Court hands Nuveen victory in Preston Hollow Capital’s defamation case

Bonds

A Delaware Superior Court judge dismissed Preston Hollow Capital LLC’s lawsuit accusing Nuveen Investments of defamation for pressuring banks and broker-dealers to blacklist the direct lender from high-yield deals.

The June 14 opinion originally issued under seal came from Judge Mary Miller Johnston ahead of a July 11 trial date. It evened the legal score in Dallas-based PHC’s legal pursuit of the Chicago-based investment powerhouse launched in 2019.

PHC won its first case in the Delaware Chancery Court with a judge’s 2020 conclusions that the investment titan unlawfully used “threats and lies” to damage its smaller rival’s business. A third case involving anti-trust allegations is pending in New York federal court.

Delaware Superior Court Judge Mary Miller Johnston, seated in the front row to the far left, is presiding over PHC’s lawsuit against Nuveen.

Delaware Superior Court

Lawyers squared off in March over summary judgment requests and what expert testimony should be heard at trial. Johnston concluded in her opinion on summary judgment that PHC failed to prevent sufficient evidence to show reputational damage.

“The court finds that plaintiff must prove that defendant’s defamatory statements were a substantial factor in bringing about injury to plaintiff’s business reputation,” Johnston wrote. “Speculation and amorphous industry ‘chatter’ is not sufficient to create a reasonable inference that plaintiff’s reputation was grievously fractured in the community.”

“Speculation is not enough to present issues of credibility to demonstrate a genuine issue of material fact for the jury,” Johnston wrote. “Therefore, plaintiff has failed to present evidence demonstrating a genuine issue of material fact concerning reputational loss.”

“We appreciate how the legal process played out and is an affirmation of our belief all along which is that PHC’s claims were meritless,” Nuveen spokeswoman Jessica Greaney said in a statement.

PHC intends to file a notice of appeal this week. The appeal goes directly to the Delaware Supreme Court.

“Preston Hollow Capital respectfully disagrees” with the decision, the firm said in a statement. “PHC will pursue an appeal that, we believe, will lead to a reversal, a full trial on the merits of PHC’s defamation claim, and a complete accounting of the harm it suffered as the result of Nuveen’s conduct.”

PHC’s original 2019 lawsuit accused Nuveen of defamation, antitrust and unlawful business interference.  Transcripts of recorded calls between Nuveen’s municipal team and representatives of banks and broker-dealers during which Nuveen attacked PHC’s practices and threatened to withhold business from firms that worked with PHC took center stage during those proceedings.

On the calls, Nuveen head of municipals John Miller and his team accused PHC of predatory lending practices. Nuveen has argued its comments using words — such as predatory, covenant-lite and fleeced — were opinions and legal within the confines of a competitive business aimed at protecting its market position and reputation.

The Chancery Court sided with PHC in finding Nuveen had committed intentional tortious interference with business relations. Besides court warnings against any future efforts to damage PHC, Nuveen escaped any tougher sanctions as no monetary damages were sought. Two counts — on defamation and antitrust practices — were dropped by the Delaware Chancery Court.

PHC took the defamation case to the Superior Court and the anti-trust and tortious interference claims to U.S. District Court for the Southern District of New York. That case accuses Nuveen and Miller of engaging in illegal, anti-competitive conduct. Discovery is ongoing in the case. The federal lawsuit seeks a jury trial and asks for compensatory damages.

In the defamation litigation, PHC sought damages on the contention that it expected losses of at least $600 million in business through 2023 with its pipeline of business drying up due to long-term reputational damage.

 “Recordings of these calls reveal that Miller and his associates made numerous false statements to broker-dealers about Preston Hollow,” PHC filings read. “These statements were either intentionally false or manifested reckless disregard for the truth in order to harm Preston Hollow’s business.”

Nuveen countered in filings and oral arguments that “there is no evidence that the allegedly defamatory statements were the proximate cause of any reputational loss or prejudice to its business.”

Nuveen argued that PHC failed to show “any harm to its reputation or business proximately caused by defendant’s statements” despite 80 depositions of 60 fact witnesses and 1,744,550 documents exchanged in discovery, and 35 broker-dealer representatives depositions that did not show an one ceased doing business with PHC.

PHC countered that at trial, harm would be displayed and that it was only after Nuveen threats that its pipeline of deals dried up with banks and broker-dealers adopting new policies on direct placements, voicing reputational concerns, or giving Nuveen a right of first refusal on deals.

In her ruling, Johnston sided with Nuveen on the proof issue.

“A communication is considered defamatory ‘if it tends to so harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him.’ The defamatory statement must affect the plaintiff’s reputation in the entire community — causing it to be ‘grievously fractured,’ ” reads the opinion. “Ultimately, the plaintiff also must prove injury.”

“The court finds that the record evidence does not include the testimony of any witnesses that their opinions were changed as a result of defendant’s statements,” Johnson wrote. ”There are no documents in the summary judgment record that support a finding of reputational loss.”

Preston Hollow formed in 2014 to finance direct placements and has $2.1 billion of assets and $1.3 billion of equity capital. Nuveen is a global asset manager, with municipal bonds forming a subset of its various asset classes with fixed-income assets under management of $150 billion.

Preston Hollow alleges that Nuveen is one of the largest trading partners for “top-tier” underwriters and broker-dealers and does in excess of $13 billion “in business” with the nine leading firms it sought to join the boycott. Recordings were made public between Nuveen and Deutsche Bank, Goldman Sachs and Morgan Stanley. Deutsche Bank was PHC’s lender while the others brought deals to market.

When PHC filed the case in late February 2019 it cracked the window open on cutthroat competition in the high-yield municipal market with accusations sparking debate on whether strong-arm tactics break the law, broker-dealer complicity and resistance, and what constitutes pricing fairness.

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