SS M&A Litigation Outlook - Flipbook - Page 28
ln re Nine West LBO Sec. Litig.,
No. 20 MD. 2941 (S.D.N.Y. Dec. 4, 2020)
Why it is important
In In re Nine West, the United States District Court
for the Southern District of New York addressed
motions to dismiss claims arising out of the 2014
leveraged buyout pursuant to which Sycamore
Partners Management LP (Sycamore) acquired The
Jones Group (Jones), which it rebranded as Nine
West. Nine West subsequently went bankrupt and
its litigation trustee asserted claims against former
directors and officers for breach of fiduciary duty,
aiding and abetting breach of fiduciary duty, unjust
enrichment, fraudulent transfer, and state law
claims premised on allegations that the Nine West
directors and officers failed to adequately investigate
and consider Jones’s post-sale solvency. Critically,
the court denied the directors’ motion to dismiss
the breach of fiduciary duty claims, finding that the
business judgment rule did not apply because they
“made no investigation whatsoever” into aspects
of the transaction that would impact Jones’s postsale solvency. In so holding, the court rejected the
directors’ argument that they could not be liable for
failing to consider the effect of post-sale transactions,
finding that the court may “collapse” the pre- and
post-sale aspects of the overall transaction, including
the incurrence of new debt or a spin-off of assets
post-closing, where the alleged harm of the post-sale
transactions was “foreseeable.” Although the Nine
West decision is not a final determination of liability,
it provides a stark warning to sell-side corporate
decision-makers to consider the buyer’s posttransaction financial viability before approving
a transaction.
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