In re Westinghouse Elec. Co.
| Decision Date | 01 August 2018 |
| Docket Number | Case No. 17-10751 (MEW) (Jointly Administered) |
| Citation | 588 B.R. 347 |
| Parties | IN RE WESTINGHOUSE ELECTRIC COMPANY LLC, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
DAVIS & GILBERT LLP, Attorneys for Landstar Express America, Inc., Landstar Global Logistics, Inc., and Landstar Inway, Inc., 1740 Broadway, New York, New York 10019, By: H. Seiji Newman, Esq., Massimo Giugliano, Esq., Matthew R. Maddox, Esq.
DRINKER BIDDLE & REATH LLP, Attorneys for Whitebox Advisors LLC, Whitebox Multi-Strategy Partners, LP, and Whitebox Asymmetric Partners, LP, 1177 Avenue of the Americas, New York, New York 10036, By: James H. Millar, Esq., Clay J. Pierce, Esq., Brian P. Morgan, Esq.
BENCH DECISION REGARDING OBJECTIONS BY VARIOUS LANDSTAR ENTITIES TO NOTICES OF PARTIAL TRANSFERS OF CLAIM FILED BY VARIOUS WHITEBOX ENTITIES
I want to start by commending the parties' counsel on their excellent and very thoughtful submissions and on the streamlined and professional way in which the exhibits and the testimony were presented. It was a great help as well as a great pleasure to the Court to have experienced advocates present a case in such a high-quality manner.
Before the Court are disputes that relate to three proofs of claim filed in the chapter 11 case of Westinghouse Electric Company LLC, et al. The proofs of claim were filed by Landstar Global Logistics, Inc., Landstar Inway, Inc., and Landstar Express America, Inc. For convenience I will refer to those three entities collectively today as "Landstar," as for purposes of today's rulings it is not necessary to distinguish among them.
On February 6, 2018, notices of the partial transfers of the three claims were filed. Collectively, the notices contemplated a full transfer of each claim but each notice was denominated as a partial transfer because there were multiple transferees who were involved with respect to individual claims. The transfer notices are filed at Docket Numbers 2427 through 2432; a corrected version of Docket Number 2427 was filed on February 7, 2018 to correct an inadvertent error in the attachments to the notice, and that corrected notice is at Docket Number 2433.
The filed transfer notices included attachments that explained the bases for the transfers. The attachments asserted that the Landstar entities had offered to sell the claims and that the offers had been accepted by Seaport Global Holdings, LLC, which was acting on behalf of an entity named Whitebox Advisors, LLC, which, in turn, was acting for affiliated entities named Whitebox Multi-Strategy Partners, LP and Whitebox Asymmetric Partners, LP. During the remainder of this opinion I will refer to Seaport Global Holdings, LLC as "Seaport." I will also refer to the various Whitebox entities collectively as "Whitebox," just as the parties did throughout the trial, because for today's rulings it is not necessary to distinguish among the various Whitebox entities.
Transfers of claims are subject to the terms of Rule 3001 of the Federal Rules of Bankruptcy Procedure. On February 26, 2018, the Court approved a stipulation among the parties that extended the Landstar parties' deadline for the filing of objections to the claim transfers to and including March 15, 2018. Landstar then filed a timely objection to the transfer notices on March 15, 2018. (See Dkt. No. 2857.)
Section 502 of the Bankruptcy Code gives me jurisdiction over claims against an estate, and the Federal Rules of Bankruptcy Procedure give me power to resolve disputes over claim transfers. The parties agreed, at least with respect to the validity of the transfer notices, that I had jurisdiction and that I could and should render a final decision on the merits of their dispute. However, there have been some changes during the course of these proceedings in the legal theories advanced by the parties, or more particularly, in the legal theories advanced by Whitebox, which resulted in some additional questions at the outset of the trial. As background to those questions I need to set forth a somewhat more detailed procedural history than might otherwise have been needed.
Whitebox contended in its February 6 transfer notices that a series of email exchanges gave rise to a "qualified financial contract" under Section 5-701.b.2(i) of the New York General Obligations Law. Whitebox argued that the alleged transfer agreement was fully binding and enforceable based on the email exchanges and without regard to whether further documentation was signed.
Landstar made a number of arguments in the objection that it filed on March 15, 2018. Dkt. No. 2857. First, Landstar contended that there had not been an offer and an unequivocal acceptance. It contended that the sale offer identified by Whitebox had not been accepted, but instead that a counteroffer had been made. Landstar further argued that the counteroffer substantially altered the economics of the proposed deal, that it was rejected by Landstar, and that no contract was formed.
Second, Landstar contended that the parties had made clear in their discussions that no contract of sale could or would be formed until the execution of definitive written agreements, and that absent such written agreements, there was no intent to be bound.
Third, Landstar argued that material terms of a contract, such as the identities of the actual purchasers and certain economic terms, had never been agreed upon. Landstar, therefore, objected to the transfer notices in their entirety and asked the Court to order Whitebox to withdraw them and to direct the claims agent to recognize Landstar as the holder of the claims.
After the filing of the objection, certain discovery disputes arose between the parties and were the subject of a telephone conference with the Court. The Court also directed the parties to make further submissions regarding the relevant legal issues, and the parties did so on May 24, 2018. The Whitebox submission is at Docket Number 3266, and the Landstar submission is at Docket Number 3263.
In its May 24 submission, Whitebox continued to argue that the parties' email exchanges created an enforceable contract that was binding without execution of a written agreement. However, Whitebox also argued in the alternative that the exchanges produced a binding preliminary commitment that obligated the parties to negotiate in good faith as to other open terms. Whitebox described this as a contention that the parties had entered into a so-called "Type II" agreement, as that term is used in the Second Circuit Court of Appeals decision in Brown v. Cara , 420 F.3d 148 (2d Cir. 2005). In Cara , the Second Circuit described such a contract as one in which parties enter into a binding agreement as to certain terms and a binding agreement to negotiate in good faith as to other open issues. Id. at 153. We often see examples of such contracts in the form of commitment letters to negotiate financing or, as in the Cara decision, in the form of a memorandum of understanding in which parties contractually commit that they will work together to accomplish a particular project.
The parties appeared before the Court to discuss Landstar's objection to the transfers on May 30, 2018. At that time, counsel for Landstar urged the Court to resolve the matter based on the written materials that had been submitted. Counsel for Whitebox contended that further discovery was needed and that a trial should be held to resolve disputes as to the parties' intent. I ruled that discovery should be completed and that the matter should be scheduled for trial.
The parties completed discovery and submitted a pretrial order that was entered by the Court on July 16, 2018, with a corrected version entered July 18, 2018. (See Dkt. Nos. 3586 and 3597.) Trial was held on July 18, 2018.
In the pretrial order, Whitebox continued to argue that the parties' exchanges created a fully binding agreement or, alternatively, that they created a Type II agreement in which the parties had legally agreed to bind themselves to certain terms and to negotiate other terms in good faith. When I asked about this at the outset of trial, however, one of Whitebox's attorneys stated that Whitebox's only contention was that the parties had reached a binding Type II contract. There was some considerable confusion over this, at least in my mind, as two different attorneys for Whitebox made statements about Whitebox's contentions that I had trouble reconciling. It was made emphatically clear by the end of the trial, however, that Whitebox was contending only that a partial Type II contract had been reached, and was not contending that a fully enforceable agreement on all relevant terms had been reached.
These exchanges at the outset of the trial raised other issues. In the pretrial order and at the outset of the trial, Landstar took the position that the so-called Type II contract issue should not be considered by the Court. Landstar argued that the only relevant issue before the Court was whether transfers had actually occurred. Landstar contended at the outset of the trial that it was plain from Whitebox's changed position that transfers of the claims had not actually occurred and that the only contention was that Landstar had breached a commitment to discuss a possible transfer, and so there was nothing more that I should do.
The Court pointed out, however, that Whitebox's reliance on the Type II contract issue did not involve any element of unfair surprise. Whitebox's attorney referred to this contention in an email dated January 30, 2018, a copy of which had previously been sent to the Court and had been pre-marked as an agreed exhibit for the trial. Plaintiff's Exhibit ("PX") 19 ("... ...
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