Nevada Supreme Court Holds That Temporary Closing During Pandemic Did Not Violate This "Ordinary Course" Covenant

Merger and acquisition agreements almost invariably include a promise by the seller to continue to operate the business in the "ordinary course".    This promise is typically included to provide assurance to the buyer that the business will not change materially during the period between the signing the purchase agreement and the closing.   

When Lucky Lucy D, LLC agreed to sell its hotel and casino to LGS Casino LLC in 2019, the parties included a covenant pursuant to which Lucky Lucy agreed to maintain the property and conduct related business "in a manner generally consistent with the manner in which [Lucky Lucy] has operated and maintained the [p]roperty and [a]ssets prior to the date hereof."    COVID-19 arrived before the sale was consummated and Lucky Lucy temporarily closed the casino and laid off employees in response to gubernatorial directive ordering the closure of non-essential businesses.   The buyer then sent a notice of breach, which Lucky Lucy was unable to cure in light of the Governor's emergency directive.  Needless to say, litigation ensued.

The District Court granted summary judgment for the buyer, finding that the seller had breached the "ordinary course" covenant.  The Nevada Supreme Court, however, saw things differently.  It held that "[i]n closing the casino and hotel pursuant to the emergency directive, the seller was merely following the law so as to maintain its gaming licenses and thus did not materially breach the agreement".  Lucky Lucy D LLC v. LGS Casino LLC, 139 Nev. Adv. 26 (2023).

The importance of "generally"

The Supreme Court's opinion suggests that the result might have been different if the covenant at issue had not included the adverb "generally": "The ordinary course covenant at issue here, however, also broadly provides that Lucky Lucy need only conduct its business in a manner that is 'generally consistent' with the manner in which it had done so in the past. 'Generally,' is defined as 'in a general manner,' or 'in disregard of specific instances and with regard to an overall picture.'"  Generally, Merriam Webster's Collegiate Dictionary 521 (11th ed. 2007).