Preston Hollow's pursuit of Nuveen trudges forward on multiple legal fronts

Preston Hollow Capital LLC’s legal pursuit of Nuveen Investments forges on one year after a Delaware Chancery Court judge concluded the investment titan used “threats and lies” to damage its smaller rival.

Two counts — on defamation and antitrust practices — were eventually dropped from the original 2019 case so PHC continues to go after the firm on those separate legal tracks in courts that cross state lines, adding to the complicated nature of litigation.

PHC argues that Nuveen’s use of its clout to pressure banks to boycott the firm continues to damage its direct lending business and in a new wrinkle PHC contends recently collected evidence in the defamation case contradicts testimony from Citigroup Global Markets Inc. and Nuveen in the original case, raising questions over whether the court was misled.

At a hearing this month, Delaware Superior Court Judge Mary Miller Johnston who is presiding over the defamation case pushed the trial date out several months to March to accommodate ongoing document collection and Preston Hollow’s pursuit of additional evidence from Nuveen as well as major banks and broker-dealers previously dragged into the case.

The fresh wrinkle in the defamation case involves new transcripts of recordings submitted by Citi which had previously said no such recordings existed. PHC argues the recordings also contradict assertions made during the original case that Nuveen did not pressure the firm to shun PHC.

“Not only does Citi’s non-compliance appear to have been material to the integrity of the Court of Chancery’s fact-finding efforts in Nuveen I; it also appears probable that both Citi and Nuveen knowingly presented false testimony before the Court of Chancery,” PHC writes.

“The recordings also strongly suggest that Mr. Miller knew that” the testimony was “false and nonetheless allowed Nuveen to present that testimony to the Court of Chancery,” PHC writes. Miller is Nuveen’s head of municipals, John Miller. “The recorded phone calls reflect unambiguously” that Miller asked Citi to halt business with PHC.

Nuveen and Citi slam the accusations.

“For over two years, PHC has pursued a litigation campaign against Nuveen and several of its employees supposedly to address a handful of phone calls that took place primarily in December 2018. PHC continues to make false and misleading statements seeking to assign blame to Nuveen and others. Nuveen believes PHC’s claims are meritless and looks forward to proving so in court,” Nuveen spokeswoman Jessica Greaney said in a statement.

“Preston Hollow's allegations are meritless and irresponsible, and Citi looks forward to correcting the record,” the firm said in a statement.

The defamation litigation represents one of two cases PHC continues to pursue one year after its original case in Delaware Chancery Court ended. “The record, taken as a whole, shows consistent, systematic efforts by Nuveen to shut down Preston Hollow’s ability to continue to do business,” Vice Chancellor Sam Glasscock III wrote in his 59-page opinion.

Glasscock had dropped two counts during the proceedings and so PHC turned last spring to the Delaware Superior Court to pursue a defamation allegation and then launched in July its antitrust attack in New York’s federal court.

With deadlines looming in the defamation case, PHC became frustrated over the pace of evidence collection, known as discovery, with Nuveen and some banks and so it filed motions to compel the firms to comply.

“What I want to know with regard to the third-party motions to compel what the plaintiffs still need, why is it beyond what was produced in the Court of Chancery litigation, and what makes you think that these third-party defendants have it, and what efforts have been made to narrow the search,” Judge Johnston said during an April 13 hearing on the motions.

Banks and broker-dealers pushed back telling the court PHC’s requests are too cumbersome and broad in scope, costly, overlap with what was collected in the Chancery court, and in some cases amount to a “fishing expedition.”

“The goal is not to get a bunch of documents that we don't need or impose a burden. All we want to do is prove our case,” one of PHC’s attorneys David Wollmuth told the judge, noting that document collection in the Chancery proceedings was rushed because the case was heard on an expedited basis.

Judge Johnston partially granted the request but also set strict limits on what the parties — Nuveen, Bank of America (BAC), Barclays (BCS), JPMorgan (JPM), and Morgan Stanley (MS) — must search for and left some issues open for further negotiation. Document searches are limited to a 12-month timeframe and a six-month cap for audio recordings. PHC and the broker-dealers must negotiate the various terms that can be searched for in documents and if they can’t agree the court will appoint an administrator to do that.

The banks must produce a list of 100% private placements since 2017 and if the broker-dealers agree to go beyond the search imposed by the court, PHC must cover the costs.

The judge also agreed to amend what’s known as the case management order to give PHC time to collect evidence from Citi given its recent submission of new recordings between its employees and Nuveen. PHC wants to collect more documents and is questioning why the evidence wasn’t submitted during the original case.

PHC said Citi previously represented that it did not maintain recordings of its employees’ telephone conversations and a top institutional municipal sales professional said during a deposition that John Miller never asked him to stop doing business with PHC. “On March 23, Citi informed PHC for the first time that it had located recordings of employee telephone calls," PHC writes.

PHC officials said that while they continue collecting evidence, they are evaluating potential options to seek relief “because we do feel that both we and the Chancery Court were misled, and we believe that is relevant to the current case,” said Greg May, Preston Hollow’s in-house counsel, said in a statement.

PHC could seek to reopen the Chancery Court case for the limited purpose of considering the impact of the new Citi evidence or the firm could seek to present evidence of potential “concealment” at trial in the current case.

Because some of the banks and broker-dealers like Citi are New York-based corporations, PHC has had to file motions to compel evidence to present to the Delaware Superior Court case through the New York courts. Decisions are pending. At least one firm, Jefferies, has sought to quash subpoenas. Motions are set to be heard April 28 in New York state courts.

In the defamation case, PHC seeks compensatory damages to be determined at trial, including general and special damages in an amount of no less than $100 million, and seeks punitive damages and compensation for its costs, including attorney fees.

PHC also wants what it believes to be pertinent communications between Nuveen officials and bank/broker-dealer officials on Bloomberg’s internal communications system. PHC asked the court to require Nuveen to provide consent for PHC to access all communications.

Nuveen’s counsel conducted its own review of the communications and forwarded those that it believes are pertinent to the case. Nuveen argues that to compel the release of all 7,000 communications violates privacy rules. “We've already searched it. It's the same stack of things that Nuveen has already applied search terms to,” Rachel Morse, one of Nuveen’s attorneys, told the court.

The judge ordered the two sides to negotiate a new set of search terms. If they can’t come to agreement then a special court-appointed administrator will decide the terms.

Nuveen has sought to cast its recorded comments with broker-dealers accusing PHC of predatory lending practices as opinions, some it believes to be true, and protected by the U.S. Constitution.

Dallas-based PHC first lodged its legal complaint accusing Chicago-based Nuveen of trying to choke off its access to capital and deals by threatening banks and broker-dealers with a loss of its business in February 2019. It accused Nuveen of defamation, violating state antitrust law, and unlawful business interference.

The most notable evidence came from transcripts of recorded calls between Nuveen’s John Miller and members of his team with top Wall Street broker-dealers in 2019 and 2019 during which Nuveen threatened to shun firms that continued to do business with PHC.

While the Delaware Court last April concluded Nuveen used “threats and lies” to damage PHC’s business relationships it also found the relief sought by PHC — banning Nuveen from future interference — was not available. PHC had not sought monetary damages.

The Chancery Court had declined to rule on a count alleging antitrust violations under New York State’s Donnelly Act on legal reasons and earlier had dismissed the defamation count as such allegations require jury consideration and Chancery Court cases are decided by the judge.

PHC is a Delaware limited-liability company formed in 2014 with $2.1 billion in assets and $1.3 billion in 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.

During the proceedings, filings disclosed that a “governmental entity,” which could range from agencies with regulatory oversight or criminal prosecution powers, was interested in the recordings after being contacted by PHC.

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.

PHC resurrected the antitrust claim by turning to federal court last summer filing the case in the U.S. District Court for the Southern District of New York naming Nuveen and Miller as defendants. Judge P. Kevin Castel is presiding over the case.

The original Chancery Court judge had declined to rule on the antitrust count because there were several legal questions over the application of the law and injunctive relief as Delaware has a policy against innovating in sister-states’ laws. The court had said questions remained over whether the New York court’s Donnelly Act authorized injunctive relief for a private plaintiff.

The federal lawsuit that seeks a jury trial and asks for compensatory damages. Nuveen filed a motion to dismiss in November and PHC responded in December. A decision is pending.

“PHC has not articulated a coherent relevant market or a conceivable theory of harm to competition, let alone a plausible per se illegal hub-and-spoke ‘industry-wide’ scheme to put PHC out of business,” a Nuveen attorney tells the court.

“The Court of Chancery’s findings, together with the telephone recordings quoted … and the allegations regarding the profound impact the boycott has had on Preston Hollow’s business, more than satisfy the requirements for pleading a cause of action under the antitrust laws,” PHC lawyers responded

Nuveen is represented Potter Anderson & Corroon LLP and Massey Gail LLP and also by Winston & Strawn LLP in the antitrust case.

PHC has been represented by Morris Nichols Arsht & Tunnel; Wollmuth Maher & Deutsch LLP; and Berger Harris LLP.

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