Strategic Value Master v. Cargill Financ. Services, 05 Civ. 8546(PKL).

• Decision Date: 22 March 2006
• Docket Number: No. 05 Civ. 8546(PKL).,05 Civ. 8546(PKL).
• Citation: 421 F.Supp.2d 741
• Parties: STRATEGIC VALUE MASTER FUND, LTD. and Man Mac 3 Limited, Plaintiffs, v. CARGILL FINANCIAL SERVICES, CORP. Defendant.
• Court: U.S. District Court — Southern District of New York

421 F.Supp.2d 741

STRATEGIC VALUE MASTER FUND, LTD. and Man Mac 3 Limited, Plaintiffs, v. CARGILL FINANCIAL SERVICES, CORP. Defendant.

No. 05 Civ. 8546(PKL).

United States District Court, S.D. New York.

March 22, 2006.

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Boies, Schiller & Flexner LLP, David A. Barrett, Magda M. Jimenez, New York City, for Plaintiffs.

Faegre & Benson LLP, Randall E. Kahnke, Deborah A. Ellingboe, Michael M. Krauss, Nathaniel J. Zylstra, Jacob J. Sullivan, Minneapolis, MN, for Defendant.

OPINION AND ORDER

LEISURE, District Judge.

This action arises out of the purported sale by defendant Cargill Financial Services Corporation, a Delaware corporation, of an equity stake in Teesside Power Ltd., one of the largest power plants in the United Kingdom, to plaintiff hedge funds Strategic Value Master Fund, Ltd. and Man Mac 3 Limited, Cayman Islands and Bermudan corporations, respectively. Plaintiffs allege that the parties entered into an oral contract, under which defendant promised to sell a 50% equity stake in Teesside Power Ltd. to plaintiffs for £19MM. They further allege that the parties subsequently modified the contract orally, when defendant agreed to instead sell to plaintiffs a lesser equity stake of 35% for £13.3MM. Plaintiffs claim that defendant breached this contract when it refused to transfer the equity to plaintiffs. Defendant now moves for dismissal of plaintiffs' complaint on forum non conveniens grounds, arguing that this dispute is wholly centered in England and, consequently, an English court provides the most appropriate forum. For the reasons set forth below, defendant's motion is granted and the case is dismissed, subject to certain conditions imposed on defendant.

BACKGROUND

I. Factual Background

A. The Parties

Plaintiffs Strategic Value Master Fund, Ltd. and Man Mac 3 Limited are hedge funds incorporated in the Cayman Islands and Bermuda, respectively. (Compl. ¶¶3-4; Pl.'s Mem. Law Opp'n Mot. at 3.) Strategic Value Partners, LLC ("SVP"), a Delaware limited liability company and nonparty to this action, is plaintiffs' investment advisor and manager. (Clarke Decl. ¶ 3; Khosla Decl. ¶¶ 1, 4.) SVP is registered to do business in New York; it maintained a principal place of business in New York at the time of the events giving rise to this action. (Khosla Decl. ¶¶ 4-5.) SVP and plaintiffs are parties to a contract, under which SVP maintains full discretionary authority over plaintiffs' investment activities, which authority includes negotiating and closing trades, entering into and enforcing contracts, deciding how the investment funds should be allocated, and pursuing investment-related litigation, all on plaintiffs' behalf. (Khosla Decl. ¶ 6.) SVP has a "sub-advisory relationship" with Strategic Value Partners (U.K.), LLP ("SVP—U.K."), an indirect subsidiary of SVP. (Khosla Decl. ¶ 10.) SVP-U.K.'s primary function is to research and analyze potential investment opportunities in Europe for SVP's hedge funds. (Khosla Decl. ¶ 10.) Due to SVP's exclusive relationship with plaintiffs, SVP-U.K. is prohibited from making any investments on behalf of plaintiffs without SVP's express instruction. (Khosla Decl. ¶ 10.)

Defendant Cargill Financial Services Corp. ("CFSC"), a Delaware corporation with a principal place of business in Minnesota, is a full service financial services company with expertise in the investment in and trading of distressed assets. (Brice Decl. Ex. A.) Cargill Financial Markets Plc ("CFM"), an affiliate of CFSC, is an English company with its principal place of business in Cobham, Surrey, England. (Brice Decl. ¶ 2.) CFM, like CFSC, operates in the high yield and distressed asset investment market, albeit in Europe. (Brice Decl. ¶ 4.) CFSC and CFM are parties to a "Service Level Agreement," dated February 1, 2003, under which CFSC is given the right to broker trades in distressed assets, and provide accounting and administrative services related to such trades, on CFM's behalf. (Brice Decl. Ex. A.)

B. The Power Plant

1. Equity

Teesside Power Ltd. ("TPL"), one of the United Kingdom's largest power plants, was, at the time of the events giving rise to this action, privately held by five shareholders, all of whom are English: Teesside Power Holdings Ltd. ("TPHL"); Midlands Power (TPL) Ltd. ("Midlands"); Northern Electric Generation (TPL) ("Northern"); South Wales TPL Investments Ltd. ("South Wales"); and Western Power Investments Ltd. ("Western").¹ (Brice Decl ¶ 11; Davies Decl. ¶ 14.) TPHL, by reason of its 50% equity interest in TPL, is TPL's largest shareholder.² (Davies Decl. ¶ 14.)

The relationship of TPL vis-a-vis its shareholders, and the relationship among the shareholders themselves, are governed by TPL's Articles of Association ("Articles"). (Davies Decl. ¶ 12.) Among other terms, the Articles include certain preemption provisions that restrict generally a shareholder's ability to sell its equity to a third party. (Davies Decl. ¶ 16.) A TPL shareholder can enforce the Articles' terms against another TPL shareholder, or any prospective TPL shareholder that does not comply with the Articles' requirements. (Davies Decl. ¶ 18.) The shareholders are also governed by an equity agreement that has been supplemented a number of times ("Equity Agreement"). (Davies Decl. ¶ 19.) The parties to the Equity Agreement are the shareholders, TPL itself, and the agent bank, which represents TPL's bank lenders. (Davies Decl. ¶ 19.) Generally speaking, the Equity Agreement, like the Articles, imposes restrictions on a shareholder's ability to transfer its TPL equity. (Davies Decl. ¶ 20.) Finally, the shareholders are parties to a shareholders agreement that imposes additional restrictions on the transferability of TPL equity ("Shareholders Agreement"). (Davies Decl. ¶ 26.)

2. Debt

TPL issued £795MM of debt to various bank lenders in order to finance the construction of the power plant. Today, the debt has a face value of approximately £500MM. (Brice Decl. ¶ 13.) After a downturn in the United Kingdom's wholesale power generation market, and the collapse of Enron in 2001, a number of TPL's debt holders sold their debt at discounted prices to, largely, hedge funds, including SVP-managed funds, and the proprietary trading desks of London-based investment banks. (Brice Decl. ¶ 14.) Because the debt holders' rights are governed by a contract entitled the "Amended and Restated Credit Agreement," the debt is commonly referred to as the "ARCA debt." (Clarke Decl. ¶ 9.) The ARCA debt is syndicated to various entities by Barclays Bank Plc. (Brice Decl. ¶ 13.)

C. CFM's Interest in TPL

CFM has an indirect interest in certain TPL equity. CFM's interest in TPL stems from its purchase of certain notes issued by Teesside Power Finance Ltd. ("TPFL"), a Cayman Islands company, in July 1999 (the "Notes"). (Davies Decl. ¶ 31.) The Notes' present approximate face value is £80MM. (Brice Decl. ¶ 8.) The Notes are securitized by guarantees from two English companies, Enron Europe Power 1 Ltd. ("EEP1") and Enron Europe Power 3 Ltd. ("EEP3"). EEP1's guarantee is supported by a first ranking charge over its 85% interest in TPHL; EEP3's guarantee is supported by a floating charge over its assets, which includes its 15% interest in TPHL. (Davies Decl. ¶ 31.) Consequently, part of the securitization of the Notes is a 100% security interest in TPHL. (Davies Decl. ¶ 31.) Because TPHL owned 50% of TPL's equity at the time of the alleged contract formation,³ CFM maintained, and still maintains today, an indirect security interest in TPL. (Brice Decl. ¶ 5; Def.'s Mem. Law Supp Mot. at 5.) The Notes are currently in default, but the trustee, Deutsche Trustee Company Limited ("Trustee"), has not exercised its default rights. (Brice Decl. ¶¶ 8-9.)

D. TPL's Shareholders and Creditors Seek to Gain Control Over All of TPL's Equity

In 2004, the ARCA debt holders began negotiations with TPL's shareholders to purchase their TPL stock. (Brice Decl. ¶ 16.) When these negotiations failed, the ARCA debt holders tried to procure the shareholders' equity by attempting to exercise a power of sale of the equity by auction pursuant to the Equity Agreement—in essence, a forced debt for equity swap. (Brice Decl. ¶ 16; Davies Decl. Ex. E.) In response, TPHL, as a TPL shareholder, brought suit in the English High Court to stop the sale by auction and won. The court held that the ARCA debt holders could not bid in the forced auction or any subsequent auctions. (Brice Decl. ¶ 16.) Defendant claims that, after the court's disposition of the matter, the ARCA debt holders created "additional trouble" by arguing that certain payments made to the shareholders pursuant to the Shareholder Agreement, and other governing agreements, were made illegally. (Brice Decl. ¶ 17.) While not much detail is provided, the relevant declaration states that court intervention was sought and the TPL shareholders won again. (Brice Decl. ¶ 17.)

The ARCA debt holders made an argument in the first trial that is relevant to the history of this case. (Brice Decl. ¶ 20.) The ARCA debt holders argued that extracting the equity from TPL's shareholders was necessary because TPL was not being managed properly, largely due to the fact that TPL, a project finance company with only three employees outside of its Board of Directors, was being ineffectively managed and governed by the shareholders vis-á-vis their representatives on the Board of Directors. (Brice Decl. ¶ 19.) While they lost the suit, the trial judge "noted and advised TPHL and CFM that they should address the management issues with the ARCA lenders to avoid further conflict given that the lenders were still owed a large sum by TPL." (Brice Decl. ¶ 20.) Thereafter, CFM and TPHL began working on consolidating the TPL equity with the goal that TPL be managed and operated with a single voice. (Brice Decl. ¶ 20.)

CFM...