News & Awards
Title Co. Investor Gets $10.9M For Failed Merger
August 16, 2022
By Josh Liberatore
Law360 (May 26, 2022, 4:07 PM EDT) — As Entitle Direct Group’s largest shareholder, Partner Reinsurance Co. is entitled to $10.9 million in damages from RPM Mortgage Inc. over a failed merger between the mortgage company and Entitle, with a New York federal judge finding that RPM breached its contract by refusing to close the deal.
Following a lengthy bench trial in December 2021, U.S. District Judge Paul A. Engelmayer said in a Wednesday opinion that RPM and its CEO, Robert Hirt, “knew and recklessly disregarded” that they were breaching a merger agreement with Entitle when they failed to show up to the deal’s closing in June 2017.
“RPM and Hirt fabricated bogus justifications for not closing in order to avoid an agreement they had come to regret,” the judge wrote.
In the order’s findings-of-fact section, Judge Engelmayer rejected RPM’s arguments that Entitle’s worsening financial condition after it signed the merger agreement gave RPM license to back out of the deal.
Going in, RPM “knew Entitle was in weak financial condition and factored that into its negotiating position,” the judge said, adding that the merger agreement specifically excluded Entitle’s failure to meet financial estimates or projections as a material adverse effect that would allow RPM to legally exit the deal.
PartnerRe sued RPM in July 2018, seeking to recover damages incurred after RPM backed out of a February 2017 merger agreement to buy Entitle, a title insurance company. Entitle was forced to make a less attractive deal with another company, PartnerRe alleged, which cost Entitle “significant additional expenses” on top of what it spent setting up the RPM deal.
RPM urged the court to dismiss PartnerRe’s suit, saying the reinsurance company was not party to the planned merger, so it had no right to bring claims and seek compensation for its alleged injuries.
Partner argued that it served as a stockholder representative for Entitle, making it party to the abandoned deal.
In June 2020, Judge Engelmayer ruled that as Entitle’s largest shareholder, PartnerRe suffered injury because of RPM backing out of the deal, giving it standing to sue the mortgage company. Entitle also assigned its claims to PartnerRe after the failed merger, the judge noted.
A bench trial went on for nearly two weeks in December, with closing arguments heard in January. Eleven witnesses testified, including Hirt and executives from RPM, Entitle and PartnerRe, according to court documents.
On Wednesday, Judge Engelmayer detailed what he called RPM and Hirt’s numerous “bogus and pretextual” justifications for trying to get out of a deal they “had come to regret.” Those included peppering Entitle with demands for additional, nonrequired financial documents and calling into question Entitle’s relationship with the Ohio Department of Insurance, which oversaw the approval of the merger. RPM also sought to add a third company to the deal at the last minute, according to Judge Engelmayer’s order.
Those actions, the judge said, are enough evidence that RPM refused to close with the “knowledge or reckless disregard” that it was committing a material breach of the merger agreement, which was required for PartnerRe to prove breach of contract.
Hirt was also “repeatedly and explicitly warned” by PartnerRe’s counsel that RPM would be in breach by failing to close the deal as planned in June 2017, Judge Engelmayer noted. RPM’s chief operating officer further warned Hirt that the company could be found in breach for failing to close, Judge Engelmayer added.
The judge awarded PartnerRe just under $10.9 million in damages. Entitle would have received around $5.9 million more in cash had its merger with RPM gone through, the judge said, while PartnerRe’s expert calculated that the company’s minority equity interest in Entitle following the merger would have been worth about $4.9 million.
However, Judge Engelmayer found there to be no alter ego liability on the part of Hirt, RPM’s former president Tracey Hirt and the Hirt family trust. That’s because RPM was not a “single economic entity” that acted as a facade for the Hirts, but a “legitimate mortgage lender” that lasted for 20 years, Judge Engelmayer said. RPM’s successor entity, LendUS LLC, is also legitimate, the judge added.
Counsel for PartnerRe told Law360 on Thursday they were pleased with Judge Engelmayer’s ruling.
“The court’s extremely thorough opinion has vindicated PartnerRe’s entitlement to the full damages it sought for RPM’s bad-faith refusal to close under the parties’ merger agreement,” said Amos Friedland of Roche Freedman LLP.
Counsel for and representatives of RPM/LendUS did not immediately respond to requests for comment Thursday.
PartnerRe is represented by Edward Normand, Amos Friedland, Nathan Holcomb, Jordana Haviv, Warren Li and Stephen Lagos of Roche Freedman LLP and by Rudolf Koch of Richards Layton & Finger PA.
RPM and LendUS are represented by Steven L. Caponi, Justin H. Roeber and Thomas A. Warns of K&L Gates LLP.
The case is Partner Reinsurance Co. Ltd. v. RPM Mortgage Inc. et al., case number 1:18-cv-05831, in the U.S. District Court for the Southern District of New York.
–Editing by Emma Brauer.