A Complete View of the Cathedral: Claims of Tortious Interference and the Specific Performance Remedy in Mergers and Acquisitions Litigation

A bank promises to lend several billion dollars to fund a buyer’s purchase of a target company. The buyer enters into a merger agreement with the target. Thereafter, the economy plummets, and the bank decides that breaching its contract with the buyer will cost less than performing. The buyer seeks specific performance. The target also sues the bank, alleging tortious interference with the merger agreement. Billions of dollars are on the line. This is the reality lived by many investment banks that committed to fund leveraged buyouts during the recent economic downturn. Most of these matters were resolved in private settlements to avoid the possibility of crippling tort liability and publicly airing the messy details of the targets’ poor financial circumstances. The judicial decisions that do exist reveal a myopic view of the relationship between the buyer’s specific performance claim against the bank, on the one hand, and the target’s tort claim against the bank, on the other. By treating these claims as substantively distinct, courts threaten to impose an inefficient liability rule for the bank’s allegedly tortious conduct (including the possibility of punitive damages) and an equally inefficient property rule for the bank’s alleged breach of contract (specific performance). Courts must take a singular view of the combined costs and efficiencies created by the buyer’s and target’s individual claims to properly determine the appropriate remedy for the bank’s conduct.