Metropolitan Life Ins. Co. v. RJR Nabisco, Inc

Facts

Defendants were at the center of several mergers and acquisitions in the 1980’s, and the current proposed LBO brought forth at least eight lawsuits against Defendants for numerous causes of action. Plaintiffs’ causes of action stem from the consequences of the proposed LBO, namely that shareholders of RJR would receive a windfall at the expense of Defendant lenders. Defendants offered an initial $75 per share buyout, and after a bidding war, the offer was eventually raised to $109. Defendants were going to finance the buyout with little equity and a lot of debt. The financing of the LBO through junk bonds would lower RJR’s credit rating, which in turn lessened the value of the bonds held by Plaintiff lenders. Although the agreement between Defendants and Plaintiffs did not expressly prohibit such a buyout, Plaintiffs maintain that the buyout involved such an egregious amount of additional debt that it breached an implied covenant of good faith and fair dealing. Defendant s counter that the terms advocated by Plaintiffs were never bargained for during the formation of the agreement.