May 26, 2021
DRC congratulates Scott Edelman, Andrew Lichtenberg, Tess McLaughlin, and the entire Milbank trial team on their defense victory in Highland Crusader Offshore Partners, L.P. v. CelticPharma Phinco B.V., No. 652056/2013 (N.Y. Sup.). On March 25, 2021, Milbank obtained a directed verdict as to all of Plaintiffs’ claims in New York County Supreme Court.
The action concerns private equity investments in the pharmaceutical industry. Defendant Stephen Evans-Freke co-founded the private equity firm Celtic Pharmaceutical Holdings, L.P. (“Fund”) to focus on late-stage drug development programs. Plaintiffs invested in secured notes (“Notes”) that were issued in 2007 by Celtic Pharma Phinco B.V. (“Issuer”), a Dutch company indirectly held by the Fund. The offering memorandum and indenture both made clear that repayment depended entirely on the successful commercialization of a specific set of drugs under clinical development. Plaintiffs had no personal recourse against the Fund, its founders (including Mr. Evans-Freke), or the Fund’s investment manager, Celtic Pharma Management, L.P. Ultimately, none of the drugs at issue obtained commercial success, and the Issuer was placed into a Dutch insolvency proceeding. Rather than pursue their rights through that process, Plaintiffs sued Mr. Evans-Freke personally, as well as another private equity firm that he managed, Auven Therapeutics Management, in New York. Plaintiffs sought to recover approximately $1 billion in damages (the unpaid balance on the Notes, plus interest). Plaintiffs argued that the limited recourse provision should be ignored because certain allegedly fraudulent acts gave rise to alter-ego liability.
After five days of evidence, Plaintiffs rested and the Defense moved for a directed verdict. The following morning, Justice Joel Cohen granted the Defense’s motion and dismissed all of Plaintiffs’ claims in an oral ruling from the bench. The Court noted that the facts established during Plaintiffs’ case were a “far cry” from their fraud allegations. The Court further found that Plaintiffs “expressly agreed” in the indenture “not to take any action against any employee, director, officer or administrator” of the Issuer. In the end, Plaintiffs knowingly entered a high-risk, high-reward investment (as the Notes had a 17% coupon rate), and were bound by the terms of that investment.
DRC assisted the trial team with technical consulting during the trial.