Preston Hollow Capital LLC v. Nuveen LLC ( 2020 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
PRESTON HOLLOW CAPITAL LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2019-0169-SG
)
NUVEEN LLC, NUVEEN )
INVESTMENTS, INC., NUVEEN )
SECURITIES LLC, and NUVEEN )
ASSET MANAGEMENT LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: January 8, 2020
Date Decided: April 9, 2020
R. Judson Scaggs, Jr., Barnaby Grzaslewicz, and Elizabeth A. Mullin, of MORRIS
NICHOLS ARSHT & TUNNEL, Wilmington, Delaware; OF COUNSEL: David H.
Wollmuth, R. Scott Thompson, Michael C. Ledley, Sean P. McGonigle, William A.
Maher, Nicole C. Rende, and Jay S. Handlin, of WOLLMUTH MAHER &
DEUTSCH LLP, New York, New York, Attorneys for Plaintiff.
Peter J. Walsh, Jr., Jennifer C. Wasson, David A. Seal, and Robert J. Kumor, of
POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF
COUNSEL: Eva W. Cole, John E. Schreiber, Molly M. Donovan, Joseph A. Litman,
and Mikaela E. Evans-Aziz, of WINSTON & STRAWN LLP, New York, New
York, Attorneys for Defendants.
GLASSCOCK, Vice Chancellor
Plaintiff Preston Hollow Capital LLC (“Preston Hollow”) and Defendants
Nuveen LLC, Nuveen Investments, Inc., Nuveen Securities LLC and Nuveen Asset
Management LLC (collectively, “Nuveen”) are all institutional investors in
municipal bonds. Preston Hollow and Nuveen are competitors in that market.
Preston Hollow alleges that Nuveen tortiously contacted institutions that Preston
Hollow had business relationships with, lied about Preston Hollow’s business
practices, and threatened to remove its considerable business from those institutions
if they continued doing business with Preston Hollow. Nuveen denies that it made
false representations about Preston Hollow.
In Gulliver’s Travels, Swift puts Gulliver in contact with the Houyhnhnms,
beings so moral and rational that they cannot comprehend the art of lying. They do
not even have a word for the concept, and are forced to describe a lie as “the thing
which is not.” After hearing the testimony of some of Nuveen’s witnesses, one
might think they were such beings. Their circumlocutions for falsehoods—“hedge,”
“bluff,” “exaggeration,” “role-play,” “scenario,” “overstatement,” “blustering,”
“short-cutting,” “puff,” “shorthand,” “overblowing”—in situations where more
quotidian creatures would simply say “lie,” might make one doubt that the latter
word is in their vocabulary. Their testimony was generally that institutional
investors and their bankers speak in an argot of forceful misstatements that all parties
involved know is posturing, so that no real untruth is conveyed. Perhaps. Far more
likely is that institutional investors, like the rest of us Yahoos, make statements of
fact, true or false, with the intent to be believed. In this post-trial Memorandum
Opinion, I find that Nuveen used threats and lies in a successful attempt to damage
the Plaintiff in its business relationships. Accordingly, Nuveen is responsible for the
tort of intentional interference with business relations. I find the equitable relief
sought by Preston Hollow is unavailable, however.
My reasoning follows.
I. BACKGROUND1
This is a post-trial Memorandum Opinion. The trial took place over two days,
July 29 – July 30, 2019. The parties lodged 37 depositions and submitted 832 joint
exhibits. The following facts were stipulated by the parties or proven by a
preponderance of evidence at trial.2
A. The Parties
The Plaintiff, Preston Hollow, is a Delaware limited liability company.3
Preston Hollow formed in 2014, and it operates as a finance company targeted at
1
Citations to Joint Trial Exhibits (“JX”) are expressed as JX __, at __. Page numbers for JXs are
derived from the stamp on each JX page. Citations in the form “Trial Tr.” refer to the trial
transcript. Several key exhibits are recordings of phone conversations; these are cited by page and
line like regular transcripts, e.g. JX __, at __:__.
2
To the extent there was conflicting evidence, I have weighed the evidence and made findings
based on the preponderance of the evidence. In pursuit of brevity, I sometimes omit from this
Background discussion testimony in conflict with the preponderance of the evidence. In such
cases, I considered the conflicted testimony, and I rejected it.
3
See Joint Pre-Trial Stipulation and Order, D.I. 346 (“PTO”), ¶ 1.
2
investing in municipal finance.4 It operates nationwide.5 Currently, it has
approximately $2.1 billion in assets and $1.3 billion in equity capital.6
Defendants Nuveen LLC, Nuveen Securities LLC, and Nuveen Asset
Management LLC are Delaware limited liability companies.7 Defendant Nuveen
Investments, Inc. is a Delaware corporation.8 As noted above, I refer to the
Defendants, collectively, as “Nuveen.” Nuveen is a global asset manager, with
municipal bonds forming a subset of its various asset classes.9 Nuveen has
municipal fixed income assets under management of approximately $150 billion.10
Non-parties John Miller, Steve Hlavin, and Karen Davern are Nuveen
employees.11
B. The Municipal Bond Market
1. A Municipal Bond Primer
Preston Hollow and Nuveen are both investors in the municipal bond market.
Municipal bonds are debt securities issued by cities, counties, states, and other
4
Id.
5
Id.
6
Id.
7
Id. ¶¶ 2, 4–5.
8
Id. ¶ 3.
9
Trial Tr. 311:7–17 (Miller); JX 541, ¶¶ 63–64.
10
PTO, ¶ 6.
11
Id. ¶ 20.
3
governmental or non-profit entities to fund day-to-day obligations and to finance
public works projects.12 The vast majority of municipalities have some form of
outstanding debt, and so the market is nationwide and vast.13 The municipal
securities market is valued at approximately $3.82 trillion, with approximately fifty
thousand municipal issuers and one million unique securities.14 One appeal of
municipal bonds to investors is that the bonds usually pay interest that is exempt
from federal, and sometimes state income taxes.15 As in other securities markets,
new bonds are issued on the “primary” market and then traded on the “secondary”
market.16
Similar to other bonds, numerous qualities differentiate municipal bonds from
one another; the identity of the issuer, credit rating, source of funds to service the
debt, and the terms of the debt are all factors.17 “Investment grade” bonds are those
with a credit rating of BBB- or higher from Standard & Poor’s or Fitch, or at least
Baa3 by Moody’s.18 Generally, higher credit ratings indicate lower risk.19 By
12
Id. ¶ 7.
13
JX 537, at 3; JX 541, ¶ 37.
14
JX 537, at 3; JX 541, ¶ 37; Trial Tr. 47:8–18 (Metzold).
15
PTO, ¶ 7.
16
Id.
17
Id. ¶ 10.
18
Id. ¶ 11.
19
Id.
4
contrast, high-yield municipal bonds carry higher default risks and by extension
higher yields than their investment-grade cousins.20 About ninety percent of
municipal bonds are investment grade.21
Municipal bond issuances typically involve at least three parties: the issuer,
the broker-dealer, and the investor.22 The issuers (the supply side of the market) are
municipalities—many municipal bond issuances seek to finance public works
projects.23 As the ultimate purchasers of the issuers’ bonds, the investors (the
demand side) finance these public works projects by purchasing the bonds.24
Finally, broker-dealers act as intermediaries and assist in facilitating the issuance by
providing services like marketing, pricing, underwriting, and closing.25 Investors
are numerous and run the gamut from individuals to sophisticated institutional
investors like the parties in this case.26
In general, there are three different types of issuances: (1) public offerings,
which are competitive and negotiated sales with multiple buyers; (2) limited public
offerings, which are offers to a select number of investors who meet established
20
Trial Tr. 48:12–24 (Metzold).
21
Id. at 47:23–48:11 (Metzold).
22
PTO, ¶¶ 7, 9.
23
Id. ¶ 7; Trial Tr. 533:11–534:2 (Snyder).
24
Trial Tr. 533:13–534:2 (Snyder).
25
JX 541, ¶¶ 51–53; Trial Tr. 534:5–11 (Snyder); PTO, ¶ 9.
26
JX 541, ¶ 48.
5
standards as qualified purchasers, and (3) private placements, which are placed
directly with an investor without the use of an underwriter.27 When a single investor
buys the entirety of a bond’s primary issuance, it is called a “100% placement”
transaction.28 I refer to these throughout simply as “100% placements.” A 100%
placement can be done in a public or private issuance.29 Issuing bonds to a single
investor can offer advantages in terms of financing flexibility, which makes 100%
placements attractive to certain issuers.30 On the other hand, because a single
investor in a 100% placement purchases all the bonds, such a transaction may lack
the same degree of competitive market check a wider issuance would enjoy.31
An issuer may engage broker-dealers as investment bankers to facilitate the
issuance of its municipal bonds.32 The broker-dealer can serve as intermediary
between the issuer and prospective investors.33 In public offerings, a broker-dealer
also acts as an underwriter to orchestrate the transaction and ensure proper due
27
PTO, ¶ 13.
28
Trial Tr. 52:13–53:4 (Metzold).
29
Id. at 52:13–53:12 (Metzold).
30
See, e.g., id. at 84:7–90:17 (Albarran), 501:1–9 (Harris).
31
E.g. JX 224, at 63–64 (Preston Hollow noting in an agreement for a 100% placement that “the
terms . . . including the price, were determined pursuant to a negotiation . . . [t]here will be no
market clearing rate for the [bonds]”).
32
PTO, ¶ 9.
33
Id.
6
diligence.34 Having a top-tier underwriter can increase the attractiveness of the issue
by lending credibility to the transaction and thus increasing the marketability of the
bonds.35 A broker-dealer acting as an underwriter has a duty to the issuer under rules
of the Municipal Securities Rulemaking Board (MSRB) to purchase bonds at a price
that is fair and reasonable to the issuer and to sell the securities at a price that is fair
and reasonable to the investor.36
The typical municipal bond trader lives in the fast-paced world of finance,
where a trader requires rapid communication, strong relationships, and the ability to
move quickly to succeed.37 One tool municipal bond traders use to leverage desired
actions is to express displeasure by putting another party or entity “in the box.”38
This bond-trader colloquialism is well-known in the industry, and both Nuveen and
Preston Hollow use it regularly.39 A broker-dealer can also put a trader or other
34
Trial Tr. 51:17–52:3 (Metzold).
Id. at 51:12–53:12 (Metzold). Certain of Metzold’s testimony, including testimony on this issue,
35
was the subject of a Motion in Limine from Nuveen, dealt with below.
36
JX 541, ¶ 52.
37
Trial Tr. 377:22–380:4-14 (Davern).
38
Id. at 386:10–387:2 (Davern) (“Q: Why would you use the phrase ‘in the box’? A: Sometimes
it means something. Sometimes it doesn’t mean something . . . you’ve probably done something
to make me mad, to make us mad. . .”); Sorenson Dep. at 58:25–59:2 (“It’s my opinion that it’s
the ability to politely say we’re unhappy.”).
39
Trial Tr. 386:12–15 (Davern), 588:7–14 (Costello), 30:7–21 (Thompson). The etymology is
uncertain. See Cool Hand Luke (Warner Bros. 1967) (Carr the Floorwalker explains the camp
rules).
7
counterparty in the box.40 At its most basic, it is simply a way for a party to leverage
action.41 Being “in the box” has no official repercussions and so can be used
somewhat casually.42 At the same time, being “in the box” can lead to more serious
consequences, such as a temporary cessation of business between parties.43
2. Nuveen’s and Preston Hollow’s Place in the Municipal Bond
Market
Both Nuveen and Preston Hollow purchase municipal bonds, including high-
yield bonds, on the primary market and trade them on the secondary market.44 But
the parties operate under distinct business structures. Preston Hollow styles itself as
a “bespoke solution provider” that custom-designs its deal structures to lend
flexibility and security to issuers through 100% placements.45 Preston Hollow’s
business and finance model are relatively unique and new in the municipal bond
market.46 The majority of Preston Hollow’s financing deals are 100% placements.47
40
E.g., Trial Tr. 583:18–584:12 (Chang).
41
Sorenson Dep. at 55:4–13 (“It’s a relationship tool”); Trial Tr. 338:5–9 (Miller) (“Q: In your
experience, has telling someone that they’re in the box influenced their behavior? A: Sometimes
it does and sometimes it doesn’t.”).
42
E.g. Trial Tr. 584:24–585:8 (Jentis), 388:18–389:5 (Davern).
43
E.g. id. at 584:22–585:8 (Jentis).
44
PTO, ¶ 12.
45
Trial Tr. 15:22–16:24, 17:11–19 (Thompson), 83:5–90:17 (Albarran).
Haskell Dep. at 29:13–20 (“There [are] not a lot of people that have Preston Hollow’s business
46
model. It is somewhat new to the municipal marketplace . . . it’s new and it’s something that the
market is digesting”); see also JX 189, at 8; JX 935, at 2.
47
Trial Tr. 28:2 – 22 (Thompson). Preston Hollow does “[m]ostly primary” bond issuances, and
of those primary issuances, it only “[o]ccasionally” purchases something less than 100% of the
8
It employs a permanent capital model that permits it to provide flexible financing
solutions.48 Most of its transactions come to it through its broker-dealers, although
it also originates deals on its own that it takes to broker-dealers to partner.49 It has
approximately $2.1 billion in assets and $1.3 billion in equity capital.50
Nuveen has approximately $150 billion in municipal assets, with $27 billion
in high-yield municipal bond funds.51 Several employees testified that it is “the
largest high-yield [municipal] fund in the world.”52 Nuveen’s model, in contrast
with Preston Hollow’s permanent capital financing, is a mutual fund, which requires
liquidity to absorb the inflows and outflows of cash as investors withdraw or deposit
in the fund.53 When there are inflows, Nuveen seeks new bond issuances to invest
the cash.54 Therefore, the opportunity to purchase new issuances in the primary
market—in municipal bond parlance to “see deals”—allows Nuveen to meet market
issuance. Id.; see also id. at 79:18–80:3 (Albarran), 439:20–440:12 (Weiner). Preston Hollow
also manages other investments as a smaller profile part of its business. Id. at 28:17–29:6
(Thompson).
48
Id. 85:4–15 (Albarran). Among the features Preston Hollow offers are initial commitment,
interim financing, “draw down” bonds (i.e. guaranteed funding through incremental as-needed
purchases of bonds), rate locks, waiver of reserve funds, and post-closing changes to financing
terms. Id. at 83:22–90:17 (Albarran).
49
Id. at 82:10–17 (Albarran), 441:15–24 (Weiner).
50
PTO, ¶ 1.
51
Id. ¶ 6; Trial Tr. 57:14–58:1 (Metzold).
52
Trial Tr. 237:7–9 (Miller); JX 263, at 17:24–18:1.
53
Davern Dep. at 39:17–19; Trial Tr. 85:4–19 (Albarran).
54
Davern Dep. at 43:10–44:24; Trial Tr. 388:12–17 (Davern).
9
demand.55 As a result, in evaluating broker-dealers for partnering, Nuveen
consistently rates “seeing deals” as the most important factor in the relationship.56
As a smaller subset of its business, like Preston Hollow, Nuveen will also structure
high-yield municipal bonds directly with issuers and engage in 100% placements.57
When Preston Hollow conducts 100% placements, it funds the entire issuance,
and consequently Nuveen does not “see” these deals before the bonds reach the
wider market.58 This lessens Nuveen’s ability to meet market demand because it
diminishes the array of purchase options available to it.59
In the fall of 2018, Preston Hollow engaged in several transactions important
to this litigation. On September 26, 2018, Preston Hollow closed an approximately
$196 million bond issuance with Roosevelt University, located in Chicago, Illinois.60
Wells Fargo served as underwriter for the transaction.61 Roosevelt University
required a refinancing of existing debt within ninety days to relieve financial
distress.62 Nuveen had previously purchased bonds from Roosevelt University.63
55
Trial Tr. 388:12–17 (Davern), 321:18–322:5 (Miller).
56
JX 111, at 1.
57
Trial Tr. 313:5–10, 317:19–318:23 (Miller).
58
Id. at 392:1–393:10 (Davern).
59
Id. at 389:15–391:4 (Davern).
60
PTO, ¶ 16.
61
Id.
62
Trial Tr. 492:8–24 (Harris).
63
PTO, ¶17; JX 263, at 4:10–13; Trial Tr. 498:7–499:6 (Harris).
10
Later that fall, Preston Hollow closed another deal, investing approximately $33.2
million in municipal bonds issued by Howard University, located in Washington
D.C. (the “Howard Center” transaction), to fund construction of student housing.64
Bank of America Merrill Lynch (“BAML”) served as underwriter for the
transaction.65 Because both deals were 100% placements, Nuveen was unable to
participate in either bond issuance.66
C. Nuveen’s Efforts Against Preston Hollow and 100% Placement
Transactions
Nuveen’s opposition to Preston Hollow and its business model focusing on
100% placements began as early as August 2017, when Preston Hollow was first
emerging as a serious player in the high-yield bond market.67 Even at that time, in
an internal chat, Nuveen’s Chief Investing Officer John Miller described broker-
dealers working with Preston Hollow as “stab[bing] us in the back” and suggested
his stance to broker-dealers would be that “if you want to build your business around
Preston [Hollow], go ahead, but don’t think you can ever call us again.”68
64
PTO, ¶ 18; JX 224, at 8–9.
65
PTO, ¶ 18.
66
See id. ¶ 19.
67
See JX 79, at 1 (Chief Investing Officer Miller describing plans to impose choice on broker-
dealers between doing business with Nuveen or Preston Hollow); see also JX 81, at 1 (Davern and
Stifel representative discussing in August 2017 “how to keep [Preston Hollow] from getting more
and more of the [high-yield] market.”).
68
JX 79, at 1.
11
This dispute, however, largely centers on the time period between December
2018 and February 2019, when Nuveen employees, led by Miller, held a series of
phone calls and meetings with various broker-dealers as well as with Deutsche Bank
(“Deutsche”).69 During that time, Nuveen employees discussed Preston Hollow and
the 100% placement model with Deutsche, BAML, Goldman Sachs (“Goldman”),
JPMorgan Chase & Co. (“JPMorgan”), Mesirow Financial (“Mesirow”), Morgan
Stanley (“Morgan”), RBC Capital Markets (“RBC”), Stifel Nicolaus (“Stifel”), and
Wells Fargo.70 In addition, Nuveen had previously discussed Preston Hollow with
KeyBanc Capital Markets (“KeyBanc”) in April 2018.71
The entities listed above had all conducted business with Preston Hollow in
the past, though not all of them had conducted 100% placements. The calls with
Deutsche, Goldman, Morgan, and RBC were recorded.72 Below, I recite the facts
regarding each third party’s communications with Nuveen and its relationship with
Preston Hollow separately.
1. Deutsche
Deutsche is Preston Hollow’s primary lender, including its source of tender
offer bond financing (“TOB financing”), a common method of financing
69
PTO, ¶ 20.
70
Id.
71
Moriarty Dep. at 40:4–19; JX 123.
72
PTO, ¶ 21.
12
investments in municipal bonds.73 Deutsche financed the Roosevelt University and
Howard Center transactions described above.74 On December 20, 2018, Miller
informed his team that if Deutsche provided TOB financing to Preston Hollow for
the Howard Center issuance, Nuveen would remove its business from Deutsche.75
That same day, Hlavin called Deutsche and stated that Nuveen “will not be
conducting high-yield business with anyone who is involved in these types of
transactions [i.e. 100% placements] with Preston Hollow.”76 Hlavin represented on
this phone call that Nuveen was “going to every single bank and broker-dealer” that
day, and that “the policy going forward is that if you are doing – if you are actively
doing business with [Preston Hollow], Nuveen will not be doing business with
you.”77 At trial, Hlavin testified that he did not intend his words to be taken
seriously, but that he needed to “make exaggerated statements” to “strengthen [his]
position.”78 Hlavin testified that when he referenced Preston Hollow, he was “short-
handing” for 100% placement transactions.79
73
Trial Tr. 430:10–13 (Weiner), 139:22–140:7 (Hlavin); PTO, ¶ 15.
74
Trial Tr. 430:10–13 (Weiner), 140:16–141:5 (Hlavin).
75
JX 305, at 2 (Miller writing “If [Deutsche] TOB’s Howard University student housing for
[Preston Hollow], we will be taking our business with them to $0 as soon as practicable.”).
76
JX 263R, at 7:4–7.
77
Id. at 24:21–25:2.
78
Trial Tr. 149:7–17 (Hlavin).
79
Id. at 184:23–185:6 (Hlavin).
13
In addition to this “devastating” ultimatum,80 Hlavin represented to Deutsche
on this call that Preston Hollow lied to issuers by misrepresenting things about
Nuveen.81 Hlavin said Preston Hollow was “demonstrating predatory lending
practices” toward borrowers and would “take [the borrowers] into bankruptcy.”82 In
a second call with Deutsche later that day, Hlavin claimed he possessed “direct
evidence” of Preston Hollow’s lies, though it is apparent from his testimony that he
based this statement on what he overheard at Nuveen’s trading desk.83 At trial,
Hlavin testified that he did not need to verify his allegations because he was “role
playing” to “build a position” and “challenge someone in debate.”84
On December 21, 2018, Miller also called Deutsche.85 In that call, Miller
stated that he had a “firm commitment” from Wells Fargo, BAML, Goldman, and
JPMorgan to “never do business with Preston Hollow again.”86 At trial, Miller
testified that he exaggerated these statements; by “firm commitment,” he meant the
80
See JX 263R, at 25:2–7 (Hlavin and Deutsche representative agreeing “[This is] devastating
news”; “It’s devastating news”; “It’s devastating.”).
81
Id. at 29:2–14 (Hlavin stating Preston Hollow is “just sitting in front of issuers lying to them . .
. directly bashing Nuveen to the issuer.”).
82
Id. at 4:17–5:2, 7:18–8:5.
83
JX 393R, at 8:11–9:8; Trial Tr. 186:23–187:20 (Hlavin) (testifying, “I overhead it on the desk,
and that was enough to give me concern to go to Deutsche Bank about my concerns”).
84
Trial Tr. 156:20–158:15 (Hlavin).
85
JX 310R.
86
Id. at 4:15–5:7.
14
broker-dealers “were going to look into their private versus public practices.”87 He
testified he “was overstating, shortcutting, and blustering a little bit to try and get
their attention.”88 Miller did not consider these statements to be problematic, as he
testified that in the high-yield municipal bond market, other parties “[are] blustering
and exaggerating to me. And I’m blustering and exaggerating back to them. And
we kind of know what’s going on.”89
Additionally, Miller represented that Preston Hollow conducted unethical
business practices, or “dirty deals.”90 He informed Deutsche that Roosevelt
University “got fleeced” by Preston Hollow based on the yield on the bonds in that
transaction.91 Like Hlavin, he labeled Preston Hollow’s lending practices
“predatory.”92 He claimed it “rushed” broker-dealers through deals without allowing
for proper evaluation.93
87
Trial Tr. 287:2–9 (Miller) (Miller testifying “I exaggerated the nature of those conversations
that happened with those other firms . . . [i]t was not that type of commitment.”).
88
Id. at 291:17–23 (Miller).
89
Id. at 337:3–7 (Miller).
90
JX 310R, at 8:6–9 (Miller stating, “[i]t’s an . . . ethical behavior firm versus . . . the opposite”),
31:14–32:14, 21:9–13 (Miller stating, “some of these dirty deals are going to become less
financeable”).
91
Id. at 4:5–14.
92
Id. at 2:18–3:1 (Miller stating, “the deals are not coming at market levels because of the
predatory nature of the way in which they’re pitched and prepackaged between Preston [Hollow]
and the issuer.”).
93
Id. at 23:1–7.
15
Miller informed Deutsche that he would reduce Nuveen’s TOB business by
$300 million with further reductions to come as a result of Deutsche’s business
relationship with Preston Hollow.94 To date, Nuveen has reduced the amount of its
TOB financing with Deutsche by $1 billion, from $1.9 billion to $900 million. 95
Nuveen represented it reduced its TOB financing for business reasons related to
counterparty risk.96 An additional motive in reducing its TOB financing with
Deutsche was ultimately to cut off Preston Hollow’s access to financing in general.97
Deutsche has not withdrawn financing from Preston Hollow.98 Deutsche affirmed
its intent to continue to provide financing and has renewed all relevant financing
contracts.99
94
Id. at 23:24–26:3; Sorensen Dep. at 284:5–285:12.
95
Trial Tr. 227:15–20 (Hlavin).
96
Id. at 225:18–228:7 (Hlavin). In simplified form, Nuveen argued that because Deutsche mixed
bonds from various high-yield investors in its TOB trusts, Preston Hollow’s higher risk bonds
damaged the overall performance of the TOB trust, thereby necessitating Nuveen’s withdrawal.
Id.
97
See JX 310R, at 11:5–12:20 (Miller stating to Deutsche representative, “who else are they going
to get financing from when Wells Fargo, Goldman, JPMorgan, BAML, and Citi have . . . agreed
to . . . not do this business anymore? I don’t know where they’re going to get the financing from.”),
17:13–16 (Miller stating, “[b]ut where are they getting the money to do the predatory lending? I
think you’re – I think you’re far and away number one”), 21:9–13 (Miller stating, “some of these
dirty deals are going to become less financeable, in my opinion. That’s my effort. That’s my goal,
one of my goals, just so you know.”); see also Van Den Handel Dep. at 44:1–48:20, 72:9–73:11
(Van Den Handel testifying that Miller was “clearly saying that those firms listed will not provide
financing, and the implication is that . . . there isn’t a significant player out there who can do it in
their absence.”).
98
Trial Tr. 355:14–24 (Van Den Handel).
99
Id. at 356:12–357:3 (Van Den Handel); JX 509, at 1–2.
16
2. BAML
BAML served as underwriter for Preston Hollow’s Howard Center
transaction, which closed on November 28, 2018.100 On December 20, Davern
called BAML and placed it in the box for its role as underwriter in the Howard
Center transaction.101 Miller later told Davern that if BAML was financing Preston
Hollow, he would not “even speak for BAML for 2019 for BBB and below” (i.e.
high-yield bonds).102 That same day, Miller also spoke on the phone with another
BAML representative.103 On that call, Miller shared “research” regarding Preston
Hollow and asked that BAML not conduct 100% placements without making the
deals publicly available.104
The following day, BAML conducted internal discussions, and it agreed that
going forward it would not participate in 100% placements without a public
100
See JX 224.
101
JX 299R, at 4:13–22 (Davern stating in phone conversation, “BAML . . . is in the box effective
today as a result of a deal”); JX 310R, at 5:1–7 (Miller stating in phone conversation, “we stopped
doing business with [BAML] temporarily”); see also JX 271R, at 2:8–16; Davern Dep. at 270:14–
24; Chang Dep. at 57:13–58:24. Both BAML representatives later testified not recalling if they
were “in the box,” but contemporaneous email correspondence from the BAML representative to
Miller on December 20, 2018 stated that Davern “made it very clear we are in the ‘box’ with you
guys.” JX 308, at 1.
102
Trial Tr. 374:14–375:14 (Davern).
103
JX 308, at 1; Jentis Dep. at 62:15–63:2.
104
Jentis Dep. at 68:17–70:3; Miller Dep. at 277:8–278:19.
17
offering.105 A BAML representative communicated the new policy to Miller.106
Though this new policy was purportedly a general response to the market, the
Howard Center transaction served at the impetus.107 However, it also appears that
Preston Hollow sought to replace BAML as underwriter for a follow-on transaction
due to issues with the BAML representative on the previous Howard Center
transaction.108 BAML has not engaged in any 100% placements with Preston
Hollow since its role in the Howard Center transaction.109
3. Goldman
Prior to December 2018, Preston Hollow had never completed a 100%
placement with Goldman.110 However, the two parties had a business relationship:
Goldman had expressed interest in serving as underwriter to the Howard Center
transaction before it was awarded to BAML, and as of late 2018, Goldman was in
discussion with Preston Hollow regarding twelve potential transactions.111 The
record does not reflect the stage of each of these potential transactions, though at
105
Jentis Dep. at 70:11–74:15, 79:2–10, 83:22–84:24.
106
Id. at 83:22–84:10.
107
Id. at 83:22–84:17 (Jentis testifying, “the Howard [Center] deal was the example, the impetus
for [the change in policy]”).
108
See JX 484, at 2.
109
Jentis Dep. at 93:22–94:12.
110
Trial Tr. 470:11–16 (Weiner).
111
Id. at 477:9–23 (Scruggs), 20:1–18 (Thompson), 94:22–96:6 (Albarran), 422:8–18 (Weiner);
Scruggs Dep. at 54:12–58:21.
18
least some of them were still in early, speculative form.112 Goldman generally
considered Preston Hollow a potential partner and a “portion of [its] continued
business plan.”113
On December 21, Miller called his contact at Goldman.114 After discussing
Preston Hollow’s growth as a company, Miller said that “to be a partner with Nuveen
. . . you can’t do any of this private bullshit business with Preston Hollow.”115 He
also stated that Goldman would “have to choose who [it does] business with.
Because I don’t want to do business with those firms that do business with Preston
Hollow.”116 At trial, Miller testified this was “a very blustery introduction . . . to get
his attention.”117 He also testified that referencing Preston Hollow was only “a
shortcut” to discuss 100% placements.118 Miller represented to Goldman that he had
“five dealers so far” in agreement not to do business with Preston Hollow, and that
E.g. Scruggs Dep. at 28:21–29:6 (Scruggs testifying, “[t]here is no transaction at this time . . .
112
LAX doesn’t even know if they have a project yet.”).
113
Id. at 64:20–25 (Scruggs testifying, “[w]e are actively engaged with [Preston Hollow] on
multiple potential projects and they represent a portion of our continued business plan.”).
114
JX 267R.
115
Id. at 6:13–7:2.
116
Id. at 22:9–18.
117
Trial Tr. 247:17–248:3 (Miller).
118
Id. at 248:4–12 (Miller).
19
he would be attempting to get more.119 Again, at trial, Miller testified regarding this
purported agreement that he was “exaggerating a little . . . to get a reaction.”120
In addition, Miller told Goldman that Preston Hollow lied to issuers.121 He
told Goldman that issuers fell for Preston Hollow’s “predatory practices” after
hearing its “predatory sales pitch.”122 He also stated that “issuers are being told
things that are not true,” and that Preston Hollow would “rush the issuer into” unfair
or suspect transactions.123 He proffered that he had “a lot of evidence” to support
the allegations.124 Attempting to put some of this evidence forward, Miller told
Goldman that multiple states’ attorneys general had contacted Preston Hollow over
“unethical practices,” sent it “nastygrams,” and told it, “[d]on’t come into my town
again.”125 Miller based this allegation on a letter from a single city attorney that
suggested one of Preston Hollow’s transactions might not meet state attorney general
119
JX 267R, at 33:23–34:3.
120
Trial Tr. 276:23–277:5 (Miller).
121
JX 267R, at 19:10–16 (Miller stating in phone conversation, “issuers are being told things that
are not true.”), 42:3–4 (Miller stating, “[w]hat did Preston Hollow tell that issuer? It wasn’t the
truth”); see also Trial Tr. 263:2–264:24 (Miller).
122
JX 267R, at 17:11–20, 31:21–32:22.
123
Id. at 44:2–12; 19:10–20:3.
124
Id. at 21:1–5.
125
Id. at 20:4–19.
20
requirements with regard to a bond issue.126 Miller testified the dissonance presented
by his allegation and his evidence was “a little bit of a shortcut.”127
Following this call, an internal email circulated at Goldman discussing the
phone conversation and noting Miller’s message that “he is going around to all the
major dealers who cover him and let them know that if they do business with Preston
Hollow then Nuveen will not do business with them.”128 Goldman representatives
met with Miller on January 22, 2019.129 At that meeting, Miller reiterated Nuveen’s
position that if Goldman did business with Preston Hollow, Nuveen would not do
business with Goldman.130
Beginning in late January, following the meeting with Miller, Goldman began
to develop internal “boundaries”—a “matrix”—to evaluate whether to underwrite
100% placements.131 Goldman’s representative testified that the discussions with
Miller prompted the creation of this matrix.132 The “matrix” remains under
126
Trial Tr. 270:1–14 (Miller).
127
Id. at 270:20–22 (Miller).
128
JX 293, at 2.
129
Scruggs Dep. at 81:21–23.
130
Trial Tr. 480:23–481:11 (Scruggs); Scruggs Dep. at 85:4–15.
131
Scruggs Dep. at 41:16–45:23.
132
Trial Tr. 485:20–486:44 (Scruggs) (Scruggs testifying, “Nuveen’s threat or comment or call,
whichever you’d like to refer them, absolutely spurred us to look at these types of transactions and
to put together potential boundaries under which we would be comfortable moving forward with
the whole general category of limited public offering single purchaser transactions”).
21
review.133 In the meantime, Goldman has declined to move forward with any of the
twelve transactions in discussion as of December 2018 and is not currently in
discussion about any future deals.134 Despite its previously expressed interest,
Goldman also declined to serve as an underwriter for Preston Hollow’s 2019 follow-
up transaction with Howard University (the “Howard Quad” transaction), citing
concerns with the timeline and difficulty “in terms of filling out the matrix” it had
developed internally to evaluate 100% placements.135
4. JPMorgan
Prior to December 2018, JPMorgan had not completed any 100% placements
with Preston Hollow.136 The two parties, however, had a developing business
relationship: internal communications suggest JPMorgan intended to develop
business with Preston Hollow.137 On or around November 20, 2018, JPMorgan sent
a request to be considered to finance the upcoming Howard Quad transaction.138
On or around December 20, Miller called his contact at JPMorgan.139 Miller
discussed Nuveen’s disapproval of broker-dealers engaging in 100% placements, in
133
Id. at 481:12–19, 485:16–486:4 (Scruggs); Scruggs Dep. at 35:4–14; 102:13–104:3, 105:5–11.
134
Trial Tr. 483:6–16 (Scruggs), 98:8–11 (Albarran).
135
Scruggs Dep. at 101:2–101:10; Trial Tr. 482:5–19 (Scruggs).
136
Trial Tr. 471:23–472:5 (Weiner).
137
JX 180, at 1.
138
JX 217, at 1.
139
O’Loughlin Dep. at 36:9–14.
22
particular the Roosevelt University transaction.140 Miller then inquired about
JPMorgan’s process for evaluating and engaging in transactions.141 When Preston
Hollow contacted JPMorgan in February 2019 to move forward with the Howard
Quad transaction, JPMorgan declined to serve as underwriter, despite its prior
solicitation.142 It cited concerns with adequate time to secure internal approvals and
potential interference with Howard University’s existing relationship with BAML,
who financed the Howard Center transaction.143 Preston Hollow inquired about a
reasonable length of time that would permit the needed approvals, but JPMorgan
declined to offer a specific timeline.144
5. KeyBanc
Prior to December 2018, KeyBanc had completed four 100% placements with
Preston Hollow.145 In April 2018, Davern called KeyBanc and placed it in the box—
effectively ceasing to do any business with it—for a recent 100% placement with
Preston Hollow.146 Also as a response to KeyBanc’s work with Preston Hollow,
140
Id. at 36:21–39:4.
141
Id. at 38:19–39:4.
142
JX 484, at 1–2.
143
Id. It appears that Preston Hollow sought to replace BAML as underwriter due to issues with
the BAML representative on the previous Howard Center transaction. See id. at 2.
144
Id. at 1–2; Trial Tr. 419:10–422:7 (Weiner).
145
See Weiner Dep. at 90:18–25, 105:6–15, 106:11–18; Levin Dep. at 161:23–162:5.
146
Moriarty Dep. at 40:4–19; JX 123, at 1 (KeyBank Representative stating in internal email that
Davern called, and that “Nuveen will not do any more municipal business with [KeyBanc] . . . this
call is a direct response to the 125mm El Centro deal that we placed privately last week. John
23
Nuveen withdrew a purchase order on an $85 million issuance for which KeyBanc
was acting as underwriter.147 KeyBanc made a commitment in the summer of 2018
to show Nuveen every deal, and after that commitment Nuveen and KeyBanc
resumed business.148
KeyBanc continues to underwrite 100% placements that Preston Hollow
originates, but it has not originated any 100% placements for Preston Hollow.149 In
addition, to stay out of the box, all 100% placements are initially shown to
Nuveen.150
6. Mesirow
Prior to December 2018, Mesirow had not completed any 100% placement
deals with Preston Hollow; however, as of December, the parties were working
together on six 100% placements.151 Five of these deals, referred to as the “Hutto
dirt deals,” were to take place in Texas.152
Miller who runs the department has determined that they will not do any business with us at all,
until at least late August. And they will only resume activity once they have been assured we will
no longer place deals privately.”).
147
JX 123; Moriarty Dep. at 55:13–56:11.
148
Moriarty Dep. at 56:18–59:6.
149
Trial Tr. 425:8–21, 443:11–16 (Weiner); Czajkowski Dep. at 41:2–42:25, 64:10–65:24, 71:2–
73:25.
150
Trial Tr. 443:11–16 (Weiner); Moriarty Dep. at 58:7–25.
151
Trial Tr. 20:19–21:5 (Thompson), 418:17–419:9, 424:21–425:7 (Weiner).
152
Id. at 20:19–21:5 (Thompson).
24
There is no direct evidence of a communication between Nuveen and
Mesirow, but Miller told Deutsche that he had Mesirow “onboard with our . . .
procedures on . . . a going forward basis.”153 Additionally, Hlavin informed
Deutsche that Nuveen was responsible for blocking the “five dirt deals out of
Texas.”154 This matches testimony from Preston Hollow that one week before the
first of the Hutto deals was set to close, Mesirow “threw up some issues they knew
would not be acceptable” related to credit committee approval, and as a result
Preston Hollow terminated Mesirow’s role in the transaction.155 Preston Hollow did
not close any of the six transactions underway in December 2018 with Mesirow, and
Mesirow has not brought any transactions to Preston Hollow since.156 Preston
Hollow, however, has since closed or is moving toward closing the same deals with
other partners.157
153
JX 310R, at 7:12–16.
154
JX 393R, at 2:14–3:6. At trial, Hlavin testified that “[a]t the time that I made that call . . . I
think I was referring to Wells Fargo.” Trial Tr. 189:5–10 (Hlavin). I find it more likely, given
that Mesirow was involved in five “Hutto dirt deals” in Texas with Preston Hollow, and that Wells
Fargo had no similar transactions pending, that Hlavin was referring to communications with
Mesirow, and that he either blocked or attempted to block those transactions.
155
Trial Tr. 445:13–23 (Weiner).
156
Id. at 424:21–425:7, 418:17–419:9 (Weiner), 20:19–21:5 (Thompson).
157
Id. at 449:2–11 (Weiner); Albarran Dep. at 93:19–97:9. Albarran testified he did not believe
the changes in partnering the Hutto deals resulted in any changes in the deal terms. Albarran Dep.
at 101:8–13.
25
7. Morgan
During 2017 and 2018, Morgan conducted two 100% placements with Preston
Hollow.158 On December 20, Davern made three phone calls to Morgan
representatives.159 Davern told them that Morgan was in the box for its work on a
100% placement with Preston Hollow, and that Nuveen would not do business with
Morgan if it continued to do 100% placements with Preston Hollow.160 Davern
informed Morgan that Miller was “building a book of dealers” that would not engage
in Preston Hollow’s private financing deals, and that if Morgan was “going to do
that kind of business, we will not be doing business with you.”161 Davern added that
Miller was “infuriated by Preston Hollow’s way of doing business,” and that Preston
Hollow were “bad people.”162 Davern noted that Nuveen would make the
requirement “uniform across the street,” first because “muni debt . . . is being
removed from [Nuveen’s] ability to buy it,” and also because Nuveen believed 100%
placements were “not right for the municipal bond business in general.”163
158
Trial Tr. 419:1–3 (Weiner); JX 388, at 1–2.
159
JX 271; JX 277; JX 299.
160
JX 299R, at 4:4–5:24 (Davern stating in phone call, “you’re in the box right now if you list out
every single deal you have done with Preston Hollow. We will not do high-yield business with
MorganStanley. This is how serious this is.”); see also Costello Dep. at 39:3–41:24, 45:6–47:9.
161
JX 277R, at 2:19–3:11, 4:21–5:6.
162
Id.
163
JX 299R, at 10:20–11:11 (Davern stating in phone call, “[i]t’s going to be uniform across the
street.”), 6:20–24 (“[Preston Hollow is] going and sourcing muni debt that is being removed from
our ability to buy it and your bankers are saying, yes, let’s do it. . .”); JX 277R, 2:19–3:5.
26
According to Davern, other broker-dealers—specifically BAML and Citibank—had
already been put “in the box” or “straightened out” for participating in 100%
placements with Preston Hollow.164 Further communications between Nuveen and
Morgan during late December 2018 and January 2019 cleared the air, and the two
parties resumed ordinary business after the holidays.165
In late December 2018, Morgan and Preston Hollow were working toward the
close of an issuance dubbed the “Rixey deal.”166 Although Preston Hollow testified
that Morgan “kicked [them] out of the Rixey deal,” it appears that the issuer
terminated Preston Hollow for issues specific to the transaction and unrelated to
Nuveen.167 Morgan has not engaged with Preston Hollow in any 100% placements
since.168
8. RBC
In 2017, RBC conducted approximately $14.5 million worth of 100%
placements with Preston Hollow.169 In 2018, that number declined to $127,971.170
On January 9 and 11, 2019, Davern and Miller conducted two phone calls with a
164
JX 299R, at 4:13–22, 10:20–11:11.
165
Haskel Dep. at 83:8–21, 108:8–114:14.
166
Id. at 50:3–22.
167
Trial Tr. 422:19–24 (Weiner); Haskel Dep. at 56:8–20, 107:11–108:7.
168
Haskell Dep. at 166:5–12; Trial Tr. 422:19–24 (Weiner).
169
JX 740, at 1.
170
Id.
27
representative at RBC.171 Davern informed RBC of Nuveen’s new policy “about
how [the major broker-dealers] have to stop doing this business” and indicated that
Nuveen had “turned around” dealers who did 100% placements previously but
“would never do it again.”172 The RBC representative stated that he had fought
against 100% placements for three years, provided information on deals between
Preston Hollow and other broker-dealers, including Stifel, and after the phone calls
in January continued to provide information on Preston Hollow deals.173 Since
January 2019, RBC has continued to do business with Preston Hollow, including
working on a 100% placement.174
9. Stifel
Prior to December 2018, Stifel had completed several 100% placement deals
with Preston Hollow, including deals that Stifel originated.175 In October 2018,
Davern met with Stifel representatives and indicated that Nuveen would consider
curtailing business if Stifel failed to show it every transaction.176 Late in 2018, Stifel
171
JX 383R; JX 396R.
172
JX 396R, at 2:4–12; 5:13–20.
173
JX 383R, at 28:24–31:6; see also JX 450; JX 452.
174
Trial Tr. 437:15–438:12 (Weiner); Hummel Dep. at 608:12–15. The parties disagree on the
nature and quality of the recent 100% transaction. Preston Hollow contends that while it is a 100%
placement, it is “not a real deal” because it was only given to them after being shown to “every
single [investor].” Trial Tr. 437:15–438:12 (Weiner).
175
E.g. Challis Dep. at 127:18–128:3.
176
Davern Dep. at 192:10–22, 193:13–18; see also JX 198.
28
began to enforce an informal preexisting policy not to originate 100% placements.177
In February, Stifel explained this policy to Preston Hollow.178 The evidence
suggests that the choice to enforce this policy was due, at least in part, to pressure
from Nuveen: the head of Stifel’s municipal securities group testified that “since
John Miller yelled” at him, Stifel had not “given any exclusive on deals we
control.”179 In 2019, Stifel has not offered 100% placements to Preston Hollow, but
it has completed 100% placements that Preston Hollow originates.180
10. Wells Fargo
Prior to December 2018, Wells Fargo had completed one 100% placement
with Preston Hollow, the Roosevelt University transaction.181 Internal emails
suggest Wells Fargo foresaw backlash from Nuveen over the deal.182 After the deal
closed in October 2018, Nuveen put Wells Fargo in the box for failing to offer the
177
Czajkowski Dep. at 15:22–17:2, 17:16–18:11.
178
Id. at 73:2–25.
179
JX 430; Czajkowski Dep. at 64:10–65:24.
180
Trial Tr. 441:3–442:10 (Weiner); see also JX 429 (Stifel representative noting, “I don’t think
[anyone] will [be] able [to] block Preston from getting deals where they have done both sides…
they will find dealers to execute that trade.”).
181
Trial Tr. 392:16–19 (Davern); see also JX 974.
182
See JX 184, at 1 (Wells Fargo stating in internal email, “[t]his would be considered salt in the
wound from a Nuveen perspective . . . Lesson learned is there are relationship costs to having an
exclusive with one buyer. Smaller transactions it is more understandable but larger ones need a
wider audience for a variety of reasons.”).
29
issuance on the public market.183 Miller testified that Nuveen “stopped doing
business with Wells Fargo for about six weeks” and that Wells Fargo “removed their
head of public finance . . . responsible for . . . that deal.”184 Miller met with Wells
Fargo in January, 2019, and at that time Wells Fargo agreed it would change its
process so that Nuveen saw every deal, at which time business between Nuveen and
Wells Fargo resumed.185 Wells Fargo continues to do 100% placements with Preston
Hollow.186
D. Preston Hollow’s Response
On January 15, 2019, Preston Hollow sent Nuveen a cease-and-desist letter.187
The letter demanded that Nuveen stop its allegedly unlawful and tortious
communication, conduct an internal investigation, share the findings with Preston
Hollow, remediate the alleged harm, and adopt new supervisory procedures.188 On
February 22, 2019, just over a month later, Nuveen’s General Counsel sent a letter
(the “Response Letter”) to each of the legal departments at the firms Preston Hollow
183
Trial Tr. 152:9–153:5 (Hlavin), 283:12–19 (Miller); JX 310R, at 4:15–7:16; Davern Dep. at
204:21–209:15; Markeiwicz Dep. at 82:8–21. Miller described Wells Fargo’s box as “kind of a
minor softer version” of the box. Miller Dep. at 287:22–288:7.
184
Trial Tr. 285:17–23 (Miller); JX 310R, at 4:15–22. Miller testified at his deposition, however,
that business with Wells Fargo was merely “diminished” and that Nuveen “continued to do
business with [Wells Fargo] as a whole.” Miller Dep. at 162:17–163:2.
185
Miller Dep. at 173:18–174:12; Markiewicz Dep. at 110:17–114:11.
186
Albarran Dep. at 60:17–61:10; JX 740, at 1, 4, 15, 26; Weiner Dep. at 147:18–148:12.
187
PTO, ¶ 29.
188
Id.
30
identified as having received threats from Miller and his team.189 The Response
Letter read, in pertinent part:
Nuveen does not and will not seek any agreement or commitment from
your firm concerning the counterparties it does business with. We fully
acknowledge your firm is free to conduct its trading business in a
manner and with firms and counterparties of your choosing . . . With
respect to [Preston Hollow] specifically, and for the avoidance of doubt,
Nuveen seeks no agreement or commitment from your firm regarding
[Preston Hollow] . . . of course, Nuveen reserves the right to conduct
its trading business with firms within its lawful discretion and to hold
and express its views and judgments in pursuing its investment advisory
and trading activities.190
Nuveen’s Head of Fixed Income and Equities, Bill Huffman, testified that he
instructed the Nuveen team to “stop any activities that they were doing and to stop
talking about Preston Hollow.”191
E. Procedural Posture
Preston Hollow filed suit on February 28, 2019.192 The Complaint pled four
counts: (1) tortious interference with contract; (2) tortious interference with
prospective business relations; (3) violation of New York State’s Donnelly Antitrust
Act; and (4) defamation.193 Preston Hollow seeks permanent injunctive relief—it
189
Id. ¶ 30.
190
Id.
191
Trial Tr. 579:4–8 (Huffman).
192
Verified Compl. for Inj. Relief, Docket Item (“D.I.”) 1 (“Compl.”).
193
Id.
31
does not seek damages.194 Along with its Complaint, Preston Hollow also filed a
Motion for Preliminary Injunction and a Motion to Expedite.195 I granted the Motion
to Expedite and denied preliminary injunctive relief on March 14, 2019.196
On May 14, 2019, I granted the Defendants’ Motion to Dismiss Count I for
tortious interference with contract.197 At that time, I directed the parties to proceed
to trial in July on the request for permanent injunctive relief, and trial on Counts II
and III was held on July 29–30, 2019. On August 13, 2019, I issued an Opinion
granting the Defendants’ Motion to Dismiss Count IV for defamation.198 On
September 16, 2019, I heard post-trial argument. I suspended consideration of the
remaining issues on December 13, 2019, to allow the parties to discuss settlement at
my recommendation.199 When the parties informed me on January 8, 2020 that these
negotiations had ultimately failed, I considered the matter fully submitted. This
194
PTO, ¶¶ 14–15.
195
Pl. Mot. to Expedite, D.I. 3; Pl.’s Mot. for Preliminary Inj., D.I. 4.
196
Tr. of the Telephonic Oral Argument of Pl.’s Mot. to Expedite and Ruling of the Court, D.I.
73.
197
Telephonic Partial Rulings of the Court on Defs.’ Mot. to Dismiss, D.I. 192.
198
Preston Hollow Capital LLC v. Nuveen LLC, 216 A.3d 1 (Del. Ch. 2019). On October 11,
2019, I approved Plaintiff’s election to transfer the defamation count to the Complex Commercial
Litigation Division in the Delaware Superior Court. Order Granting Pl.’s Election to Transfer
Proceedings, D.I. 399.
199
Dec. 13, 2019 - Telephonic Rulings of the Court on Defs.’ Mot. to Reopen and Supplement the
Trial Record, D.I. 411.
32
post-trial Memorandum Opinion concerns Count II for tortious interference with
business relations and Count III for violations of New York’s Donnelly Act.
II. ANALYSIS
A. Nuveen is Liable for Tortious Interference with Business Relations
Under Delaware law, the elements of tortious interference with business
relations are: (1) reasonable probability of business opportunity; (2) intentional
interference by defendant with that business opportunity; (3) proximate causation;
and (4) damages.200 The tort is unusual, in that its application, even if these elements
are met, is circumscribed by consideration of competing rights. Thus, the elements
of the tort must be considered in light of a defendant’s privilege to compete in a
lawful manner.201 The tort may implicate free speech rights as well; that is to say, a
person may be permitted to air a grievance or state an opinion, which may have the
effect of harming another’s business relationship, but which does not amount to
tortious interference.202 Tortious interference with a business relationship, I note,
does not require an existing contract between the parties.203
200
Agilent Techs., Inc. v. Kirkland, 2009 WL 119865, at *5 (Del. Ch. Jan. 20, 2009) (citing
DeBonaventura v. Nationwide Mut. Ins. Co., 419 A.2d 942, 947 (Del. Ch. 1980)); Beard Research,
Inc. v. Kates, 8 A.3d 573, 608 (Del. Ch. 2010), aff’d sub nom. ASDI, Inc. v. Beard Research, Inc.,
11 A.3d 749 (Del. 2010).
201
Agilent, 2009 WL 119865, *5; Beard, 8 A.3d at 608.
202
Bove v. Goldenberg, 2007 WL 446014, at *4 (Del. Super. Feb. 7, 2007).
203
Id.33
1. Preston Hollow Had a Reasonable Probability of Business
Opportunity
A reasonable probability of a business opportunity requires showing
“something more than a mere hope or the innate optimism of the salesman” or “mere
perception of a prospective business relationship.”204 Our courts reject “vague
statements about unknown customers,”205 allegations of “a nebulous,
unascertainable class of business relationships,” or speculative prospects.206 Instead,
to succeed, Preston Hollow must show a “bona fide expectancy” of opportunity.207
Meeting this standard requires Preston Hollow to “identify a specific party who was
prepared to enter into a business relationship but was dissuaded from doing so by
the defendant.”208
In determining whether a business opportunity constitutes a bona fide
expectancy, this Court makes a factual inquiry into the reasonableness of the
expectation. On the one hand, in Dionisi v. DeCampli,209 the Court found the
204
Agilent, 2009 WL 119865, at *7.
205
Id.206
Organovo Holdings, Inc. v. Dimitrov, 162 A.3d 102, 122 (Del. Ch. 2017) (internal citations
omitted). For example, in the case Nuveen cites, the Superior Court rejected business expectancy
because the plaintiff’s hopes were contingent upon one of its business partner’s new business
models succeeding. Kable Products Services, Inc. v. TNG GP, 2017 WL 2558270, at *10 (Del.
Super. June 13, 2017). Such a tenuous expectancy was too speculative. Id.207
Kable Prods., 2017 WL 2558270, at *10 n.84.
208
Organovo, 162 A.3d at 122 (internal quotations omitted) (citing Agilent, 2009 WL 119865, at
*7).
209
1995 WL 398536 (Del. Ch. June 28, 1995).
34
business relationship too informal and inconsistent to create a “realistic” expectancy
of future contractual relations.210 In that case, the highly-discretionary, one-off
nature of the business the plaintiff (a small, independent graphic designer) had
received in the past from its client (a corporate giant) failed to form a bona fide
expectancy.211 On the other hand, in Beard Research Inc. v. Kates,212 long-standing
customer relationships were found to give the plaintiff a “reasonable probability of
obtaining repeat business,” even without contemplating specific transactions.213 The
customers’ satisfaction and consistency, combined with the plaintiff’s unique
position in the market, meant it “reasonably could have expected its one-off and
catalog customers to continue using its services.”214 In sum, whether a business
opportunity creates a bona fide expectancy is a factual inquiry evaluating the
reasonableness of the expectation.
I find that Preston Hollow had a reasonable expectation of business
opportunity with Deutsche as well as with each of the broker-dealers discussed
above with the exceptions of BAML and RBC. First, concerning Deutsche, Preston
210
Id. at *13 (finding plaintiff “failed to prove [it] had either an actual contractual relationship
entitling [it] to additional work with its clients or a realistic expectancy that its clients would hire
[it] again.”).
211
Id.
212
8 A.3d 573 (Del. Ch. 2010), aff'd 11 A.3d 749 (Del. 2010).
213
Id. at 611.
214
Id.
35
Hollow had a formalized relationship that included contractual renewals of its TOB
financing, creating a reasonable expectancy.215 Second, Preston Hollow had
transactions in the works with several broker-dealers at the time of Nuveen’s actions.
Its relationship with Goldman, while not formalized, involved twelve identified
potential transactions, Goldman’s interest in the Howard Quad transaction, and its
confirmation that Preston Hollow was a part of its business plan.216 Discussing a
dozen potential transactions with a named business partner, in this context, creates a
business expectancy. Preston Hollow also had named transactions underway with
Mesirow and Morgan.217 Third, Preston Hollow received interest and entered into
discussions with Goldman and JPMorgan regarding the possibility of underwriting
the Howard Quad transaction.218 These discussions and inquiries for an
215
JX 509, at 1–2; Trial Tr. 430:10–13 (Weiner), 356:12–257:3 (Van Den Handel).
216
Trial Tr. 477:9–23 (Scruggs) (Goldman representative testifying, “Q: And was [Goldman]
interested at that time in potentially serving as the underwriter for the Howard Center Transaction?
A: [Y]es, we were”), 20:1–18 (Thompson) (Preston Hollow testifying, “In December [2018] we
were working on, give or take, a dozen things in various stages of development.”), 422:8–18
(Weiner), 94:22–95:10 (Albarran) (Preston Hollow testifying, “[Goldman] was also introducing
us to the investment bankers that . . . [they] thought would have clients that would need the type
of investments and services that we could provide”); Scruggs Dep. at 64:20–25 (Goldman
representative testifying, “[w]e are actively engaged with [Preston Hollow] on multiple potential
projects and they represent a portion of our continued business plan.”). Nuveen argues that these
transactions with Goldman should be excluded for untimely disclosure. I do not find that Nuveen
was prejudiced. The deals were discussed by Goldman’s representative at his deposition, and
Preston Hollow did not fail to allege business relations with Goldman.
217
Trial Tr. 20:19–21:5 (Thompson), 418:17–419:9, 424:21–425:7 (Weiner); Haskel Dep. at 50:3–
22.
218
JX 217, at 1; JX 224; Scruggs Dep. at 101:2–10; Trial Tr. 482:5–19 (Scruggs).
36
underwriting contract are not too speculative to support a reasonable expectation of
future business.
Regarding the remaining five broker-dealers for whom no specific
transactions were identified—BAML, KeyBanc, RBC, Stifel, and Wells Fargo—
Nuveen contends the lack of named deals translates to a lack of business expectancy.
I disagree in part. Preston Hollow had completed several 100% placement deals in
the past with both KeyBanc and Stifel, making these two broker-dealers its most
frequent partners for this type of transaction.219 Similarly, Wells Fargo served as
underwriter for the Roosevelt University transaction. All three continue to do 100%
placements that Preston Hollow originates.220 The strength and consistency of these
relationships creates a reasonable expectation in this case.
By contrast, Preston Hollow’s history with BAML and RBC does not evince
the same type of relationship. Business relations with RBC appeared to be in
decline.221 Following the single 100% placement completed with BAML—the
Howard Center transaction—Preston Hollow attempted to switch underwriters for
219
See Weiner Dep. at 90:18–25, 105:6–15, 106:11–18; Levin Dep. at 161:23–162:5; Challis Dep.
at 127:18–128:3.
220
Trial Tr. 425:8–21, 441:3–442:10, 443:11–16 (Weiner); Czajkowski Dep. at 41:2–42:25,
64:10–65:24, 71:2–73:25; JX 430; JX 421.
221
See JX 740, at 1.
37
the follow-on Howard Quad transaction.222 These declining or one-off relationships
do not show a reasonable expectation of business opportunity. In sum, I find that
Preston Hollow had a business expectancy with regard to Deutsche and each of the
broker-dealers except for BAML and RBC.
2. Nuveen Intentionally Interfered with Preston Hollow’s Business
Opportunities
The second prong of the tort asks whether Nuveen intentionally interfered
with Preston Hollow’s business expectations.223 Nuveen argues that there is no
intentional interference because Nuveen was targeting the 100% placement model,
which it considers harmful, and not Preston Hollow.224 Nuveen called Deutsche and
Morgan on December 20, 2018 and Goldman on December 21, 2018.225 Its
employees testified at trial that their intention on these phone calls was merely to
curtail a harmful trend in the industry. According to their testimony, referencing
“Preston Hollow” was not intended to identify that entity in particular. Instead, it
was only a “shortcut” for talking about 100% placements, and the phone calls had
See JX 484, at 2 (Preston Hollow stating in email to JPMorgan, “[f]rankly, the BAML banker
222
was a difficult person and we are suggesting a change”).
223
Nuveen, along with some Delaware case law, elides the second prong of the tort with the
privilege to compete and deals with the propriety of the interference at this stage. See, e.g. Kable
Prod. Servs., Inc. v. TNG GP, 2017 WL 2558270, at *11 (Del. Super. June 13, 2017); Agilent
Techs., Inc. v. Kirkland, 2009 WL 119865, at *8 (Del. Ch. Jan. 20, 2009). For clarity’s sake, I
deal with the wrongfulness aspects separately below.
224
E.g. Trial Tr. 184:23–185:6 (Hlavin), 248:4–12 (Miller).
225
PTO, ¶¶ 20–27.
38
little or nothing to do with Preston Hollow beyond the fact that it performed this type
of transaction.226 I found this testimony both self-serving and disingenuous. I find
that the Nuveen personnel meant what they said. These communications evidence
a common theme: Nuveen called broker-dealers and told them to stop doing business
with Preston Hollow or face consequences—including being put “in the box” and
losing their business with Nuveen. This activity, which Preston Hollow aptly
characterizes as a campaign, demonstrates an intent to interfere.
Not all of Nuveen’s efforts were memorialized in recordings. Miller called
JPMorgan around December 20, 2018 and met with Wells Fargo in January 2019.
Davern called KeyBanc in April 2018 and met with Stifel in October 2018.227 Hlavin
contacted Mesirow prior to its closing the Hutto transactions.228 While these
communications were not recorded, the evidence leads me to believe they were part
of the same pattern of conduct intended to end these broker-dealers’ relationships
with Preston Hollow. Nuveen itself corroborates this conclusion: it told Deutsche
that it was “going to every single bank and broker-dealer” and that “the policy going
forward is that . . . if you are actively doing business with [Preston Hollow], Nuveen
226
Davern testified that she “said ‘Preston Hollow,’ but it could have been BlackRock or Vanguard
or anyone else.” Trial Tr. 360:5–8 (Davern). Likewise, Miller and Hlavin both testified that
“Preston Hollow” was a shortcut for “one-hundred percent placements.” Trial Tr. 184:23–185:6
(Hlavin), 248:4–12 (Miller).
227
PTO, ¶ 20; Moriarty Dep. at 40:4–19.
228
See JX 393R, at 2:17–4:7.
39
will not be doing business with you.”229 Miller named some of these broker-dealers
specifically, claiming he had a “firm commitment” from JPMorgan and Wells Fargo
(the two broker-dealers he contacted in December 2018 and January 2019) not to do
business with Preston Hollow.230 Davern told Morgan that Nuveen was “building a
book of dealers” that would refuse to do business with Preston Hollow.231 After
hearing Nuveen’s testimony, I can conclude that the meetings and phone calls that
went unrecorded were cut from the same cloth and demonstrate a specific intent to
disrupt the relationships between broker-dealers and Preston Hollow. Therefore, I
find intentional interference with relation to Deutsche and all remaining broker-
dealers.
3. Nuveen’s Interference Proximately Caused Preston Hollow Harm
“In Delaware, proximate cause is that direct cause without which the incident
would not have happened.”232 In disputing causation, Nuveen points out that the
broker-dealers offer explanations for their increasing distance from Preston Hollow.
These explanations may be true, but they do not rebut causation because Nuveen
229
JX 263R, at 24:21–25:2.
230
JX 310R, at 4:15–5:7.
231
JX 277, at 2:19–3:11, 4:21–5:6.
232
Beard Research, Inc. v. Kates, 8 A.3d 573, 609 (Del. Ch. 2010), aff’d sub nom. ASDI, Inc. v.
Beard Research, Inc., 11 A.3d 749 (Del. 2010).
40
motivated these changes in policy and business behavior. I find causation exists for
Goldman, JPMorgan, KeyBanc, Mesirow, Stifel, and Wells Fargo.
Goldman was in discussions regarding twelve deals with Preston Hollow.233
After phone calls from Nuveen, internal reviews of “boundaries” and “matrixes”
arose, and business with Preston Hollow evaporated.234 Goldman’s deal “matrix”
may be genuine; the point is that Nuveen motivated its creation.235 The story repeats
with JPMorgan. In November 2018, JPMorgan inquired about underwriting the
Howard Quad transaction.236 Then, just before Christmas, it had discussions with
Miller about 100% placements, and soon after, an internal approval process arose
that kept it from engaging in the deal for which it had recently asked to be
considered.237 Similarly, with KeyBanc, Davern called in April 2018 and put it “in
the box” and withdrew business as a result of its involvement with Preston
Hollow.238 Afterward, it committed to show Nuveen every deal and stopped
originating 100% placements for Preston Hollow.239 Mesirow was working with
233
Trial Tr. 477:9–23 (Scruggs), 20:1–18 (Thompson), 94:22–96:6 (Albarran), 422:8–18
(Weiner); Scruggs Dep. at 55:25–58:21.
234
Scruggs Dep. at 41:16–45:23.
235
Trial Tr. 485:14–24 (Scruggs).
236
JX 217, at 1.
237
O’Loughlin Dep. at 36:9–14; JX 484, at 1–2. JPMorgan also cited concerns of interfering with
its relationship with BAML. JX 484, at 1–2.
238
Moriarty Dep. at 40:4–19; JX 123.
239
Moriarty Dep. at 56:18–59:6.
41
Preston Hollow on the five Hutto transactions, but at the last minute, Mesirow
introduced terms that got it fired from the first of the Hutto deals, and it has not
completed any since.240 Hlavin told Deutsche he “blocked” the “fire dirt deals” out
of Texas, which matches the Hutto transactions.241 Davern met with Stifel
representatives in October 2018 and Miller also contacted them, after which Stifel
enforced a policy under which it stopped originating 100% placements for Preston
Hollow.242 After a fallout from the Roosevelt deal, Miller met with Wells Fargo in
January 2019, and it agreed not to commit to 100% placements without showing
Nuveen the deals first.243
These interferences tell a repeated story: Nuveen went to the broker-dealers
and gave them a clear message, and in response the broker-dealers took actions that
curtailed the business expectancies of Preston Hollow. The record shows that when
broker-dealers introduced or began enforcing pre-existing policies effectively
prohibiting the origination of 100% placements, these policies and their enforcement
were in response to Nuveen’s threats.
240
Trial Tr. 445:13–23, 424:21–425:7, 418:17–419:9 (Weiner), 20:19–21:5 (Thompson).
241
JX 393R, at 2:14–3:6.
242
Davern Dep. at 192:10–22, 193:13–18; Czajkowski Dep. at 64:10–65:24; JX 430.
243
Miller Dep. at 173:18–174:12; Markiewicz Dep. at 110:17–114:11.
42
By contrast, I find no causation regarding Deutsche or Morgan. Deutsche did
not reduce its business with Preston Hollow.244 While Preston Hollow contends that
Nuveen’s threat is ongoing, I see no indication that Deutsche is merely performing
under the Court’s scrutiny.245 The record demonstrates a firm dedication by
Deutsche to continue working with Preston Hollow.246 Regarding Morgan, it
appears that the Rixey transaction failed to go forward for reasons specific to Preston
Hollow and unrelated to Nuveen.247
4. Preston Hollow has Demonstrated Harm
I am left to evaluate harm on the following business expectancies: Goldman,
JPMorgan, KeyBanc, Mesirow, Stifel, and Wells Fargo. I find resulting damage to
all six business relations.
Goldman and JPMorgan were potential underwriters for the Howard Quad
transaction, but they withdrew. Nuveen argues this did not cause harm because
Preston Hollow closed the deal with another underwriter, Loop Capital, without
changing any terms. Preston Hollow, in turn, argues that the use of a non-bulge
bracket underwriter (i.e. not among the top echelon) hurts its ability to move the
244
Trial Tr. 355:14–24 (Van Den Handel).
245
Id. at 356:12–257:3 (Van Den Handel); JX 509, at 1–2.
246
Because I find no causation or damages regarding Deutsche, I do not address Nuveen’s
argument regarding its concern over TOB counterparty risk described in its briefing.
247
See Haskel Dep. at 56:8–20, 107:11–108:7.
43
bonds in the secondary market.248 A top-tier underwriter gives its stamp of approval
to a transaction by underwriting the deal, which can enhance the marketability of the
bonds.249 Obtaining the desired terms, therefore, while being shut out from selecting
previously interested bulge-bracket underwriters demonstrates harm resulted from
the interference.250
Further, Preston Hollow was developing a book of business with Goldman but
is now shut out. The deals were in varying nascent stages, but it demonstrates harm
because it prevented Preston Hollow’s developing any of these potential projects
with one of the most important broker-dealers in the field. Regarding KeyBanc and
Stifel, Preston Hollow suffered harm because both these broker-dealers ceased to
originate 100% placements. Both continue to do business with Preston Hollow—
248
Trial Tr. 117:19–118:9, 131:16–132:14 (Albarran), 474:21–475:18 (Weiner).
249
Id. at 51:12–53:12 (Metzold) (testifying that “when you have a top-tier underwriter’s name on
the documents, it’s sort of that good housekeeping seal of approval . . . it makes [the bond] a lot
easier to sell, certainly in the primary market, and very much so in the secondary market, because
people assume that the necessary diligence has been performed.”).
250
Nuveen filed a pre-trial Motion in Limine that sought to exclude, among many other things,
Metzold’s testimony on this subject of harm based on preclusion from top-tier underwriters,
claiming that it represented a new theory of harm not outlined in his expert report. After reviewing
the evidence, the expert report, and the trial testimony, I do not find that Metzold’s testimony
regarding this issue should be excluded or that it presented a “new theory” of harm such that the
evidence prejudiced Nuveen. In Metzold’s expert report, he stated, “I believe that Nuveen’s
actions will significantly harm Preston Hollow. Without the flow of deals and liquidity financing
from the largest dealers, Preston Hollow’s business would decline and suffer dramatically.” Defs.’
Mot. In Limine to Exclude Certain Expert Testimony of Thomas Metzold, D.I. 318, Ex. A, Expert
Report of Thomas Metzold (“Metzold Report”), at 15. At his deposition, Metzold expanded on
this harm, explaining the value of top-tier underwriters, i.e. the “largest dealers.” Metzold Dep. at
188:25–192:2. He testified to this same issue at trial, offering Nuveen the chance to cross-examine
him on this aspect of his opinion regarding harm to Preston Hollow.
44
including 100% placements—but Preston Hollow’s relationship has been harmed
because it no longer receives 100% placements brought to the table by these two
broker-dealers. Regarding Mesirow, Preston Hollow found other underwriters and
has closed some of the Hutto deals, while others remain underway.251 Nonetheless,
I find harm because Preston Hollow was forced to fire Mesirow as an underwriter
and seek an alternative at the last minute, which delayed the transactions. Finally,
Wells Fargo continues to do business with Preston Hollow, but after the Roosevelt
Transaction, it will only conduct 100% placements following a “first look” by
Nuveen. This practice harms Preston Hollow because it prevents access to the
exclusivity that makes 100% placements valuable to its business model.
5. Nuveen’s Actions do not Fall in the Business Competition
Exception
As noted above, claims for tortious interference with business relations must
be examined in light of the privilege to compete in a lawful manner.252 Delaware
follows the Restatement (Second) of Torts (the “Restatement”) regarding the
privilege to compete. To excuse liability, § 768 of the Restatement requires that:
(a) the relation concerns a matter involved in the competition between
the actor and the other and (b) the actor does not employ wrongful
251
See Albarran 30(b)(6) Dep. 94:11–97:9; 101:8–13; Trial Tr. 449:2–250:1 (Weiner); see also JX
938.
252
Agilent Techs., Inc. v. Kirkland, 2009 WL 119865, at *5 (Del. Ch. Jan. 20, 2009) (citing
DeBonaventura v. Nationwide Mut. Ins. Co., 419 A.2d 942, 947 (Del. Ch. 1980)); Beard Research,
Inc. v. Kates, 8 A.3d 573, 608 (Del. Ch. 2010), aff’d sub nom. ASDI, Inc. v. Beard Research, Inc.,
11 A.3d 749 (Del. 2010).
45
means and (c) his action does not create or continue an unlawful
restraint of trade and (d) his purpose is at least in part to advance his
interest in competing with the other.253
Before I excuse Nuveen under this analysis, I must find that all four factors are met.
I focus on the second requirement, the employment of wrongful means. Because I
find that Nuveen employed wrongful means in competing with Preston Hollow, I do
not address the other elements.
A finding of wrongfulness, in turn, must be based on a seven-part test outlined
in § 767 of the Restatement. This balancing tests asks me to weigh (1) the nature of
Nuveen’s conduct, (2) Nuveen’s motive, (3) Preston Hollow’s interests with which
Nuveen interfered, (4) the interests Nuveen sought to advance, (5) social interests in
protecting freedom of action versus contractual interests, (6) proximity of Nuveen’s
conduct to the interference, and (7) the relationship between Nuveen and Preston
Hollow.254 The chief factor in this analysis is the nature of the actor’s conduct
because this cuts to the heart of whether wrongful means were employed.255 Section
767 lists several wrongful means, of which I find two obtain: misrepresentation and
economic pressure.
253
Restatement (Second) of Torts (1979) (“Restatement”), § 768.
254
Id. § 767.
255
Id. § 767 cmt. c. (“The nature of the actor’s conduct is a chief factor in determining whether
the conduct is improper or not”).
46
a. Nuveen’s Misrepresentations to Goldman
According to the Restatement, “[f]raudulent misrepresentations . . . make an
interference improper.”256 To prove fraudulent intent, “a misrepresentation must be
made either knowingly, intentionally, or with reckless indifference to the truth.”257
Nuveen’s phone calls with Deutsche, Goldman, Morgan, and RBC were recorded,
but of these third-parties, I have found tortious interference only with relation to
Goldman, and so I consider only the statements made to Goldman.
Some of Nuveen’s statements, such as stating that Preston Hollow had
“predatory” lending practices and sales pitches, may or may not be opinions. I need
not resolve this issue. Nuveen told Goldman that Preston Hollow lied to issuers, and
it promised it had evidence to support this allegation when it had only rumors from
the trading desk.258 This amounts to a reckless indifference to the truth. Similarly,
allegations that Preston Hollow’s “unethical practices” had “caught the attention of
the states’ attorney generals” who sent “nastygrams,” was a misrepresentation of the
“evidence” Miller actually possessed: a single letter from a single city attorney.259
Miller’s testimony that this lie was “a little bit of a shortcut” does not keep it from
256
Id.
257
Metro Comm’n Corp. BVI v. Advanced Mobilecomm Tech., 854 A.2d 121, 143 (Del. Ch. 2004).
258
JX 267R, at 19:10–16, 42:3–4; Trial Tr. 263:2–266:16 (Miller).
259
Trial Tr. 270:1–272:14 (Miller).
47
constituting a knowing misrepresentation intended to interfere with Preston
Hollow’s business.
b. Nuveen’s Improper Economic Pressure
A party loses its privilege to compete if it exerts improper economic
pressure.260 The commentary on § 767 of the Restatement makes it clear that the
propriety of economic pressure is a contextual inquiry: there is no “crystallized set
of definite rules,” and the “decision therefore depends upon a judgment and choice
of values in each situation.”261 Determining whether economic pressure is improper
requires examining
the circumstances in which it is exerted, the object sought to be
accomplished by the actor, the degree of coercion involved, the extent
of the harm that it threatens, the effect upon the neutral parties drawn
into the situation, the effects upon competition, and the general
reasonableness and appropriateness of this pressure as a means of
accomplishing the actor’s objective.262
260
Nuveen argues that for economic pressure to be wrongful, it must be “extreme,” but this is not
the standard either in the Restatement or in Delaware law. The case Nuveen cites analyzes tortious
interference with prospective business advantage under New York law. Raytheon Co. v. BAE Sys.
Tech. Solutions & Servs. Inc., 2017 WL 5075376, at *13 (Del. Super. Oct. 30, 2017) (“New York
allows a party to demonstrate ‘unlawful means’ through an independent tort, or extreme and unfair
economic pressure.”). Nuveen also cites § 766B of the Restatement, but this section does not
impose a requirement that economic pressure be “extreme.” See Restatement, § 766B.
261
Restatement, § 767 cmt. b. (“[T]his branch of tort law has not developed a crystallized set of
definite rules as to the existence or non-existence of a privilege to act . . . The issue in each case is
whether the interference is improper or not under the circumstances; whether, upon a consideration
of the relative significance of the factors involved, the conduct should be permitted without
liability, despite its effect of harm to another. The decision therefore depends upon a judgment
and choice of values in each situation.”).
262
Id. § 767 cmt. c.
48
Expanding further on the analysis, § 768, comment e of the Restatement permits a
defendant to “exert limited economic pressure.”263 As long as a party avoids an
illegal restraint on trade, “he may refuse to deal with the third persons in the business
in which he competes with the competitor if they deal with the competitor” and “he
may refuse other business transactions with the third person relating to that
business.”264 While such limited choice-of-business-partner pressure is acceptable
competition, Delaware law also recognizes that when a defendant intends the
interference to drive a competitor out of business and “shut its doors,” this
constitutes wrongful means, and the conduct is not privileged.265
I find that Nuveen exerted improper economic pressure on Preston Hollow.
In this instance, it is proper to look at the entire picture to understand the economic
pressure applied. In other words, each of Nuveen’s interactions with broker-dealers
may or may not have risen, individually, to wrongful means, but under the
Restatement, I consider the context as a whole to determine the propriety of
Nuveen’s pressure.266 100% placements comprise the majority of Preston Hollow’s
263
Id. § 768 cmt. e.
264
Id.
265
See Beard Research, Inc. v. Kates, 8 A.3d 573, 611–12 (Del. Ch. 2010), aff’d sub nom. ASDI,
Inc. v. Beard Research, Inc., 11 A.3d 749 (Del. 2010).
266
Restatement, § 767 cmt. b. (“The issue in each case is whether the interference is improper or
not under the circumstances; whether, upon a consideration of the relative significance of the
factors involved, the conduct should be permitted without liability, despite its effect of harm to
another. The decision therefore depends upon a judgment and choice of values in each situation.”).
49
business.267 Davern informed Morgan that Nuveen was attempting to make the
prohibition on 100% placements “uniform across [Wall Street].”268 Miller informed
Deutsche and Goldman that he had agreements with many of the major broker-
dealers not only to cease 100% placements, but to cut off Preston Hollow entirely,
and that he was seeking more of these agreements.269 Nuveen made it clear that
there would be punitive measures absent capitulation: Davern told Morgan and RBC
that Nuveen had “straightened out” or “turned around” noncompliant broker-
dealers.270 Further, the record shows that part of Miller’s aim was to cut off Preston
Hollow’s financing.271 The record, taken as a whole, shows consistent, systematic
efforts by Nuveen to shut down Preston Hollow’s ability to continue to do business.
Again, communications with each of the individual broker-dealers may evince
limited—that is, non-tortious—economic pressure; the choice to refrain from
267
Trial Tr. 28:2–22 (Thompson) (testifying that Preston Hollow does “[m]ostly primary” bond
issuances and only “[o]ccasionally” purchases something less than 100% of the issuance), 439:20–
440:12 (Weiner) (testifying that “100 percent placement transactions . . . is almost all of our
business.”).
268
JX 299R, at 10:20–11:11.
269
JX 310R, at 4:15–5:7; JX 267R, at 33:23–34:3.
270
JX 299R, at 4:13–22, 10:20–11:11; JX 396R, at 2:4–12; 5:13–20.
271
See JX 310R, at 11:5–12:20 (Miller stating in phone call, “who else are they going to get
financing from when Wells Fargo, Goldman, JPMorgan, BAML, and Citi have . . . agreed to – to
not do this business anymore? I don’t know where they’re going to get the financing from.”),
17:13–16 (“But where are they getting the money to do the predatory lending? I think you’re – I
think you’re far and away number one”), 21:9–13 (“some of these dirty deals are going to become
less financeable, in my opinion. That’s my effort. That’s my goal, one of my goals, just so you
know.”); see also Van Den Handel Dep. 43:15–47:4, 72:9-73:11.
50
business with a third-party who conducts business with a competitor. The facts
revealed in litigation, however, show that as Preston Hollow was becoming a
contender in the high-yield municipal bond market, Nuveen, the self-styled “largest
high-yield [municipal] fund in the world,”272 sought an industry-wide agreement not
to conduct business with Preston Hollow. Although part of Nuveen’s motive was
its interest in “seeing all the deals,” its behavior shows that its object was also an
attack directed at Preston Hollow’s ability to operate. The evidence demonstrated
an aggressive and widely dispersed campaign to use almost any pressure necessary
to cut off a competitor from its chief source of business as well as its financing. I
find that Nuveen was not simply attempting to achieve a competitive edge; it meant
to use the leverage resulting from its size in the market to destroy Preston Hollow.
Considering the context as a whole, as the Restatement urges, I find that Nuveen
exerted improper economic pressure on Preston Hollow, and so its actions regarding
Goldman, JPMorgan, KeyBanc, Mesirow, Stifel, and Wells Fargo were not
privileged by its right to lawfully compete. Therefore, Nuveen is liable for tortious
interference with business relations.
272
Trial Tr. 237:7–9 (Miller); JX 263, at 17:24–18:1.
51
B. New York State’s Donnelly Act
In its third count, Preston Hollow claims Nuveen violated New York State’s
Donnelly Act of 1899 (the “Donnelly Act”).273 Preston Hollow argues that Nuveen
organized a boycott among broker-dealers (many of whom are based in New York)
that constitutes an illegal restraint on trade in that state. After review of the
applicable statutes and case law, I decline to rule on this count, as I believe it would
constitute an imprudent determination of New York law when it is unclear whether
New York law would permit Preston Hollow’s claim seeking injunctive relief.
The law on the availability of injunctive relief to private parties under the
Donnelly Act is limited and conflicted.274 At least one New York decision found
such private party relief unavailable under the Donnelly Act.275 On its face, the
statute permits only the attorney general to seek injunctive relief.276 Preston Hollow
argues that this is largely irrelevant because “[t]he Donnelly Act was modelled on
the Federal Sherman Act of 1890,” and therefore it should “generally be construed
273
N.Y. Gen. Bus. Law §§ 340–47.
274
Compare Peekskill Theater v. Advance Theatrical Co. of N.Y., 206 A.D. 138 (N.Y. App. Div.
1923) (New York appellate court granting injunction to private litigant without analyzing the
permissibility under the statute) with Blumenthal v. Am. Soc’y of Travel Agents, Inc., 1977 WL
18392, at *4 (N.Y. Sup. Ct. July 5, 1977) (New York trial court analyzing the statute and denying
injunctive relief to private litigant without addressing Peekskill precedent).
275
Blumenthal, 1977 WL 18392, at *4.
276
N.Y. Gen. Bus. Law § 342 (“The attorney-general may bring an action in the name and in behalf
of the people of the state against any [party] to restrain and prevent the doing in this state of any
act herein declared to be illegal.”).
52
in light of Federal precedent and given a different interpretation only where State
policy, differences in the statutory language or the legislative history justify such a
result.”277 However, this argument is undermined by a close look at the statutory
background, starting with the Sherman Act of 1890.278 Under the Sherman Act,
equitable relief was only available to the United States Attorney General.279 In 1914,
Congress added the Clayton Act,280 expressly extending equitable relief under the
Sherman Act to private parties.281 The Donnelly Act is modeled after the Sherman
Act, but it has not been supplemented with an analogous Clayton Act. Therefore,
“differences in the statutory language or the legislative history” suggest I ought not
bypass the conflicting New York law to follow federal precedent.
277
People v. Rattenni, 81 N.Y.2d 166, 171 (N.Y. 1993); see also Anheuser-Busch, Inc. v. Abrams,
71 N.Y.2d 327, 334 (N.Y. 1988).
278
15 U.S.C. §§ 1–11.
279
15 U.S.C. § 4 (“[I]t shall be the duty of the several United States attorneys, in their respective
districts, under the direction of the Attorney General, to institute proceedings in equity to prevent
and restrain such violations.”).
280
15 U.S.C. §§ 12–27.
281
15 U.S.C. § 26 (“Any person, firm, corporation, or association shall be entitled to sue for and
have injunctive relief, in any court of the United States having jurisdiction over the parties, against
threatened loss or damage by a violation of the antitrust laws . . .”). Federal case law appears to
corroborate that injunctive relief became a private remedy after the addition of the Clayton Act.
Compare State of Minnesota v. N. Sec. Co., 194 U.S. 48, 71 (1904) (“taking all the sections of [the
Sherman Act] together, we think that its intention was to limit direct proceedings in equity . . . to
those instituted in the name of the United States, under the 4th section of the act, by district
attorneys of the United States, acting under the direction of the Attorney General”) with Wilk v.
Am. Med. Ass’n, 895 F.2d 352, 355 (7th Cir. 1990) (noting that defendant was liable under § 1 of
the Sherman Act and equitable relief was granted under § 26 of the Clayton Act).
53
Delaware has a policy against innovating in sister-states’ laws.282 Here,
granting injunctive relief would determine an ambiguous question of New York law.
It would therefore be imprudent under principles of comity to rule on the injunctive
relief sought under the Donnelly Act. “If litigants want innovative common law,
they should address their claims to the courts of the state whose law applies.”283
Declining to make a determination on this count moots the issue of Nuveen’s
liability under the Donnelly Act for the purposes of this litigation. Therefore, I need
not address the substantial issue of whether, in light of the interstate nature of both
Nuveen’s and Preston Hollow’s business, federal law would preclude application of
the Donnelly Act here.284
C. Preston Hollow is not Entitled to Permanent Injunctive Relief
Nuveen has committed a tort; the usual remedy for loss caused by tort is
money damages. Such damages would be available here, had Preston Hollow sought
to demonstrate them. It is quite true that in any case of interference with a business
relationship, damages may be difficult to calculate with certainty. It is equally true
282
See RBC Capital Markets, LLC v. Educ. Loan Tr. IV, 2011 WL 6152282, at *6 n.43 (Del. Ch.
Dec. 6, 2011) (citing Viking Pump, Inc. v. Century Indem. Co., 2009 WL 3297559, at *25 n.144
(Del. Ch. Oct. 14, 2009)).
283
Id.284
Assuming the Donnelly Act did apply, I note that numerous factual issues, not analyzed here,
regarding formation of alleged agreements between the broker-dealers and Nuveen to boycott
Preston Hollow, as well as the broker-dealers’ oversight of one another in furtherance of the
alleged boycott, would need to be addressed.
54
that Preston Hollow bears the burden to demonstrate damages; had it sought
damages and utterly failed to prove them, it would have failed in an element of the
tort, and would be without a remedy.285 Nonetheless, it is also true that the burden
of proof to create a record on which a court may establish a damage calculation is
not high, and is less than for the substantive elements of the tort.286 Even based on
the record here—created in light of Preston Hollow’s decision to eschew damages—
it seems quite likely the Plaintiff could have created a sufficient ground for a non-
speculative damages metric.
However, Preston Hollow expressly does not seek damages for its claim of
tortious interference; instead, it seeks only equitable relief.287 It asks this Court to
(1) permanently enjoin Nuveen from repeating its tortious behavior, (2) force
Nuveen to disavow and repudiate its tortious behavior “and to take all other actions
necessary to restore [Preston Hollow]’s right to freely and fairly compete,” and (3)
direct Nuveen to adopt internal supervisory procedures and policies to prevent future
repetition of the tort.288
285
See Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2020 WL 948513(Del. Ch. Feb. 27, 2020) at *17–20 (finding lack of proof of damages prevents recovery).
286
Id. at *20 (finding that the “quantum of proof required to establish the amount of damage is not
as great as that required to establish the fact of damage.” (quoting Total Care Physicians, P.A. v.
O’Hara, 2003 WL 21733023, at *3 (Del. Super. July 10, 2003))); see also Medicalgorithmics S.A.
v. AMI Monitoring, Inc., 2016 WL 4401038, at *26 (Del. Ch. Aug. 18, 2016); Beard Research,
Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010).
287
Pl. Written Closing Argument, D.I. 372 (“Pl.’s Post-Trial Br.”), at 24.
288
Id. at 62.
55
Equitable relief for tortious behavior is an extraordinary remedy. It is
commonly available, however, to prevent ongoing wrong in the context of the
interference torts.289 “The elements for permanent injunctive relief are: (1) actual
success on the merits; (2) irreparable harm will be suffered if injunctive relief is not
granted; and (3) the harm that will result from a failure to enjoin the actions that
threaten plaintiff outweighs the harm that will befall the defendant if an injunction
is granted.”290 In determining that Nuveen is liable for tortious interference with
business relations, the “merits prong” of the test is met, for the reasons expressed
above.
Permanent injunctive relief is usually applied to prevent an ongoing harm; an
encroachment on real property, for instance.291 It is but sparingly applied in the case
of a past wrong which a plaintiff apprehends may be repeated.292 I start with the
289
See Organovo Holdings, Inc. v. Dimitrov, 162 A.3d 102, 122 (Del. Ch. 2017) (“[I]injunctive
relief is a common and non-controversial remedy for tortious interference with prospective
economic advantage.” (citing Copi of Del., Inc. v. Kelly, 1996 WL 633302, at *4–5 (Del. Ch. Oct.
25, 1996); Bowl–Mor Co. v. Brunswick Corp., 297 A.2d 61, 62 (Del. Ch. 1972) aff’d, 297 A.2d 67(Del. 1972))).
290
Sierra Club v. DNREC, 2006 WL 1716913, at *3 (Del. Ch. June 19, 2006), aff’d sub nom.
Sierra Club v. Delaware Dep't of Nat. Res. & Envtl. Control, 919 A.2d 547 (Del. 2007).
291
E.g. Smith v. Stanphyle Corp., 1978 WL 22013, at *1 (Del. Ch. Dec. 13, 1978) (granting
permanent injunctive relief to enjoin trespass); Hammond v. Dutton, 1978 WL 22451, at *3 (Del.
Ch. Dec. 20, 1978) (granting permanent injunctive relief to enjoin trucking operation that
constituted private nuisance); Plantation Park Ass’n, Inc. v. George, 2007 WL 316391, at *5 (Del.
Ch. Jan. 25, 2007) (granting permanent injunctive relief to prohibit defendant’s covenant-violative
trailer).
292
See State ex rel. Brady v. Pettinaro Enters., 870 A.2d 513, 536 (Del. Ch. 2005) (denying
injunction “on the basis of unsubstantiated fear that a legal duty may be breached in an uncertain
future.”); Young v. Red Clay Consol. Sch. Dist., 159 A.3d 713, 780 (Del. Ch. 2017) (“A permanent
56
proposition that equity does not presume future intentional wrongdoing.293 I
presume that Preston Hollow suffered irreparable harm as a result of Nuveen’s
tortious behavior. Nonetheless, before receiving injunctive relief here, it must
demonstrate that it faces a likelihood that Nuveen will repeat its tortious behavior.
In light of the facts of record, I find that unlikely. First, I note, upon receiving
Preston Hollow’s demand that it desist in its disparaging and threatening behavior,
Nuveen notified those with whom it had thus communicated as follows:
Nuveen does not and will not seek any agreement or commitment from
your firm concerning the counterparties it does business with. We fully
acknowledge your firm is free to conduct its trading business in a
manner and with firms and counterparties of your choosing . . . With
respect to [Preston Hollow] specifically, and for the avoidance of doubt,
Nuveen seeks no agreement or commitment from your firm regarding
[Preston Hollow] . . . of course, Nuveen reserves the right to conduct
its trading business with firms within its lawful discretion and to hold
and express its views and judgments in pursuing its investment advisory
and trading activities.294
Preston Hollow notes, correctly, that Nuveen retains the right to pursue its own
interests, and it reads this as a veiled threat. But even under the relief Preston Hollow
injunction against future conduct is not warranted simply because a court has found past conduct
illegal.”).
293
Organovo, 162 A.3d at 114 (citing Young v. Red Clay Consol. Sch. Dist., 2017 WL 2271390,
at *53 (Del. Ch. May 24, 2017); Christiana Town Ctr., LLC v. New Castle Ctr., 2003 WL
21314499, at *3 (Del. Ch. June 6, 2003) (“[T]he court must presume that [parties] will respect any
decision rendered by any competent court of this State.”); Reeder v. Del. Dep’t of Ins., 2006 WL
510067, at *16 (Del. Ch. Feb. 24, 2006) (“There is no justification on this record for an injunction
requiring the [defendant] to do what it must do in any event—comply with applicable statutory
constraints on its behavior.”)).
294
PTO, ¶ 30.
57
seeks, Nuveen must also be able to pursue its business interests, to the extent it does
not do so tortiously.
Next, I note, Nuveen is not pursuing an ongoing campaign of threats or
falsehood, and Preston Hollow does not argue that during the course of this litigation
Nuveen has committed further wrongs. Nuveen executive Huffman has directed
Nuveen personnel to cease disparaging Preston Hollow going forward.295
Furthermore, in light of this decision, it would be exceedingly unwise for Nuveen to
mount a similar campaign of malicious behavior. Third, the negative relief Preston
Hollow seeks—ordering Nuveen to commit bad acts no more (that is, to speak badly
of Preston Hollow only where true) would be unusually difficult for the Court to
oversee. Finally, both that relief and the positive relief Preston Hollow seeks—
forcing Nuveen to write a letter to its contacts that its past behavior was tortious, and
promising not to do it again—raise First Amendment issues; and with respect to a
mea culpa letter, it would add little, I suspect, to the conclusions in this
Memorandum Opinion, which, of course, Preston Hollow may circulate as it sees
fit.
In order to receive the injunctive relief it seeks, Preston Hollow must show a
likelihood of harm absent relief. In other words, it is insufficient to show past harm;
for the relief it seeks, Preston Hollow must show that without the injunction, it is
295
Trial Tr. 579:4–8 (Huffman).
58
likely to suffer harm that the injunction could prevent.296 I find that Preston Hollow
has failed to carry this burden.
It is canonical that equity will not fail to supply a remedy to a wrong.297 Here,
the remedy available was damages.298 Those, the Plaintiff elected to forgo. If the
wrongdoing were ongoing, I would not hesitate to act. Here, however, the Plaintiff
has shown only past tortious behavior; it has not shown a likelihood of future harm
absent injunctive relief. Accordingly, its request for a permanent injunction is
denied.
III. CONCLUSION
For the foregoing reasons, I find Nuveen committed the tort alleged in Count
II, tortious interference with business relations. I decline to rule on Count III,
violation of New York State’s Donnelly Act. The Plaintiff has failed to demonstrate
entitlement to an injunction. The Parties should supply an appropriate form of order.
296
See, e.g. McMahon v. New Castle Assocs., 532 A.2d 601, 606 (Del. Ch. 1987) (requiring that
facts show “a reasonable apprehension of a future wrong” to grant injunction because defendants
cannot simply “be enjoined from breaching such duty again.”).
297
See Weinberger v. UOP, Inc., 1985 WL 11546, at *9 (Del. Ch. Jan. 30, 1985), aff’d, 497 A.2d
792 (Del. 1985) (TABLE) (“[E]quity will not suffer a wrong without remedy.”)
298
Preston Hollow sought relief for defamation based on Nuveen’s behavior at issue here. I found
such relief unavailable in equity. Preston Hollow Capital LLC v. Nuveen LLC, 216 A.3d 1 (Del.
Ch. 2019). Preston Hollow received leave to pursue this action in Superior Court; damages, if
appropriate, are available there.
59