A Manhattan federal judge has turned down Xerox Corp's application to dismiss a $US1 billion lawsuit filed by Fujifilm Holdings after the US company backed out of last year’s proposed $US6.1 billion merger deal. The judge described Xerox’s arguments as “plainly wrong” and “thoroughly unpersuasive.”
Xerox and Fujifilm agreed to the merger in January 2018 before the Xerox board reversed its decision after legal action by billionaire activist investors Carl Icahn and Darwin Deason, who said the deal undervalued the company.
In May 2018, Fujifilm sued Xerox for more than $1 billion over the termination of the agreement, accusing the US company of “intentional and egregious conduct.”
On Friday, a Manhattan federal judge rejected Xerox's request to dismiss the lawsuit, saying one of Xerox's arguments was “thoroughly unpersuasive” and another "flies in the face" of the terms of the agreement.
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| "The argument was plainly wrong”: U.S. District Judge John Koeltl |
“In clearing the way for discovery to proceed, U.S. District Judge John Koeltl said much of the case hinged on disputed facts, such as whether changes to the financial statements of the parties’ joint venture [Fuji Xerox] were material enough for Xerox to justify calling the deal off,” according to an exclusive report by Jack Newsham of US legal news website Law360.
“But he singled out Xerox’s argument that it was more convenient to litigate at the state courthouse next door as “thoroughly unpersuasive,” especially now that a state appellate court dismissed Fuji from that case and threw out the April 2018 decision that froze the merger.
“The judge delivered his decision orally after about an hour and a half of argument that opened with Xerox retreating from its argument that the dispute belonged before Justice Barry Ostrager at the state courthouse. ‘Clearly things have changed in the past few months,’ admitted Tariq Mundiya, a lawyer for Xerox.
“But Judge Koeltl wasn’t prepared to let Mundiya move on from his inconvenient forum argument so easily,” said the report. “Even before he took a break to finalize a written opinion that he read from the bench in which he ruled that Xerox’s forum argument “flies in the face” of a forum selection provision in its Fuji transaction documents, he interrupted Mundiya several times with tough critiques and pointed questions.
“It’s not so ‘hypertechnical’ to ask the parties to abide by the terms of their agreement,” he said, using a term from one of Xerox’s briefs. “The argument was plainly wrong. You’re not even prepared to defend it.”
The judge also found fault with Xerox’s argument that he could find the company was legally entitled to back out of the Fuji deal because Fuji didn’t provide a copy of their JV’s audited financial statements signed by the auditor by April 15, 2018.
Andrew Stern, a lawyer for Fujifilm, urged Judge Koeltl to let the company move forward with its action, saying Xerox backed out of the deal because it began serving its “new masters,” Icahn and Deason, instead of its investors.
“He ultimately prevailed, with the judge saying more facts were needed on the covenant claims and all the rest,” said the report.
Stern welcomed the decision. “We were very pleased that Judge Koeltl agreed with our position and rejected Xerox’s arguments and has allowed us to proceed to prove our claims," he told Law360.
Earlier this year, Fujifilm chairman and CEO Shigetaka Komori said the company’s alliance with Xerox would continue but admitted the takeover was now unlikely. "We have no intention of sweetening the financial terms of the January acquisition plan. A large majority of Fujifilm shareholders object to an additional contribution.”
