Gso Coastline Credit P'ship LP v. Global A&T Elecs. Ltd.

• Decision Date: 14 July 2015
• Docket Number: Index No. 650447/2014
• Citation: 2015 NY Slip Op 31232 (U)
• Parties: GSO COASTLINE CREDIT PARTNERSHIP LP, et al. Plaintiffs, v. GLOBAL A&T ELECTRONICS LTD., et al., Defendants.
• Court: New York Supreme Court

2015 NY Slip Op 31232(U)

GSO COASTLINE CREDIT PARTNERSHIP LP, et al. Plaintiffs, v. GLOBAL A&T ELECTRONICS LTD., et al., Defendants.

Index No. 650447/2014

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 3

July 14, 2015

Motion Seq. Nos. 002, 003, 004

Motion Date: 2/6/2015

BRANSTEN, J.:

Plaintiffs, who are holders of 10% Senior Secured Notes issued by defendant Global A&T Electronics Ltd. ("GATE") in February 2013, assert claims arising from a September 2013 transaction, whereby GATE issued additional notes to holders of then-outstanding second lien debt in exchange for the cancellation and termination of this debt. Plaintiffs contend that this issuance of additional notes, which rank pari passu to plaintiffs' holdings, violates the contracts governing the notes. According to plaintiffs, the debt exchange (the "Exchange") altered the lien priority scheme in GATE's capital structure, eliminated GATE's second lien debt as a "credit cushion," and "diluted" the collateral securing plaintiffs' notes.

In their Amended Complaint, plaintiffs assert claims for (1) breach of the February 7, 2013 Indenture, as amended (the "Indenture"), which governs the notes; (2) breach of the October 30, 2007 Intercreditor Agreement, as amended (the "ICA"), which governsthe priority structure between GATE's first and second lien debt; (3) fraudulent inducement and fraud arising in connection with plaintiffs' purchases of the notes; (4) breach of the implied covenant of good faith and fair dealing; and, (5) tortious interference with contract.

Motion sequence nos. 002, 003 and 004 are consolidated herein for disposition. In motion sequence no. 002, defendants Affinity Fund III General Partner Limited ("Affinity") and Costa Esmeralda Investments Limited ("Costa") seek dismissal of the seventh, eighth, ninth and tenth causes of action of the Amended Complaint, as asserted against them, pursuant to CPLR 3211(a)(1) and (a)(7).

In motion sequence no. 003, defendants Newbridge Asia GenPar IV Advisors, Inc. and TPG Asia GenPar V Advisors, Inc. (collectively "TPG") move, pursuant to CPLR 3211(a)(7), for an order dismissing the Amended Complaint as against them.

In motion sequence no. 004, defendants GATE, and its subsidiaries, Global A&T Finco Ltd., United Test and Assembly Center Ltd. ("UTAC"), UTAC Cayman Ltd., UTAC Hong Kong Limited, UTAC (Taiwan) Corporation, UTAC Thai Limited, and UTAC Thai Holdings Limited (collectively, the "GATE defendants") likewise seek dismissal of all claims asserted against them in the Amended Complaint, pursuant to CPLR 3211(a)(1) and (a)(7).

For the reasons set forth below, defendants' motions to dismiss are granted.

I. BACKGROUND

A. The Parties

The GATE defendants are a leading provider of semiconductor test and assembly services for integrated circuits used in mixed signal and logic products, and analog and memory products. (Am. Compl. ¶¶ 1, 91.) Defendants Affinity and TPG own a majority share in the GATE defendants, having acquired their interest in October 2007. Id. ¶¶ 1, 96. Defendant Affinity is the general partner of a fund - Affinity Asia Pacific Fund II - which is a shareholder of defendant GATE. Defendant Costa, an affiliate of Affinity, was one of the holders of the second-lien loans.

Plaintiffs allege that the two named TPG defendants control GATE, because they control the entities that hold approximately 47% of the outstanding equity of Global A&T Holdings ("GATH"), of which GATE is a wholly-owned subsidiary. (Am. Compl. ¶ 96.) Plaintiffs further allege that TPG and Affinity are GATE's "controlling shareholders," id. ¶¶ 3, 5, 15, 89, 23, 164, 179, 321-22, 324, and that "each have two representatives on GATE's four-member board of directors." Id. ¶ 96.

Plaintiffs are purchasers of more than $323 million of GATE's Senior Secured Note (the "Notes"), pursuant to the Indenture. Id. ¶ 2. Plaintiffs represent four Noteholder groups: Group I plaintiffs represent $84 million; Group II plaintiffs represents $12 million; and, Group III plaintiffs represent $225 million. The Indenture plaintiffscomprise some, but not all, of the Group I and Group II plaintiffs. Id. ¶¶ 2, 70-74. Only the Group I and Group II plaintiffs assert fraud claims, and all of the plaintiffs assert breach of the ICA.

B. GATE's Pre-2013 Credit Facilities

In 2007, GATE entered into two senior and two junior credit facilities. Id. ¶ 97. The senior facilities comprised a $625 million senior term loan due to mature on October 30, 2014 and a $150 million revolving credit facility due to mature on October 20, 2013 (the "2007 First Priority Obligations"). The junior facilities comprised a fixed rate loan and a floating rate loan, each for $237.5 million, and both due to the mature on October 30, 2015 (the "Second Priority Obligations"). Id. All four credit facilities were equal in payment priority, but the 2007 First Priority Obligations had a first lien on GATE's assets and the Second Priority Obligations had a second lien. See Affirmation of Joshua Greenblatt ("Greenblatt Affirm.") Ex. H at 9, 11 (1/31/13 offering circular).

C. GATE Issues the Notes Purchased by Plaintiffs

In February 2013, GATE issued $625 million of Notes pursuant to the Indenture, and used the proceeds to prepay the 2007 First Priority Obligations. (Am. Compl. ¶¶ 118, 124.) The Notes, due to mature on February 1, 2019, are equal in payment priority toGATE's Second Priority Obligations, if any, but are secured by a first lien on GATE's assets under the terms of the Indenture. Id. ¶ 117.

The Notes were offered to plaintiff pursuant to a detailed offering circular, dated January 31, 2013 (the "Offering Circular"). The Offering Circular expressly disclosed that:

• the Notes being offered to plaintiffs and other investors were equal to the Second Priority Obligations in payment priority, see Offering Circular at 9, 133;

• GATE had the express right to issue additional Notes pari passu to the Notes being offered to plaintiffs and other investors, id. at 132-133;

• GATE had the express right to secure the additional Notes with a lien on the same collateral securing the Notes held by plaintiffs and other investors, id. at 136-138;

• the Second Priority Obligations were due to be repaid in 2015, four years before the Notes matured in 2019, at the latest, id. at 159, 200-201.

D. The Governing Agreements

The Indenture governs GATE's rights and obligations regarding its Priority Obligations - including $625 million of Notes issued February 7, 2013 and $502 million in additional Notes issued on September 30, 2013. (Am. Compl. ¶ 9.) GATE entered into a second supplemental indenture on September 30, 2013 to specify that the additional Notes be treated as a single class with the Notes. See Greenblatt Affirm. Ex. G. The ICA governs the priority structure between GATE's First Priority Obligations and Second Priority Obligations. (Am. Compl. ¶ 7.) The ICA was amended twice, most notably for the second time on September 30, 2013, inter alia, to amend the definition of "Second Priority Agreement" in the ICA and to designate the additional Notes issued by GATE on that date as "First Priority Agreements" under the ICA. See id. Ex. E.

E. The Exchange

Following the issuance of the Notes in February 2013, GATE's business took a downturn and its sales decreased by a year-over-year drop of 18%. (Am. Compl. ¶¶ 157-158.) According to plaintiffs, GATE's "deteriorating financial condition" made taking the company public difficult, and "forc[ed] GATE to revert to its contingency plan; the Exchange." Id. ¶ 198.

On September 30, 2013, pursuant to the Exchange, GATE issued approximately $502 million of additional Notes pursuant to the Indenture. (Am. Compl. ¶ 167.) As expressly permitted under the Indenture, the additional Notes were designated First Priority Obligations and rank pari passu to the Notes issued in February 2013 with respect to GATE's collateral. See Greenblatt Affirm. Ex. F (Indenture) at A-3, A-4. GATE issued the additional Notes to holders of GATE's Second Priority Obligations,who agreed to cancel and terminate their Second Priority Obligations as of September 30, 2013 in exchange for the additional Notes. (Am. Compl. ¶¶ 166-169.)

Specifically, GATE provided holders of the Second Priority Obligations with (1) $925 in principal value of the Notes for every $1,000 of outstanding Second Priority Obligations that the holders agreed to cancel and terminate; and (2) consent and issuance fees payable upon successful completion of the Exchange. (Am. Compl. ¶¶ 169-173.) All of GATE's then-existing Second Priority Obligations were extinguished as of September 30,2013. Id. ¶¶ 16, 174.

GATE contends that it had clear contractual rights to effect each aspect of the Exchange under the Indenture and the ICA.

G. The Amended Complaint

The Amended Complaint alleges thirteen causes of action. The first through sixth and eleventh causes of action assert breaches of the Indenture and seek injunctive relief unwinding the Exchange, damages, and a declaration accelerating the Notes. The seventh and ninth causes of action assert a breach of the ICA, while the twelfth and thirteenth causes of action assert fraudulent inducement and fraud and seek rescission of plaintiffs' Note purchases, and damages.

II. DISCUSSION

A. Motion to Dismiss Standard

Although on a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), "the pleading is to be afforded a liberal construction," and "the facts as alleged in the complaint [are presumed] as true," Leon v. Martinez, 84 N.Y.2d 83, 87 (1994), "factual claims [that are] either inherently incredible or flatly contradicted by documentary evidence are not entitled to such consideration." Mark Hampton, Inc. v. Bergreen, 173 A.D.2d 220, 220 (1st Dep't 1991) (citation omitted); see also Caniglia v. Chicago Tribune-N.Y. News Syndicate, 204 A.D.2d 233 (1st Dep't 1994).

In order to prevail on a motion to dismiss based upon documentary evidence, the movant must demonstrate that the...