Fluor Corp.. v. Citadel Equity Fund Ltd.

• Decision Date: 15 January 2010
• Docket Number: Civil Action No. 3:08–CV–1556–B.
• Citation: 760 F.Supp.2d 685
• Parties: FLUOR CORPORATION, Plaintiff,v.CITADEL EQUITY FUND LTD., Defendant.
• Court: U.S. District Court — Northern District of Texas

760 F.Supp.2d 685

FLUOR CORPORATION, Plaintiff,

v.CITADEL EQUITY FUND LTD., Defendant.

Civil Action No. 3:08–CV–1556–B.

United States District Court, N.D. Texas, Dallas Division.

Jan. 15, 2010.

Timothy S. Durst, Jennifer Paige Adams, Talley Ray Parker, Baker Botts LLP, Dallas, TX, for Plaintiff.Michael P. Lynn, Britta E. Stanton, Chris J. Akin, Christopher J. Schwegmann, Kent D. Krabill, Lynn Tillotson Pinker & Cox LLP, Dallas, TX, Alan R. Glickman, Brian T. Kohn, Christopher H. Giampapa, Schulte Roth & Zabel LLP, New York, NY, for Defendant.

MEMORANDUM OPINION AND ORDER

JANE J. BOYLE, District Judge.

Before the Court are Plaintiff Fluor Corporation's (“Fluor”) Motion for Summary Judgment (doc. 78), and Defendant/Counterclaimant Citadel Equity Fund Ltd.'s (“Citadel”) Motion for Summary Judgment(doc. 79), both filed July 14, 2009. For the reasons set forth below, the Court finds that Fluor's Motion should be and hereby is GRANTED and Citadel's Cross–Motion should be and hereby is DENIED.

I.BACKGROUND

Fluor issued $330 million of convertible notes (“Senior Notes”) in February of 2004. (Compl. at ¶ 14.) By May 2008, Citadel held an estimated $28 million in Senior Notes. ( Id. at ¶ 15.) As a holder of the Senior Notes, Citadel had the option to convert them into Fluor common stock (“Common Stock”), cash, or a combination of both. ( Id. at ¶ 18.) Its conversion rights, along with the rights of all Fluor note holders, were governed by an Indenture and a Supplemental Indenture (collectively, the “Indentures”), both of which are dated February 17, 2004. ( Id. at ¶ 16.)

On May 7, 2008, Fluor announced a two-for-one stock split which would go into effect on July 16, 2008. ( Id. at ¶ 21.) As a result of the stock-split, on July 16th each shareholder would receive one additional share of Common Stock for each share they held as of the record date. However, the price of each share would be halved to ensure that each shareholder would retain the same economic value in Common Stock after the split.

After the stock-split was announced, Citadel acquired an additional $30 million in Senior Notes, bringing its total holdings to approximately $58 million. ( Id. at ¶ 15.) On June 27, 2008, after announcement but before the additional shares of stock were distributed, Citadel exercised its right to convert all $58 million in Senior Notes. ( Id. at ¶ 26.) Section 5.03(c) of the Supplemental Indenture provided how much cash and how many shares of Common Stock were owed to Citadel upon conversion. See Supplemental Indenture § 5.03(c) (Fluor Ex. 3) (App. 130). The Section states in relevant part:

“The Conversion Settlement Distribution for each $1,000 principal amount of the Senior Notes shall consist of: (i) such cash amount equal to the applicable Conversion Rate multiplied by the average Closing Price of Common Stock during the Cash Settlement Averaging Period and (ii) a number of shares of Common Stock equal to the applicable Conversion Rate minus the Election Amount divided by the average Closing Price of the Common Stock during the Cash Settlement Averaging Period.”

Id. (emphasis added).

Using Section 5.03's mathematical formula, Fluor determined the cash amount and the number of shares which it owed Citadel. Accordingly, it paid Citadel $57,981,061.37 in cash and issued it 1,429,173 shares of Common Stock. (Compl. at ¶¶ 28–29.) Citadel did not dispute the cash payment but, upon receiving its conversion proceeds, objected to Fluor's distribution of Common Stock. ( Id.) The disagreement, which gives rise to the instant action, centered on the calculation used to determine the number of shares owed to Citadel as a result of the conversion. Specifically, the parties differed on the average “Closing Price” of Fluor common stock during the Cash Settlement Period.

Section 1.02(e) of the Supplemental Indenture defines Closing Price as “the closing sale price per share of the Common Stock ... on that date as reported in composite transactions for the principal U.S. securities exchange on which Common Stock is traded.” Supplemental Indenture § 5.03(c) (Fluor Ex. 3) (App. 97–98). For purposes of these Motions, the parties do not dispute that the principal U.S. securities exchange on which common stock is traded is the New York Stock Exchange (“NYSE”). The parties also agree that the Cash Settlement Period is the ten-day trading period which began after Fluor received Citadel's conversion notice. (Compl. at ¶ 35; Ans. at ¶ 35.); see also Supplemental Indenture § 5.03(c) (Fluor Ex. 3) (App. 97–98). Additionally, it is undisputed that the prices which were reported by the NYSE during the Cash Settlement Period come to an average of $177.60. (Compl. at ¶ 43; Ans. at ¶ 43.)

Still, Fluor, taking into account the stock-split, determined the average Closing Price for a single share of Common Stock to be $88.80 and used this amount to calculate the number of shares of Common Stock owed to Citadel upon conversion. (Compl. at ¶ 43.) Had Fluor used $177.60 rather than $88.80 in making the conversion calculation, Citadel would have received 1,755,626 shares of Common Stock, or 326,453 shares more than it was issued. (Def.'s Br. in Supp. Mot. Summ. J. 12.)

In support of its calculation, Fluor argues that the closing prices reported during the relevant period were not the prices per share of Flour common stock. (Compl. at ¶ 43.) It contends that shares traded after the stock-split was announced but before the split dividends were distributed had a “due-bill” attached. ( Id. at ¶ 42.) A due-bill is a written acknowledgment of an obligation to deliver a share of stock which has not been disbursed but has already been purchased. Once the split dividends are distributed, the buyer can exchange his due-bill for the share of common stock owed to him. Fluor claims that because the due-bills were reflected in the closing prices reported during the Cash Settlement Period, the average Closing Price for a single share of Common Stock was half of the amount reported by the NYSE on those days, or $88.80. ( Id. at ¶ 43.)

In response, Citadel argues that the prices reported were, in fact, the prices per share. (Def.'s Br. in Supp. Mot. Summ. J. 12.) Citadel reasons that a due bill is merely a right attached to a single share of stock and not an existing share of stock. ( Id.) Because the split dividends did not exist before the distribution date, Citadel argues, they are irrelevant for purposes of calculating the Closing Price per share. Moreover, Citadel urges that Fluor must use the prices as they were reported by the NYSE. ( Id.) Because $88.80 was not the price as reported, Citadel contends Fluor may not use it in its calculations. ( Id. at 13.)

In light of Citadel's contentions, Fluor commenced this action for declaratory judgment on September 3, 2008. It seeks a judgment from the Court declaring that it complied with the governing Indentures and that Citadel is not entitled to additional shares of Common Stock. Citadel subsequently filed a breach of contract counterclaim. Citadel is seeking a judgment requiring Fluor to provide it with the value of the 326,453 shares of common stock, or $28,296,946. Both parties have filed motions for summary judgment. The Court convened a hearing on the Motions on Tuesday, October 6, 2009 at 3:00 p.m. Having considered the Motions, the briefings, and the parties' oral arguments, the Court now turns to the merits of its decision.

II.LEGAL STANDARD

A. Summary Judgment Standard

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. Hart v. Hairston, 343 F.3d 762, 764 (5th Cir.2003). The burden lies on the summary judgment movant to prove that no genuine issue of material fact exists. Latimer v. Smithkline & French Lab., 919 F.2d 301, 303 (5th Cir.1990). To determine whether a genuine issue exists for trial, the court must view all of the evidence in the light most favorable to the non-movant and all inferences must be drawn in its favor. Munoz v. Orr, 200 F.3d 291, 302 (5th Cir.2000). If the evidence submitted would allow a reasonable jury to return a verdict for the non-movant, a genuine issue remains and the court cannot grant summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

B. Contract Interpretation under New York Law

It is undisputed that New York substantive law governs the Indentures at issue in this case. “Under New York law, a written contact is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language that they have employed.” Broad v. Rockwell International Corporation, 642 F.2d 929, 946 (5th Cir.1981). A court must fairly and reasonably interpret the contract consistently with its intended purpose. Id. However, what the parties intended is only relevant to the extent that such intentions are evidenced by the language of the contract. Id. at 947.

When a contract provision is unambiguous on its face and the intention of the parties is clear, extrinsic matters should not be considered. Id.; see also R/S Assoc. v. New York Job Devel. Auth., 98 N.Y.2d 29, 33, 744 N.Y.S.2d 358, 771 N.E.2d 240 (N.Y.App.Div.2002) (holding that unless the court finds ambiguity, evidence outside the four corners of the contract is generally inadmissible). Moreover, extrinsic evidence is not admissible to create ambiguity in a contract which is complete, clear and unambiguous on its face. W.W.W. Associates, Inc. v. Giancontieri, 77 N.Y.2d 157, 163, 565 N.Y.S.2d 440, 566 N.E.2d 639 (N.Y.1990). Words and phrases should be given their plain meaning. Broad, 642 F.2d at 947. “The parties having agreed upon their own terms and conditions, ‘the courts cannot change them and must not permit them to be violated or disregarded.’ ”...