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Fox Rothschild Wins $4.5 Million Summary Judgment for Blackstone

Posted in Securities Litigation

We wanted to let everyone know about recent victory by our colleague, Mitchell Berns.

Fox Rothschild litigators recently prevailed for The Blackstone Group on its contract claim for $3.7 million fees due from Taro Pharmaceutical Industries. Blackstone helped arrange the sale of Taro to Sun Pharmaceutical Industries in 2007, but the sale did not occur until 2010, after the conclusion of Blackstone’s engagement. The New York Supreme Court enforced a tail fee provision in Blackstone’s engagement letter to sustain its claim for success fees due upon the sale. The award comes to $4.5 million with interest.

Blackstone is a global investment management and financial advisory firm.  Taro engaged Blackstone in late 2006 to help it arrange rescue financing.  Taro, an Israeli pharmaceutical producer, had run into financial difficulties arising from an overstocking of inventories in its wholesale channels.  After exploring financing alternatives, in May 2007 Taro entered into a series of agreements with Sun Pharmaceutical, and Indian generics producer, providing for an immediate cash infusion by Sun, to be followed by Sun’s acquisition of Taro.  Sun invested $59 million in Taro equity shares, and its acquisition of Taro was then to occur either through a merger transaction or, failing that, Sun’s exercise of an option to buy a controlling block of equity held by Taro’s founders.

After Taro received its initial cash infusion from Sun, the proposed merger between Sun and Taro was delayed by Taro shareholder opposition.  When Sun elected to pursue the acquisition by exercising its options to buy the Taro founders’ shares, Taro sued Sun in Israel claiming that Sun had failed to comply with Israeli regulations governing the consummation of an associated tender offer to all Taro shareholders.  In September 2010, the Israeli Supreme Court issued a final ruling permitting Sun’s acquisition to proceed.

Blackstone’s engagement agreement provided that it would earn success fees upon the consummation of transactions associated with Sun’s acquisition of control over Taro.  However, Taro had terminated Blackstone’s engagement in July 2009, over a year prior to the Israeli Supreme Court ruling permitting the acquisition to proceed.   Blackstone’s engagement letter included a “tail fee” clause providing that it would be paid success fees on all related transactions, including those occurring after Blackstone was terminated, so long as the first related transaction occurred within the contract period. 

Taro contested Blackstone’s motion for summary judgment seeking its success fees, arguing that the engagement letter was ambiguous and did not support Blackstone’s claim.  Justice O. Peter Sherwood of the Commercial Division of the Supreme Court, New York County, rejected Taro’s arguments and enforced the tail fee provision, awarding Blackstone the $3.7 million success fees it sought (The Blackstone Group L.P. v. Taro Pharmaceutical Industries Ltd., Index No. 650581/2011, Decision and Order dated December 7, 2012).  With prejudgment interest, the award totals $4.5 million.

Partner Mitchell Berns and associate John Rolecki of Fox Rothschild’s New York office handled the matter for Blackstone.  Taro was represented by Friedman Kaplan Seiler &.Adelman LLP.
Contact:  Mitchell Berns, 212-878-7917, mberns@foxrothschild.com