According to Blawgletter one of those big deals that makes a whole bunch of rich people a whole lot more money just fell apart. Barry wonders if the buyers can pull out or not under the agreement upon a misrepresentation or breach of warranty resulting in a "Company Material Adverse Effect:"

Ready to put it all together?  Okay.  Here we go.

   1.      KKR and Goldman have the right to terminate the APM (upon payment of $225 million) if Harman misrepresented something or breached a warranty in the APM unless the misrepresentation or warranty breach would not have a CMAE.

   2.      A false rep or warranty doesn’t have a CMAE if it results (a) from a general industry downturn or problems in the credit or securities markets or (b) from a reaction to Harman’s failure to meet projections, except that the "underlying" reasons for the disappointing results may otherwise reflect a CMAE.

Who has to prove a CMAE?  We would imagine the burden rests on KKR and Goldman.  But can they simply point to a misrepresentation or breach of warranty and require Harman to show that it "would not . . . have a Company Material Adverse Effect"?  We don’t know offhand, but we do expect a fight over that very issue.

As a practical matter, KKR and Goldman probably should have the initial burden, since they’re the ones trying to exercise an escape clause to excuse continued performance.

But I’m not convinced! Though KKR and Goldman have the initial burden of proving the occurrence of a condition excusing performance (#1 of Randy’s list), the definition saying what isn’t a CMAE (#2) begins "provided, however," making it an exception to the definition of CMAE that precedes it.

The case also looks like a classic non-jury trial or litigation-as-prolonged-negotiation. A judge gets tremendous discretion in a non-jury trial to ask questions, ask for findings of fact afterwards, et cetera, which allows the judge to figure out what really happened and issue an opinion that goes into detail about the facts and the law, separating the two, streamlining appeal and reducing the odds of remand or reversal.

A jury gets a single blast of information where they can’t ask questions, after which they are locked in a room to decipher vague "instructions" before issuing an entirely opaque opinion that will inevitably result in some modification post-trial or remand on appeal.

The lawyers should consider all of the above before filing suit. Love lies bleeding in my hand…

UPDATE: Looks like Sallie Mae and J.C. Flowers are litigating the very issue.