Enforcing A Breakup Fee In A Financing Term Sheet

A case this past year, White Winston Select Asset Funds, LLC v. Intercloud System, Inc. (D.N.J. Oct. 3, 2017), addressed the enforceability of a breakup fee provision in a term sheet for second lien financing. The case is notable because the court was prepared to enforce the breakup fee on summary judgment, even though it was not at all clear that the financing could have ultimately closed. The main driver of the court's decision appeared to be the action taken by the defendant borrower that frustrated any possibility of performance by the lender. The court awarded the breakup fee notwithstanding that the lender had not completed its diligence and there remained certain unresolved issues. While the plaintiff prevailed, the case offers some lessons for the careful drafting of a breakup fee provision in a financing term sheet.