Preston Hollow Capital LLC’s lawsuit accusing Nuveen Investments of trying to bully banks into shunning the private lender on direct placement business moves into the final stages with post-trial oral arguments set for Sept. 16.
PHC is not asking for damages. Instead, it asks the court for a preliminary and permanent injunction ordering Nuveen to cease the alleged conduct, to order Nuveen to rectify the harm already caused by withdrawing and disavowing retaliatory threats, and it asks that Nuveen be directed to adopt supervisory procedures to ensure ban future misconduct that is alleged.
Delaware Chancery Court Vice Chancellor Sam Glasscock III will decide whether the Chicago-based investment powerhouse illegally engaged in wrongful and anti-competitive tactics to choke off PHC’s access to capital and deals or acted within its rights to protect its business in the competitive high-yield market.
The post-trial hearing allows both sides to follow-up on issues raised during the two-day, non-jury trial held in July and to make their final points in support of their positions. The timing of a decision on the claims following the arguments is unclear.
“In December 2018, three Nuveen employees, including John Miller, the head of Nuveen’s municipal bond group, called every major broker-dealer with which Preston Hollow Capital does business and threatened to stop doing business with them if they continued to do business with PHC,” the document reads.
“At the same time, Miller and one of his deputies, Steven Hlavin, called Deutsche Bank, PHC’s primary source of financing, to deliver the same threat, insisting that Deutsche Bank stop lending to PHC. Their goal was to put PHC out of business,” the PHC arguments said.
Nuveen had also told Deutsche Bank of its decision to pull a then $1.9 billion tender option bond financing with the bank down to zero for having financed PHC’s business.
Nuveen counters the PHC allegations as practices that are fair in a competitive market and argues PHC fell far short of proving violations of any laws.
“PHC’s ‘proof’ boils down to a few recorded phone calls between Nuveen and a handful of market participants. During those calls, Nuveen personnel expressed concerns about PHC’s business, shared opinions about certain PHC deals, and made hyperbolic statements,” Nuveen’s attorneys write in their closing arguments.
“PHC hopes these colorful recordings obscure the holes in its case. But Nuveen’s posturing was unremarkable in the context of a municipal bond trading desk, and even a cursory review of the full record shows that PHC’s tortious interference and Donnelly Act claims cannot prevail,” it said.
“The evidence shows that Nuveen acted lawfully for proper, competitive purposes. It is not unlawful to exercise the right to free speech to explain to a supplier why it should choose to do business with you over someone else—or even to demand that it make such a choice,” Nuveen argues.
When PHC filed the case in late February it cracked the window open on the cutthroat competition in the high-yield municipal market. It accusations sparked debate on the accusations of whether strong-arm tactics broke the law, broker-dealer complicity and resistance, and what constitutes pricing fairness as Nuveen labeled PHC’s yields “predatory.” The reputations of both firms remains at stake.
Preston Hollow contends its model offers issuers an affordable and flexible borrowing choice. Nuveen believes it damages the market and overcharges issuers.
The later release of riveting transcripts of tape-recorded calls between Nuveen’s head of municipals John Miller and other members of his team and broker-dealer and bank employees further widened the view. More was disclosed in later court proceedings that included depositions from prominent market participants and all was laid out during the two-day July trial.
The case pits the newer and smaller non-bank finance company specializing in high-yield municipal specialty finance against an institutional powerhouse. The case originally was brought with four causes of unlawful action including Tortious Interference with Contract, Tortious Interference with Prospective Business Relations, violations of the New York Donnelly Antitrust Act, and Defamation.
Glasscock has dismissed the tortious contract claim and the defamation charge.
NUVEEN
PHC failed to prove the tortious interference claim because its capital financing relationship with Deutsche Bank remained intact and in the bank’s words during court proceedings was “never really at risk,” Nuveen argues in closing.
“As for the broker-dealers, the best that PHC can muster are vague, unsupported assertions from its own executives that ‘its phone [is] ringing less often’ and its 2019 projections are down,” Nuveen says. “The few specific instances of claimed interference are bogus and rely on transactions which have been (or will be) completed, or that did not close for reasons unrelated to Nuveen.”
Nuveen also accuses PHC of exaggerating missed opportunities with Goldman Sachs. PHC had claimed harm from the “termination of discussions” with Goldman on 12 specific opportunities. None of the “deals” ever appeared on PHC’s deal “pipeline,” Nuveen claims with no evidence of causation provided.
PHC claims Nuveen’s threats and alleged slanderous statements to Goldman resulted in termination of discussions between PHC and Goldman regarding the missed opportunities that Goldman identified by name.
Nuveen makes the same claim about the firm’s lack of business with a handful of broker-dealers that Nuveen had called as part of the alleged boycott efforts and argues that the lack of an “inquiry” from a counterparty does not, as a matter of law, rise to the level of a “bona fide expectancy” of a business opportunity.
On the antitrust claim, Nuveen claims the evidence presented by PHC demonstrates that no broker-dealers reached agreements with each other or Nuveen to boycott PHC. “Moreover, the legally required market definition and harm have been a moving target that neither PHC nor its experts have properly identified, let alone analyzed,” Nuveen’s claims.
Nuveen repeatedly claims it acted within its right to protect its business and that doing tender bond option work with counterparties that had engaged in what it believed to be risky transactions would heighten its own risk.
If Nuveen’s goal was to organize a boycott, it did a lousy job, the investment house’s lawyers argue.
“While there is no basis to conclude that Nuveen attempted to organize a boycott, it cannot be disputed that Nuveen failed to do so. The uniform testimony is that no broker-dealer took any action to foreclose PHC in response to Nuveen, and that PHC was not precluded from participating in any market,” the brief reads.
Nuveen also contends that the relief sought in the form of a permanent injunction insulating PHC from lawful competition from Nuveen is improper, unworkable, and unconstitutional. PHC has not shown irreparable harm arising from the phone calls and the injunction would unconstitutionally infringe on Nuveen’s free speech rights. “While the proposed injunction would provide no benefit to PHC, it could have significant anti-competitive and regulatory consequences for Nuveen,” Nuveen’s lawyers write.
PHC
PHC warns of Nuveen’s alleged use of its “coercive power” to drive it out of business because of the threat it posed to the investment house’s “preferred” access to high-yield supply.
Nuveen elected to enforce the status quo by using its market power and influence to “launch a coordinated, multifaceted, illegal attack on PHC” in late 2018 after PHC completed deals with Roosevelt University and Howard University, PHC says.
The foundation for PHC’s accusations lay in the recordings of Miller, Hlavin, and another Miller co-worker, Karen Davern, with banks and broker-dealers. They accuse PHC of lying to issuers by reporting that PHC was under investigation by multiple state attorneys general, had fleeced borrowers, and engaged in predatory lending practices.
“These statements were lies. Miller and his deputies have admitted they had no factual basis for the statements when they made them to PHC’s counterparties. Instead of accepting responsibility for their conduct, however, Nuveen and its employees have steadfastly — and absurdly — denied that what is captured on the recorded conversations is what they intended,” PHC lawyers write.
PHC argues there’s “a culture of lawlessness and accountability at Nuveen that is not limited to Miller; every single Nuveen employee involved in the calls about PHC testified under oath that they do not believe they did anything wrong.”
PHC dismisses Nuveen’s assertions that the alleged threats on the calls were not meant to be taken as direct threats that Nuveen intended to carry through on.
“Representatives of Deutsche Bank and the broker-dealers testified that they took Nuveen’s threats with the utmost seriousness…since the date the threats were delivered, none of the major underwriters have originated and underwritten a municipal bond offering purchased 100% by PHC,” PHC lawyers write. The bank did continue to provide PHC financing.
Nuveen holds $160 billion of municipal assets and $27 billion in high-yield municipal funds compared to PHC’s assets of $1.7 billion. “This is a classic case of a market “disruptor” (PHC) threatening the status of an entrenched market player (Nuveen), resulting in an effort by the entrenched player to destroy the disruptor,” PHC lawyers claim.
Nuveen’s refusal to acknowledge what it argues is the “the wrongfulness of the conduct of Miller and his deputies” and the lack of “any semblance of a system of controls adequate to police Miller even if it was willing to admit to wrongdoing” requires injunctive relief.
“In the lawless world of Nuveen, truth is optional, slander and wanton aggression is condoned in the name of competition, and the mechanisms that ordinarily constrain the conduct of business actors do not exist. PHC seeks an order from this Court enforcing the rule of law,” PHC writes.
PHC said it can’t put a dollar amount on the alleged harm caused by Nuveen’s alleged threatss but it argues that’s what warrants injunctive relief. “The fact that the harm is difficult to quantify is precisely why PHC has sought injunctive relief rather than damages and why it is the appropriate remedy here,” PHC lawyers write.
“Nuveen’s unprovoked and unlawful attack on PHC’s business should not be permitted to continue. As Nuveen is unrepentant and lacks any institutional controls to prevent future misconduct, an injunction is the only thing likely to stop it,” the PHC brief continues.
PHC contends the tortious interference was proven through the evidence that Nuveen’s conduct was specifically intended to stop PHC from engaging in its core business, and that Nuveen employed wrongful means including attacks on PHC’s conduct and reputation and alleged unlawful restraint of trade to accomplish its goal.
With respect to the Donnelly Act, PHC argues that was proven through direct evidence of coordination by Nuveen and ample circumstantial evidence of a tacit conspiracy, that “Nuveen orchestrated a successful boycott by nine broker-dealers of 100% placements with PHC.”
“PHC also has proven that Nuveen’s unlawful conduct has already caused substantial harm to PHC’s business and financial performance. PHC has proven that, absent injunctive relief, it remains particularly exposed to further unlawful conduct,” PHC lawyers write.
PHC argues the evidence demonstrates that Nuveen’s campaign of slander against PHC had its intended effect and its “false and unsubstantiated defamatory statements about PHC were wrongful under Delaware law by any standard, and they provide a predicate for a finding that Nuveen tortiously interfered with PHC’s prospective business relations”
PHC contends Nuveen’s boycott efforts meet the standard required to show violations of the Donnelly Act because at least five broker-dealers or banks that it contends agreed to the boycott are located in New York which so it “therefore has significant local consequences in New York, implicating the Donnelly Act.
