When Sidley Austin litigator Yolanda Cornejo Garcia ’99 took on a case for client Forterra Inc., there was a familiar name in the mix: Forterra’s General Counsel, Lori Browne ’99. “Lori and I began our legal journey together in the same section at Texas Law in Fall 1996,” Cornejo Garcia said. “And twenty years later, it was wonderful to have the opportunity to work together and achieve a fabulous outcome!” Browne concurred. “It is certainly gratifying to think how far we’ve come together from those early days. Yolanda’s team produced a tremendous result for us in a very challenging case.”
Yolanda Cornejo Garcia ’99, Lori Browne ’99
A tremendous result indeed, one which led American Lawyer to name Cornejo Garcia and her Sidley Austin colleague Angela Zambrano “Litigators of the Week” for the week of September 14.
The case concerned an “earnout” arbitration claim, and Forterra stood to lose $100M. The high-stakes dispute played out over Zoom, with an independent accounting arbitrator finding that there was no payout due.
“We often say relationships are the most important part of law school,” observed Dean Ward Farnsworth. “It’s heartwarming to see this principle illustrated so perfectly! From section-mates to collaborators on a $100M case, these two alumna make their school proud.”
Cornejo Garcia and Zambrano spoke about the case, its unique and challenging circumstances, and their remarkable win, with American Lawyer in connection with their “Litigators of the Week” recognition. We reprint a portion of that interview below; American Lawyer subscribers can find the full article here.
Litigators of the Week: With $100M on the Line in an ‘Earnout’ Arbitration, This Sidley Team Left Opponents With Zilch
Angela Zambrano and Yolanda Cornejo Garcia of Sidley Austin got about as definitive a defense win as possible.
By Ross Todd
Originally published on Law.com on September 18, 2020.
Lit Daily: Who was your client and what was at stake?
Zambrano: We represent a leading private equity fund, Lone Star Funds, and the company that it acquired that subsequently went public, Forterra, a leading manufacturer of pipe and precast products for use in water-related infrastructure, as well as other infrastructure products.
What was in dispute was whether any portion of the potential $100 million dollar earnout was due, on top of the $1.3 billion dollar purchase price, as part of the transaction between Lone Star and the sellers. Our clients determined that no earnout was due, the sellers claimed that the earnout should be the full $100 million.
What had already been decided in the earlier round between the parties before the Delaware Court of Chancery and what was left for the accounting arbitrator to decide?
Cornejo Garcia: The sellers originally led a lawsuit in the Delaware Court of Chancery seeking, among other things, a declaration that the accounting arbitrator’s calculation of earnings should take into consideration claims that our clients breached a covenant to operate the business consistent with past practice. We argued that the conduct of the business covenant claims could only proceed as indemnication claims subject to an exclusive forum provision selecting Delaware Chancery Court, not arbitration. We also argued that any indemnication claims were contractually time-barred. In other words, we thought that the Sellers were trying to jam covenant claims into the earnout proceeding for an accountant—not a Delaware Chancery Court judge—to decide. We didn’t think there was any support in the agreement for this interpretation.
We felt arbitration wasn’t the right forum for business covenant claims, the parties had agreed that a court and not the arbitrator would decide these types of claims, and critically, the extreme limitations on discovery that were available under the arbitration provision were prejudicial. However, a strategy of challenging the accountant’s ability to decide the conduct of the business issues risked alienating the accountant arbitrator who had sole jurisdiction over the calculation of the earnout. We typically like to avoid arguments that will alienate the decider. In this instance, we advised our clients that the right call was to challenge the ability of the business conduct claims to proceed in arbitration and to seek dismissal of these claims because of the contractual time limit on such claims. This strategic decision paid o as the court granted our motion to dismiss in its entirety, holding that only the calculation of earnings (but not the business covenant claims) was within the arbitrator’s jurisdiction. The court also found that Sellers’ indemnication claims were time- barred. This left sellers with just one forum, arbitration.
This is an important decision as corporate lawyers often provide for multiple dispute mechanisms in a large purchase agreement, and the sellers were interpreting the agreement in a way that would have turned the parties’ intentions on their head—to have an accountant decide questions about business practices, instead of a Delaware Chancery Court judge.