716 Fed.Appx. 73 (3rd Cir. 2017), 16-3664, Yucaipa American Alliance Fund I, LP v. Ehrlich
|Citation:||716 Fed.Appx. 73|
|Opinion Judge:||SCIRICA, Circuit Judge.|
|Party Name:||YUCAIPA AMERICAN ALLIANCE FUND I, LP, a Delaware Limited Partnership; Yucaipa American Alliance Parallel Fund I, LP, a Delaware Limited Partnership, Appellants v. Richard A. EHRLICH; Stephen H. Deckoff; Leslie A. Meier; Jeffrey A. Schaffer; BDCM Opportunity Fund II, LP, A Delaware Limited Partnership; Black Diamond CLO 2005-1 Ltd, a Cayman ...|
|Attorney:||Robert A. Klyman, Esq., Kahn A. Scolnick, Esq., Maurice M. Suh, Esq., Gibson Dunn & Crutcher, Los Angeles, CA, Edmon L. Morton, Esq., Michael S. Neiburg, Esq., Michael R. Nestor, Esq., Young Conaway Stargatt & Taylor, Wilmington, DE, for Plaintiffs-Appellants Rebecca L. Butcher, Esq., Adam G. Lan...|
|Judge Panel:||Before: CHAGARES, SCIRICA, and FISHER, Circuit Judges|
|Case Date:||November 15, 2017|
|Court:||United States Courts of Appeals, Court of Appeals for the Third Circuit|
Submitted Pursuant to Third Circuit LAR 34.1(a) April 4, 2017
This opinion is not regarded as Precedents which bind the court under Third Circuit Internal Operating Procedure Rule 5.7. (See Federal Rule of Appellate Procedure Rule 32.1)
On Appeal from the United States District Court for the District of Delaware, (D. Del. No. 1-15-cv-00373) District Judge: Honorable Sue L. Robinson.
Robert A. Klyman, Esq., Kahn A. Scolnick, Esq., Maurice M. Suh, Esq., Gibson Dunn & Crutcher, Los Angeles, CA, Edmon L. Morton, Esq., Michael S. Neiburg, Esq., Michael R. Nestor, Esq., Young Conaway Stargatt & Taylor, Wilmington, DE, for Plaintiffs-Appellants
Rebecca L. Butcher, Esq., Adam G. Landis, Esq., Kerri K. Mumford, Esq., Landis Rath & Cobb, Wilmington, DE, Lawrence V. Gelber, Esq., Adam C. Harris, Esq., David M. Hillman, Esq., Robert J. Ward, Esq., Schulte Roth & Zabel, New York, NY, for Defendants-Appellees
Before: CHAGARES, SCIRICA, and FISHER, Circuit Judges
SCIRICA, Circuit Judge.
This case involves events surrounding the bankruptcies of Allied Systems Holdings, Inc. and a dispute between hedge funds who hold portions of Allieds first lien debt. Plaintiffs are two hedge funds managed by Yucaipa Companies, LLC, (collectively "Yucaipa"). Defendants are hedge funds managed by Black Diamond and Spectrum Investment Partners, and their employees (collectively "BD/S"). Yucaipa alleges BD/S engaged in a conspiracy to induce Yucaipa to take a detrimental position in Allieds bankruptcy, resulting in damages in the form of equitable subrogation of Yucaipas first lien debt holdings by the bankruptcy court and resulting legal fees. Yucaipa asserts claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962, as well as state law claims for fraud and tortious interference with business relations.
The District Court granted BD/Ss motion to dismiss the RICO claims and declined to exercise supplemental jurisdiction over the remaining state law claims, and Yucaipa appealed. We will affirm.
The origins of this case lie in the first bankruptcy of Allied in 2007 in the United States Bankruptcy Court for the District of Delaware and a tangled web of resulting litigation. After the bankruptcy, Yucaipa became the majority shareholder of Allied under the plan of reorganization and controlled the board of directors. To finance the reorganization and emergence from bankruptcy, in May 2007, Allied borrowed $265 million of first lien debt from numerous lenders pursuant to a credit agreement. BD/S were among the lenders, and held a minority stake in the first lien debt.
The terms of the credit agreement are essential to the present dispute. Under its terms, a lender or lenders holding 50% or more of the first lien debt can act as "requisite lenders" who have the authority to declare events of default, demand immediate payment by Allied of the balance of the loan, or commence foreclosure. As Allieds majority equity holder, Yucaipa was expressly forbidden by the terms of the credit agreement from acting as a requisite lender.
In 2008, Allied defaulted on the first lien debt and stopped making interest payments. Subsequently, Allied agreed to an amendment of the credit agreement, which gave Yucaipa the right to purchase first lien debt, but under certain restrictions, which continued to prevent Yucaipa from serving as the requisite lenders.
In February 2009, ComVest Investment Partners III, L.P., which is not a party to this suit, became the requisite lenders. Yucaipa negotiated directly with ComVest to acquire the majority of Allieds first lien debt. In addition, Yucaipa, as majority equity holder, caused Allied to enter a purported amendment to the credit agreement, which would have eliminated the restrictions on Yucaipas ownership of Allieds first lien debt and allowed Yucaipa to become the requisite lenders. On the same day, Yucaipa declared itself the requisite lenders under the terms of the original credit agreement.
However, the proposed amendment was not approved by unanimous consent of the first lien debt lenders, as required by the original credit agreement. In January 2012, BD/S filed suit against Yucaipa in New York state court and successfully obtained a declaratory judgment that Yucaipa was not the requisite lenders because the purported amendment to the credit agreement was void.
While the New York action was pending, in May 2012, BD/S filed involuntary petitions for bankruptcy against Allied in the United States Bankruptcy Court for the District of Delaware. In adversarial proceedings in...
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