Debevoise Prevails in $325 Million Win for D. E. Shaw and Madison Dearborn

28 December 2020

Debevoise & Plimpton LLP won over $325 million in damages last week on behalf of its clients D. E. Shaw Composite Holdings, L.L.C. (“D. E. Shaw”) and Madison Dearborn Partners IV, L.P. (“Madison Dearborn”) in their lawsuit against TerraForm Power, LLC and TerraForm Power, Inc. (“TerraForm”) for breach of contract arising from the plaintiffs’ 2014 sale of the renewable energy company First Wind Holdings to TerraForm and SunEdison Inc. Debevoise filed the suit in the Supreme Court of New York, Commercial Division and won summary judgment on December 22, in a decision by Justice Jennifer Schecter, requiring payment of the full contractual damages plus 9% pre-judgment interest, for a total damages award of approximately $325 million.

In its motion for summary judgment, the Debevoise team, led by partner Shannon Rose Selden, argued that TerraForm was directly liable to its clients, D. E. Shaw and Madison Dearborn, under the plain terms of the parties’ Purchase and Sale Agreement (PSA), which required TerraForm to pay an aggregate Accelerated Earnout Payment upon the bankruptcy of TerraForm’s affiliate, SunEdison Inc. Debevoise argued that the PSA explicitly imposed direct liability on TerraForm Power, LLC, and TerraForm Power, Inc. as its guarantor, and unambiguously specified – down to the penny – exactly how much TerraForm was required to pay following SunEdison’s bankruptcy. While defendants attempted to evade liability by arguing that the acceleration provision contained a mutual mistake, or was vague as to amount, Debevoise contended that it was “an unambiguous material term of a carefully structured $2.4 billion transaction, with obvious commercial sense” that “cannot be disregarded” and must be enforced as written.

In a comprehensive victory for the firm’s clients, Justice Schecter’s decision adopted Debevoise’s arguments in full and granted summary judgment on liability and damages. The Court denied TerraForm’s cross-motion and its affirmative defenses, holding “there is no record evidence from which a reasonable finder of fact could conclude that plaintiffs made a mistake in using the word Buyers in section 2.04(g)” and agreeing that plaintiffs’ damages were clearly calculable under the contract “down to the cent.”

The decision in this case carries significant implications for M&A agreements. Acceleration and earnout provisions – and accelerated earnout provisions – are an important tool in complex M&A transactions and can be a critical component of price negotiations. The Court’s two central conclusions – that the accelerated earnout provision of a highly structured agreement between sophisticated parties should be enforced as written (and in a commercially reasonable way), and that damages could be awarded as a matter of law based on a clear contractual formula – provide important guidance to transactional parties looking to use those tools in their deals.

The Debevoise team was led by partner Shannon Rose Selden, who leads the firm’s Asset Management Litigation practice, and by counsel Wendy Reilly, and includes associates Melanie Burke, Brandon Fetzer, Ryan Kocse, Matthew Sorensen, Austin Clarke, and Daniel Joiner.

A Debevoise team led by Ms. Selden also recently secured dismissal of claims against D. E. Shaw and Madison Dearborn brought in the S.D.N.Y. by the SunEdison litigation trustee challenging the exchangeable notes component of the same transaction.