Australian mining company Norcast has sued mid-market private equity firm Castle Harlan over its ‘quick flip’ of the company in July 2011.
After purchasing Norcast for $190 million, Castle Harlan quickly sold the company to Australian industrial business Bradken seven hours later for $215 million. Norcast alleges that by not disclosing Bradken’s role in the transaction, Castle Harlan engaged in “fraud”, “unjust enrichment” and “breach of implied covenant of good faith and fair dealing”.
Norcast is seeking at least $25 million from the firm.
“When you are engaged in a transaction and you are in possession of special, material facts that the other side does not know, you have an obligation to disclose it…It’s called the Special Facts Doctrine under New York law,” Scott Balber, partner at law firm Chadbourne & Parke told Private Equity International. Chadbourne is representing Pala Investments, which owns Norcast.
“The thing that Castle Harlan knew, which was material, was the fact that a strategic purchaser, Bradken, was actually the one who was going to buy the asset,” Balber said.
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 month, Pala Investments also brought a $25 million lawsuit against Bradken, claiming the company 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.
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.