of unlawful action including tortious interference with contract and defamation. Glasscock has dismissed the tortious contract claim and the defamation charge. The defamation charge was dismissed because it requires jury consideration and Chancery Court cases are decided by a judge. That charge has been transferred to the Delaware Superior Court but is on hold until the original case is resolved.

When PHC filed the case in late February it cracked the window open on the cutthroat competition in the high-yield municipal market. Its accusations sparked debate on the accusations of whether strong-arm tactics broke the law, broker-dealer complicity and resistance, and what constitutes pricing fairness.

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