Castle Harlan’s unusual ‘quick flip’ deal for an Australian mining business last July has kept the lawyers busy.
Pala Investments, which sold the mining business – Norcast – to Castle Harlan in the first part of the ‘quick flip’, has brought a $25 million lawsuit against Australian manufacturer Bradken, which bought Norcast from Castle Harlan the day after the firm acquired the mining company. Castle Harlan bought Norcast for $190 million and quickly sold it to Bradken for $218 million.
Further, Pala charges that Castle Harlan shared confidential information with Bradken about Norcast, though Castle Harlan is not being sued.
Norcast claims that Bradken, its chairman Nicholas Grenier and managing director Brian Hodges violated the Competition and Consumer Act of 2010 by engaging in “bid-rigging and/or misleading or deceptive conduct” resulting in a loss of at least $25 million for Pala.
While Castle Harlan has not been served with any lawsuit, Norcast claims that Bradken received confidential information about Norcast from Castle Harlan, enabling Bradken to conduct due diligence on the company. This, Norcast claims, led to an agreement that Bradken would buy Norcast from Castle Harlan after it acquired the company from Pala.
“The prospect of bringing a lawsuit against Castle Harlan remains viable,” Scott Balber, partner at law firm Chadbourne & Parke told Private Equity International. Chadbourne is representing Pala Investments.
“I’ve been involved in lots of circumstances where there’s been a private equity deal that’s involved breaches of contractual relationships and misrepresentations,” Balber said. “What’s somewhat unique about this scenario is how brash the conduct was with regard to the timing of the sale relative to the purchase and the amount of money that changed hands for what in the marketplace would be perceived as no value.”
Castle Harlan declined to comment. It previously issued a statement saying “we are highly confident of our legal position and would vigorously defend any action taken against us”.
Last November, after the firm was served with subpoenas from Chadbourne, a US court ruled that Castle Harlan had to provide documents regarding the “quick flip” transaction.
Castle Harlan has partnered with Bradken on several transactions in the past. In 2008, the firm sold AmeriCast Technologies to Bradken for $228 million, more than double its purchase price, after 21 months of ownership.