PHC v. Nuveen decision expected quickly after mediation fails

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A last ditch, court-requested mediation to settle Preston Hollow Capital LLC’s lawsuit accusing Nuveen Investments of trying to block its access to capital and high-yield deals failed this week, setting the stage for a ruling that’s expected to favor the private lender.

Delaware Chancery Court Vice Chancellor Sam Glasscock III pressed the two sides last month to take another shot at a mediated settlement. Chicago-based Nuveen agreed and Dallas-based PHC lawyers told the judge by letter that they would report back to the court by Jan. 10.

“The parties conducted their mediation yesterday and were, unfortunately, unable to reach a settlement. The parties, therefore, request that the court proceed to issue its post-trial decision,” PHC lawyer R. Judson Scaggs Jr., of Morris Nichols, Arsht & Tunnell, wrote in a Jan. 8 letter to Glasscock.

Glasscock had pushed the two sides to again attempt mediation during a telephonic hearing last month during which he told lawyers he was close to rendering a decision that would likely favor PHC.

PHC spokesman Greg May declined to comment on the mediation saying in an email that it is “a confidential process under Delaware Chancery Court rules.”

Nuveen did not immediately respond to a request for comment.

One source said the two sides appeared close to a settlement during the mediation that was overseen by a retired judge but in the end couldn’t bridge their differences. Both sides have incentive to resolve the lawsuit through mediation and it’s the court’s favored choice.

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 telephonic hearing.

One source following the litigation said if a ruling sides with PHC, it could still fall on some form of mediation or agreement between the two firms to enforce the remedies.

While the court’s conclusions remain to be seen in their final form, Glasscock told the two sides during the telephonic hearing: “It's apparent to me that Nuveen's behavior is very likely to be found tortious … 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.

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.

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 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.

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