Alan S. Trust, United States Bankruptcy Judge.
Pending before the Court is the motion (the "Motion") filed by DLJ Investment Partners III, L.P., DLJ Investment Partners, L.P., and IP III Plan Investor, L.P. (collectively, "DLJ") seeking dismissal of
This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 1334(a) and (b), and 157(b)(2)(A), (K) and (O), and the Standing Orders of Reference in effect in the Eastern District of New York dated August 28, 1986, as amended on December 5, 2012, and made effective nunc pro tunc as of June 23, 2011.
Personal Communications Devices, LLC ("PCD") was a company that purchased and sold cell phones and other wireless devices, acting as an intermediary between manufacturers and carriers, and provided related services. Personal Communications Devices Holdings, LLC ("Holdings") was the parent company of PCD. On August 19, 2013 (the "Petition Date"), PCD and Holdings (collectively, "Debtors") filed voluntary petitions for relief under chapter 11, commencing case nos. 13-74303 and 13-74304; these cases were administratively consolidated. On the Petition Date, Debtors filed a series of first day motions, including a motion seeking approval of a Debtor-in-possession financing facility, as well as a motion to sell substantially all of their assets under § 363(b) and (f)
On August 26, 2013, the Office of the United States Trustee appointed the Official Committee of Unsecured Creditors of Debtors' estates (the "Committee").
On September 13, 2013, the Court entered its Final DIP Order
On October 17, 2013, the Court approved Debtors' sale of substantially all of their assets to Quality One. [Case No.13-74303, dkt item 114]
On October 18, 2013, the Court approved a stipulation extending the Challenge period to October 28, 2013. [dkt item 216]
On October 24, 2013, the Court issued an Order Authorizing the Committee to Bring Certain Causes of Action on Behalf of the Debtors' Estates. [Case No. 13-74303, dkt item 218]
On October 28, 2013, the Committee commenced this adversary proceeding by filing a Complaint
On December 20, 2013, PineBridge filed a Motion to Withdraw the Reference of this adversary proceeding [dkt item 9], in which DLJ subsequently joined. [dkt item 18] That motion remains pending before the District Court under 13-mc-01096-JMA.
On December 23, 2013, PineBridge and DLJ filed motions to dismiss the Complaint. [dkt items 12, 13, 14, 15] ISOP filed its motion to dismiss on January 15, 2014. [dkt items 29, 30]
On January 24, 2014, the Committee filed a First Amended Complaint against the Investor Defendants. [dkt item 34] The First Amended Complaint asserts eight causes of action
On February 21, 2014, DLJ filed its Motion to dismiss the DLJ Claims, excluding the seventh cause of action concerning commercial tort claims, a memorandum of law in support, and an affirmation in support thereof. [dkt items 37, 38]
On March 21, 2014, Plaintiff filed an omnibus response to DLJ's Motion and the other Investor Defendants' motions to dismiss (the "Response"). [dkt item 44]
On April 4, 2014, DLJ filed a reply and a declaration in support. [dkt items 46, 47]
On April 29, 2014, the Court confirmed the First Amended Plan of Liquidation proposed by Debtors and the Committee (the "Plan"). [Case No. 13-74303, dkt item 421] The Devices Liquidation Trust, Plaintiff herein, was created under the Plan, and all causes of action of the Debtors vested in Plaintiff.
On July 25, 2014, the Court entered an agreed Stipulation and Agreed Order substituting The Devices Liquidation Trust as the Plaintiff in this adversary proceeding. [dkt item 56]
On October 9, 2014, while the DLJ Motion and other parties' motions to dismiss were pending, Plaintiff filed its Motion for Leave to File Second Amended Complaint (the "Motion to Amend"). [dkt items 97, 98, 99, 102] The proposed Second Amended Complaint did not seek to add any claims against DLJ, but did seek to add claims against PineBridge and ISOP, and to add several former members of the Board of Managers of Holdings (the "Director Defendants") as new defendants
By Order entered January 20, 2015, this Court granted Plaintiff's Motion to Amend. [dkt item 119]
On January 21, 2015, the Court conducted a hearing on the DLJ Motion (the "Hearing"), following which it took the matter on submission.
On February 2, 2015, Plaintiff filed its Second Amended Complaint. [dkt item 123] As noted above, the Second Amended Complaint asserts fourteen causes of action; however, Plaintiff asserts only the same DLJ Claims against DLJ. Accordingly, and without opposition from Plaintiff or DLJ, the Court will construe the Motion as against the Second Amended Complaint.
DLJ bases their requests for dismissal on Rule 12(b)(6), as incorporated by Bankruptcy Rule 7012. This Court has addressed on numerous occasions the application of Rule 12(b) and the flexible plausible pleading standard established by
Under the U.S. Supreme Court's Iqbal/Twombly analysis, to survive a motion to dismiss, a complaint must contain sufficient factual matter, which, when accepted as true, is adequate to "state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937; Twombly, 550 U.S. at 570, 127 S.Ct. 1955. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the relief sought. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937; Twombly, 550 U.S. at 556, 127 S.Ct. 1955. The plausibility standard "asks for more than a sheer possibility that a defendant has acted" so as to create liability. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of `entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955 (internal citations omitted).
Neither Iqbal nor Twombly departed from the standard that, in considering a Rule 12(b)(6) motion, a court is to accept as true all factual allegations in the complaint and draw all inferences in favor of the plaintiff. Iqbal, 556 U.S. at 678-79, 129 S.Ct. 1937; Twombly, 550 U.S. at 555-56, 127 S.Ct. 1955; see also Cleveland v. Caplaw Enters., 448 F.3d 518, 521 (2d Cir. 2006). However, as the Supreme Court stated in Iqbal, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Moreover, a court need not "accept as true a legal conclusion couched as a factual allegation," and "[d]etermining whether a complaint states a plausible claim for relief will [. . .] be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 678-79, 129 S.Ct. 1937 (citing FED. R. CIV. P. 8(a)(2)).
In deciding the Motion to Dismiss, this Court must limit its review to facts and allegations contained in the Second Amended Complaint, documents incorporated into the Second Amended Complaint by reference or attached as exhibits, and matters of which this Court may take judicial notice. Blue Tree Hotels, Inv. (Canada), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004); see also, Int'l Tobacco Partners, Ltd., 462 B.R. at 385 ("The Court may consider documents that are integral to the complaint in deciding a motion to dismiss"). During the Hearing, both Plaintiff and DLJ agreed that this Court can consider the contractual agreements and other documents made a part of the Second Amended Complaint, the Motion and the Response. [dkt item 121, Hr. Tr. 20:7-21] Based on this agreement and the applicable case law, solely for purposes of this Order, this Court has determined the following facts to be uncontroverted and construes them in the light most favorable to Plaintiff; these facts are drawn from the Second Amended Complaint, the uncontested
In July 2008, PineBridge, ISOP and DLJ were involved with the purchase of Debtors from UTStarcom, Inc. for an aggregate amount in excess of $240,000,000. The Investor Defendants provided a substantial portion of the financing through both loans and equity investments. The total funds from all debt and equity investments are summarized as follows:
Source of Funds Amount Equity Investment PineBridge Defendants9 $34,000,000 DLJ $5,000,000 Other Investors $9,500,000Total Equity: $48,500,000Senior Debt Non-Defendants' source $114,379,073Second Lien Debt 10 DLJ $49,500,000 PineBridge Defendants $29,700,000Total Second Lien Debt $79,200,000Total Debt and Equity: $242,079,073
[
These sources of cash were allocated as follows at closing:
Uses of Funds Amount Cash Payment to UTStarcom $214,506,484 Payments to Escrow $24,291,840 Transaction Expenses $2,766,536Total Funds: $241,564,860
Second Amended Complaint, ¶¶ 16-19. As Indicated above, DLJ contributed
The PineBridge Defendants subordinated their purported security interests to those of DLJ pursuant to a Second Lien Credit Agreement executed on July 1, 2008 (the "2008 Credit Agreement"), effectively creating a "Third Lien Debt," Id. at ¶ 39.
In connection with the 2008 transactions, Debtors entered into a series of additional agreements. Holdings entered into the Amended and Restated Limited Liability Company Agreement of Holdings (the "Holdings LLC Agreement"), which provides, among other things, that the PineBridge Defendants, had the right to appoint a majority of the Board, and that an additional member of the Board could be chosen by those appointees. Id. at ¶ 26. Holdings also executed the Amended and Restated Limited Liability Company Agreement of Personal Communications Devices, LLC, (the "PCD LLC Agreement" and, together with the Holdings LLC Agreement, the "LLC Agreements"), which provides that "[t]he [Investor Defendants] shall not have any liability for the debts, obligations or liabilities of the LLC, except to the extent required under the Act. The [Investor Defendants] shall not have any liability to restore any negative balance in the [Investor Defendant's] capital account." Id. at ¶ 28. (modifications in original). Debtors entered into two additional agreements with the PineBridge Defendants according them rights to manage and advise the Debtors, which rights were independent of and in addition to the Board control provided to the PineBridge Defendants under the LLC Agreements. Id. at ¶ 31. First, Debtors entered into an Advisory Agreement with an affiliate of the PineBridge Defendants, under which Debtors agreed to pay to a PineBridge Advisor (a) an initial advisor fee in cash equal to $2,000,000, payable on demand, and (b) an annual advisor fee of $750,000. Id. at ¶¶ 32-33. Second, Debtors and the PineBridge Defendants executed a letter agreement dated July 1, 2008, pursuant to which Debtors granted to the PineBridge Defendants additional management and Board oversight rights. Id. at ¶ 34.
Plaintiff alleges that these agreements were executed for the exclusive benefit of the Investor Defendants and the Director Defendants, were not negotiated at arm's-length, and that because Holdings is the only member of PCD and is a non-operating entity, in reality the Director Defendants controlled the actions and made decisions on behalf of Debtors. Id. at ¶¶ 27, 29, 30.
Although the Investor Defendants did not invest any cash or extend any additional credit to the Debtors after the initial 2008 transactions, Debtors made several equity distributions and loan prepayments to the Investor Defendants between 2009
According to Debtors' schedules, as of the Petition Date, PCD's cash balance remained at less than $1.2 million. Id. at ¶ 41.
In the years 2009, 2011 and 2012, the Investor Defendants withdrew over $24 million from the Debtors, which were characterized as tax distributions, with a majority (over $20 million) of such withdrawals occurring in 2011 (collectively, the "Distributions"). At the time the Distributions were made, Debtors had outstanding accounts payable of $133 million to $515 million. Id. at ¶ 42.
DLJ received Distributions in the aggregate amount of $3,517,703 during these three years. Id. at ¶ 44.
In addition to periodic principal and interest payments, pursuant to Section 2.11(b) of the 2008 Credit Agreement, PCD was required to make prepayments of principal equal to 60% (later increased to 75%) of PCD's excess net cash flow. Id. at ¶ 48. PCD made prepayments of excess net cash flow in the aggregate amount of $17,800,000 in the years 2010 ($9,800,000) and 2011 ($8,000,000). Id. at ¶¶ 39, 49.
Taken together, the Distributions and the mandatory prepayments to the Investor Defendants aggregate to $42.2 million over and above periodic interest payments due under the Second Lien Loans. Id. at ¶ 50.
The PineBridge Defendants, who viewed the Debtors as a short term investment with a goal of exiting by the end of 2011, and the Director Defendants used their positions of authority to seize operating control of the Debtors and exclude additional investments by outsiders, and forced PCD's founder and longtime CEO Philip Christopher out, without a transition plan in place. Id. at ¶ 52. On July 26, 2012, PineBridge informed Christopher that it had hired George Appling as his replacement. The PineBridge Defendants and the Director Defendants had no transition plan, and refused Christopher's offers to create one that would allow the new CEO to be brought up to speed and build relationships with the Debtors' bankers and business partners. Id. at ¶ 72. In order to ensure their interests were satisfied, the PineBridge Defendants even agreed to "backstop" a portion of the compensation offered to Appling in order to ensure his loyalty to the PineBridge Defendants rather than the Debtors. Id. at ¶ 92. These actions contributed significantly to a hemorrhage of key management and other employees, the disruption of the Debtors' relationships with their bankers, customers and business partners, and ultimately the collapse of the Debtors' business. Id. at ¶ 53.
This Court notes that Plaintiff does not allege any additional facts as a basis for asserting wrongdoing by DLJ, and that while the Second Amended Complaint focuses on the capital structure of the initial 2008 leveraged buyout and distributions taken out in subsequent years, Plaintiff has not asserted a single fraudulent transfer claim against DLJ.
As noted above, Plaintiff acknowledges that the PineBridge Defendants contractually
Plaintiff and DLJ basically agree on the test for determining whether debt should be recharacterized as equity, with both relying on Bayer Corp. v. MascoTech, Inc. (In re Autostyle Plastics, Inc.), 269 F.3d 726, 749-50 (6th Cir. 2001) ("Autostyle") and Adelphia Communs. Corp. v. Bank of Am., N.A. (In re Adelphia Communications Corp.), 365 B.R. 24, 74-75 (Bankr. S.D.N.Y.2007) aff'd in part sub nom. Adelphia Recovery Trust v. Bank of Am., N.A., 390 B.R. 64 (S.D.N.Y.2008), on reconsideration, 05 CIV. 9050(LMM), 2008 WL 1959542 (S.D.N.Y. May 5, 2008) ("[T]he paradigmatic situation for recharacterization [is] where the same individuals or entities (or affiliates of such) control both the transferor and the transferee").
Courts which conduct a recharacterization analysis to determine whether a loan is actually disguised equity often consider the following eleven criteria, referred to as the Autostyle test:
269 F.3d at 749-50; see In re BH S & B Holdings LLC, 420 B.R. 112, 157-58 (Bankr.S.D.N.Y.2009) (citing Autostyle, 269 F.3d at 749-50); see also In re Lothian Oil Inc., 650 F.3d 539, 543-44 (5th Cir. 2011) (noting that the district court had reversed the bankruptcy court's recharacterization on the basis of its legal conclusion that recharacterization applies only to claims filed by corporate insiders, and declining to "impose such a per se rule. Unless state law makes insider status relevant to characterizing equity versus debt, that status is irrelevant in federal bankruptcy proceedings"); In re SubMicron Systems Corp., 432 F.3d 448, 455-56 fn omitted (3rd Cir. 2006) ("In defining the recharacterization inquiry, courts have adopted a variety of multi-factor tests borrowed from non-bankruptcy case law. While these tests undoubtedly include pertinent factors, they devolve to an overarching inquiry: the characterization as debt or equity is a court's attempt to discern whether the parties called an instrument one thing when in fact they intended it as something else. That intent may be inferred from what the parties say in their contracts, from what they do through their actions, and from the economic reality of the surrounding circumstances.").
The uncontroverted facts before the Court, taking Plaintiff's allegations in the light most favorable to and drawing all inferences in favor of Plaintiff, result in the Autostyle factors being overwhelmingly in favor of DLJ: (1) the instruments evidencing the indebtedness are all denominated as debt instruments; (2) the DLJ loan documents had a fixed maturity date
Thus, considering the Autostyle analysis in the aggregate, Plaintiff has not made out a plausible claim to recharacterize the DLJ $49,500,000 second lien loan. In its papers and at the Hearing, Plaintiff acknowledged DLJ's lack of control over Debtors and their actions. For example, when asked by the Court how DLJ, as a minority interest holder, could modify the maturity date, payment schedule, or interest rate once the 2008 transactions were implemented, Plaintiff acknowledged that it was unable to demonstrate that DLJ controlled Debtors, but argued that DLJ passively acquiesced in PineBridge's control. The Court is not persuaded by Plaintiff's argument that a minority shareholder who lacks the ability to control the course of a debtor's actions is in any event, without evidence or even allegations of bad acts, liable for the actions of the controlling interest owners.
Finally, while Plaintiff does complain about two restructurings of the PineBridge and DLJ Second Lien Loans in 2012, it does not seek recharacterization of the DLJ loans based on these amendments.
Plaintiff's setoff and unjust enrichment claims against DLJ both arise from DLJ's equity position, and not their secured lien status. Plaintiff asserts that in the three years prior to the Petition Date, Debtors made tax distributions in the aggregate amount of $24,412,958, of which DLJ received a total of $3,517,703. Second Amended Complaint, p. 16, ¶¶ 42-44. Plaintiff goes on to assert that these tax distributions were made pursuant to Section 3.4 of the Holdings LLC Agreement, to which DLJ was a party, which provides:
Holdings LLC Agreement, Section 3.4 (emphasis in original).
Plaintiff does not claim that the Holdings LLC Agreement was breached; rather, Plaintiff claims that the "stated purpose" of the Tax Distributions "was to compensate the Defendants for tax liability they incurred or would incur as a result of PCD's ordinary business income in the year 2012 and prior." Plaintiff also asserts that because (i) Debtors are each limited liability companies that incurred substantial net operating losses in 2013 that are allocable to the Debtors' members on a pro rata basis, and (ii) that "pursuant to 26 U.S.C. § 172(b)(1), net operating losses may be retroactively applied against the members' past two years of tax returns to generate significant tax refunds," the estate is therefore entitled to recoup the benefits equity owners, such as DLJ, would receive as a result of restating Debtors' prior year's net operating income based on net operating losses from 2013. Plaintiff further asserts an entitlement to setoff such that if, as and when DLJ is paid by virtue of the post-petition sale of Debtors' assets, the estate should recover "the amount of Distributions received in excess of their actual tax liability, as determined by the amount of any tax refund obtained by the Defendants or the Defendants' investors through application of the Debtors' 2013 net operating losses."
First, Plaintiff does not plead that any contract was breached by a miscalculation of the Tax Distributions, and conceded at the Hearing that it is not claiming that DLJ received more Tax Distributions than it was contractually entitled to. [dkt item 121, Hr. Tr. 32:11-23] Rather, the crux of Plaintiff's setoff and unjust enrichment claims are: (i) an assertion that DLJ received more Tax Distributions than were necessary to pay their actual tax liabilities, and that Debtors could only make distributions to cover actual negative tax attributes of its owners, i.e. actual passed though gains attributed to them as a result of being interest owners in a limited liability company calculated based on their actual tax effect; and (ii) that somehow the Tax Distributions should not be calculated quarter to quarter or year to year, but can be aggregated for more than one tax reporting year. However, none of these arguments are supported by the written agreements with Debtors, and are expressly countermanded by Section 3.4 which states: (i) as to the how much to distribute, the Tax Distribution must be based on the "highest combined federal and state tax rate (expressed as a percentage) applicable to any Member assuming such Member was subject to the highest statutory marginal tax rates in the jurisdiction in which it is domiciled or resides (or if higher, in which the LLC does business) ....", and (ii) as to the when, such distribution are due "prior to the end of each fiscal quarter or at least ten (10) Business Days before the date on which any quarterly estimated tax payments are due...." Moreover, Section 3.4 provides that Tax Distributions are to be treated as interest free advances on each member's distributions and will reduce such member's rights to future distributions other than Tax Distributions.
There is nothing plead by Plaintiff or contained in any agreement that allows Plaintiff to seek to recoup any Tax Distributions which exceed any member's actual tax liabilities, or to recoup prior year or prior quarter tax distributions based on a subsequent year or subsequent quarter's net operating loss. Moreover, Plaintiff does not plead that Debtors failed to reduce DLJ's rights to future distributions based on prior Tax Distributions.
Thus, Plaintiff's unjust enrichment claims, which it asserts is governed by New York law, must fail. A claim for unjust enrichment requires proof "(1) that the defendant was enriched; (2) that the enrichment was at the plaintiff's expense; and (3) that the circumstances are such that in equity and good conscience the defendant should return the money or property to the plaintiff." Kottler v. Deutsche Bank AG, 607 F.Supp.2d 447, 467 (S.D.N.Y.2009) (quoting State Farm Mutual Automobile Insurance Company v. CPT Medical Service, P.C., 375 F.Supp.2d 141, 154 (E.D.N.Y.2005)). As a matter of law, a claim for unjust enrichment is "precluded by the existence of an express written agreement governing the subject matter at issue". Boccardi Capital Sys. Inc. v. D.E. Shaw Laminar Portfolios, L.L.C., 355 Fed.Appx. 516, 519 (2d Cir. 2009); Valley Juice Ltd. v. Evian Waters of France, Inc., 87 F.3d 604, 610 (2d Cir. 1996) ("[T]he existence of a valid and enforceable written contract governing a
Plaintiff acknowledges that it may only seek unjust enrichment recovery if the dispute at issue is not covered by the contract at issue. Section 3.4 of the Holdings LLC Agreement, to which DLJ was a party, expressly and unambiguously provides for the timing, calculation and payment of the Tax Distributions. Plaintiff essentially argues that the fact that the contract does not support its claims for recovery of Tax Distributions is in and of itself a basis for its unjust enrichment claims. This is simply incorrect and unsupported by the case law cited by both sides.
Thus, this Court applies the contract as it was written, and finds no contractual provision which allows the recovery of any previously paid, properly calculated Tax Distributions, nor does it find that the payment or recovery of Tax Distributions is a matter not covered by the contract.
Further, and in the alternative, Plaintiff has not plausibly plead that Debtor did experience actual net operating losses for 2013. Since fiscal year 2013 closed for Debtors and because a tax return could have been filed or at least tax attributes calculated well before the filing of the Second Amended Complaint in February 2015, or even when filed as a proposed Second Amended Complaint in September 2014, Plaintiff's unsupported legal theory is factually unsupported as well. See Kenford v. County of Erie, 67 N.Y.2d 257, 261, 493 N.E.2d 234, 502 N.Y.S.2d 131 (N.Y. 1986) (damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes).
Because this Court rejects the liability theories asserted by Plaintiff, it need not reach its claim of setoff, under which Plaintiff seeks to recover any amounts it is awarded as a result of various pre-petition transactions from DLJ's entitlement have their liens satisfied from the post-petition sale of Debtors' assets.
Plaintiff alleges that DLJ has liability to Plaintiff under the LLC Agreements based on the status of their investor capital accounts; Plaintiff asserts this claim under Delaware law, the state in which Plaintiffs were incorporated. DLJ does not dispute that their accounts had a negative balance at the Petition Date, but argue that as a matter of law they were not contractually obligated to restore their negative capital accounts to zero or to a positive number.
Plaintiff does not plead or refer to a contract provision that specifically obligates DLJ to restore their capital accounts; rather, Plaintiff references Section 8 of the PCD LLC Agreement, which provides in that "[t]he Member shall not have any liability for the debts, obligations or liabilities of the LLC, except to the extent required under [applicable corporate law]. The Member shall not have any liability to restore any negative balance in the Member's capital account." Plaintiff goes on, however, to assert that the Holdings LLC Agreement, executed on the same day as the PCD LLC Agreement, "does not contain this exemption from liability for negative capital account balances," and that, therefore DLJ as an investor with a negative capital account balance in Holdings is required under the laws of the State of Delaware to restore its account to zero. Second Amended Complaint, pp. 37-38, ¶¶ 149-152. This claim is not plausible.
First, as Plaintiff concedes, DLJ was not a party to the PCD LLC Agreement. In paragraph 29 of the Second Amended Complaint, Plaintiff states: "[t]he PCD LLC Agreement was executed by the PineBridge Defendants, through Stearns, as the manager of Holdings. There are no other parties to the PCD LLC Agreement." As such, DLJ is not bound to the terms or conditions of the PCD LLC Agreement as DLJ is not a party to it. See Am. Legacy Found. v. Lorillard Tobacco Co., 831 A.2d 335, 344, n. 42 (Del.Ch. 2003) ("a fundamental principal of contract law provides that only parties to a contract are bound by that contract"); see also Gordon v. Curtis, 68 A.D.3d 549, 550, 893 N.Y.S.2d 6 (1st Dep't 2009) (a breach of contract cause of action must identify the express provision that defendants allegedly breached).
Plaintiff has not cited any persuasive authority for its proposition that the absence of one provision in a contract to which DLJ is not a party is relevant to the construction or interpretation to be given to a contract to which DLJ is party. Although Plaintiff does cite Segovia v. Equities First Holdings, LLC, 2008 WL 2251218, at *9 (Del.Super. May 30, 2008) for the notion that the two LLC agreements should be construed together as part of a single transaction
There are multiple provisions of the Holdings LLC Agreement which make clear that DLJ has no obligation to restore its capital accounts to a zero or to a positive balance. The Holdings LLC Agreement provides in Section 2.5 that "except as set forth in Sections 2.4 ..., Section 2.6 or Section 3.3, no Member shall be required to contribute or lend funds to the LLC." Plaintiff does not allege that Sections 2.4, 2.6 or 3.3 are triggered. Further, the Holdings LLC Agreement further provides in Section 2.5 that "[n]o Member shall be liable for any debts or losses of capital or profits of the LLC."
Thus, Plaintiff has not plausibly plead a breach of contract claim.
Plaintiff has not plausibly plead a claim for disallowance of DLJ's claims. This cause of action is brought as a derivative claim; that is, Plaintiff relies on other express causes of action which seek monetary relief or recharacterization of debt as equity to obtain an order of disallowance of DLJ's claim. Plaintiff states:
Second Amended Complaint, p. 39, ¶¶ 160-162.
Because this Court has determined that DLJ has no liability to Plaintiff, there is no basis to convert DLJ's lien claims into equity interests, and because the disallowance claim is purely derivative of the other express claims for damages, this Court will not disallow any portion of the DLJ claims.
DLJ has not sought dismissal of Plaintiff's seventh cause of action, for a declaratory judgment as to whether DLJ has a lien on commercial tort claims. Thus, while this Court will not disallow any portion of DLJ's proofs of claim, it must later determine whether such allowed claims include a lien on any of either Debtor's commercial tort claims.
This Court finds and concludes that the DLJ Motion should be granted.
