Highland Capital Mgmt., L.P. v. UBS Sec. LLC (In re Lyondell Chem. Co.), Bankruptcy No. 09–10023 (REG).

• Decision Date: 10 April 2013
• Docket Number: Adversary No. 11–1728 (REG).,Bankruptcy No. 09–10023 (REG).
• Citation: 491 B.R. 41
• Parties: In re LYONDELL CHEMICAL COMPANY, et al., Debtors. Highland Capital Management, L.P., Plaintiff, v. UBS Securities LLC, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

491 B.R. 41

In re LYONDELL CHEMICAL COMPANY, et al., Debtors.Highland Capital Management, L.P., Plaintiff,

v.UBS Securities LLC, Defendant.

Bankruptcy No. 09–10023 (REG).

Adversary No. 11–1728 (REG).

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

April 10, 2013.

Lackey Hershman, LLP, By: Deborah Deitsch–Perez, Esq. (argued), Dallas, TX, for Plaintiff Highland Capital Management, L.P.

Simpson, Thacher & Bartlett, LLP, By: Linda H. Martin, Esq. (argued), Anne L. Knight, Esq., Daniel Stujenske, Esq., New York, NY, for Defendant UBS Securities LLC.

DECISION ON MOTION TO DISMISS

ROBERT E. GERBER, Bankruptcy Judge.

In this adversary proceeding under the umbrella of the jointly administered chapter 11 cases of reorganized debtor Lyondell Chemical Company (“Lyondell”) and its affiliates, hedge fund Highland Capital Management, L.P. (“Highland”) asserts claims against investment banker UBS Securities LLC (“UBS”) for tortious interference with contract and with prospective economic relations for UBS' alleged wrongful conduct in denying Highland the opportunity to participate as a lender in Lyondell's exit financing.¹ UBS moves to dismiss Highland's complaint (the “Complaint”) under Fed.R.Civ.P. 12(b)(6) for failure to state claims upon which relief can be granted.

With respect to Highland's first claim for relief—for tortious interference with the alleged existing contract—UBS' motion is granted. There was no contract with Highland as a party with which UBS tortiously interfered.

With respect to Highland's second claim for relief—for tortious interference with prospective contractual relations—one of UBS' two defenses requires consideration of matter that cannot yet be considered on a motion to dismiss. But the other is not subject to those constraints. The first of those two defenses—that UBS was acting to advance its economic interest in declining to enter into a transaction with Highland—requires further factual development, and cannot be considered on a motion under 12(b)(6). But the second of them—that UBS was privileged in choosing not to do business with Highland, especially since Highland was an entity against whom UBS, in other litigation, made allegations of fraud, and Highland had also brought litigation against UBS—can be addressed with consideration of documents Highland had available to it and relied on when it crafted its Complaint, and matters of which this Court can take judicial notice. Upon consideration of that additional matter, Highland's second claim for relief must be dismissed as well.

Facts

Under familiar principles, for the purpose of determining this motion to dismiss (and for that purpose only), the Court accepts the allegations of the 11–page Complaint as true, subject to the limits imposed under the Supreme Court's decisions in Twombly and Iqbal,² and other limits imposed by the Circuit when plaintiffs elect to characterize or disregard documents that bear on the viability of their claims.³ The allegations are summarized here. Additional facts relevant to particular causes of action appear in the Discussion section that follows.

1. Background

In January 2009, Lyondell and its affiliates filed for protection under chapter 11 of the Bankruptcy Code in this Court. As alleged in the Complaint, Highland was a long-time lender to and investor in Lyondell, with over $200 million invested in Lyondell across its capital structure.

2. Communications to/from Highland

Lyondell needed exit financing to emerge from bankruptcy. In March 2010, Lyondell delivered a “Confidential Information Memorandum” (the “Information Memorandum”) to Highland. As alleged in the Complaint, the Information Memorandum “offered participation” in a $1 billion senior secured term loan facility (the “Term Loan”) “on the terms memorialized” in the Information Memorandum.⁴ UBS was “Lyondell's New York agent arranging” the Term Loan.⁵

As alleged in the Complaint, the Information Memorandum “outlined the material terms” of the Term Loan, and “specified the manner in which Lyondell's offer could be accepted.” ⁶ Specifically, the InformationMemorandum included a form letter that interested recipients were instructed to transmit back to Lyondell's agent UBS, stating in pertinent part: “Subject only to satisfactory documentation, we are pleased to commit: $____ million to the $1.0 billion Senior Secured Term Loan Facility.” ⁷ Parties seeking to participate were instructed to fill in the amount of the $1 billion Term Loan to which they would commit.

As recognized in the Complaint, “[t]he form letter referred to UBS and Lyondell's discretion to make ‘allocations' of the Term Loan.” ⁸ But as further alleged in the Complaint, “[a]s typically used and understood in the industry, such discretion must be exercised in good faith and exists to enable the borrower to provide pro-rata allocations when an offering is oversubscribed.” ⁹

On March 15, 2010, Highland received the “offer made in the [Information] Memorandum.” ¹⁰ On March 17, 2010, as alleged in the Complaint, Highland “issued a commitment letter” (which Highland defined as the “Commitment Letter”) “in the form requested by Lyondell.” ¹¹ Specifically, the Commitment Letter stated, in pertinent part, that “[s]ubject only to satisfactory documentation, on behalf of our advised funds and accounts we are pleased to commit: $150 million to the $1.0 billion Senior Secured Term Loan Facility.” ¹²

On the same date, as alleged in the Complaint, Lyondell “accepted the commitment,” ¹³ stating (in an e-mail) (the “Responsive E-mail”) “Thank you very much, we look forward to successfully close [sic] this financing.” ¹⁴

On March 25, 2010, Lyondell provided notice of revised pricing terms. “Accordingly,” as alleged in the Complaint, Lyondell requested that Highland “recommit” to the revised pricing, on or before March 26, 2010.¹⁵ On March 25, 2010, Highland “sent the requested notice re-confirming its commitment to loan $150 million, “as previously agreed.” ¹⁶

3. UBS and Its Alleged Wrongful Conduct

As further alleged in the Complaint, UBS “was operating ostensibly as Lyondell's agent.” ¹⁷ UBS and Bank of America Securities, LLC (“BofA”) were designated the Joint Lead Arrangers and Joint Bookrunners of the Term Loan, and UBS and BofA prepared and delivered the InformationMemorandum to Highland. As alleged in the Complaint, “UBS was also the party designated to receive acceptance letters, such as the Commitment Letter sent by Highland.” ¹⁸ Then, as alleged by Highland, “UBS was the party charged with exercising Lyondell's discretion in determining allocations of the Term Loan.” ¹⁹

Highland then alleges that UBS, at the same time it was charged with arranging Lyondell's financing, “was involved in its own unrelated dispute with Highland.” ²⁰ Then, as alleged in the Complaint:

In order to pressure Highland in its own personal dispute, UBS willfully and in bad faith refused to allow Lyondell to allocate to Highland its agreed share of the Term Loan. Rather, UBS, in an attempt to show Highland who was boss, so to speak, abused its position of trust with Lyondell to exercise pressure on Highland.²¹

Highland further alleges that UBS sought to “maliciously punish Highland for exercising its rights in the UBS/Highland dispute, by withholding from Highland a valuable opportunity,” and that:

UBS intended that disabling Highland from obtaining a part of the Lyondell Term Loan would embarrass Highland and diminish its standing in the financial community, would harm Highland's own fund-raising efforts and ultimately deprive Highland of the profit to be made from the extremely successful Lyondell offering.²²

Finally, Highland alleges that by March 30, 2010, it learned that the loan allocations had been made and that it apparently had not received any part of the Term Loan allocation.²³

4. Claims for Relief

Based on these underlying facts, Highland seeks compensatory damages for tortious interference with (1) an allegedly existing contract, and (2) prospective contractual relations.²⁴

Highland also seeks punitive damages on each of these claims.

5. Procedural History

The Court first became aware of Highland's grievances in August 2010 when Lyondell filed a motion in its umbrella chapter 11 case to address a lawsuit brought by Highland in New York state court—then against both UBS and Lyondell—similarly complaining of Highland's allegedly wrongful exclusion from the opportunity to provide financing to Lyondell. In a motion to enforce provisions of the Plan (the “Plan Enforcement Motion”), Lyondell argued in the Plan Enforcement Motion, in contentions with which the Court ultimately agreed, that this Court had exclusive jurisdiction over the claims Highland had asserted, and that Highland'sclaims, insofar as they were asserted against Lyondell, were discharged.²⁵

In arguing against the Plan Enforcement Motion, Highland referenced, and filed with the Court, documents relating to the alleged contract with which Highland now asserts that UBS tortiously interfered.²⁶ They included:

(1) the Information Memorandum;

(2) a term sheet attached to the Information Memorandum (the “Terms Summary”);

(3) email communications among Highland, Lyondell, and UBS in March 2010 (the “March 2010 Emails”); and

(4) an execution copy of the ultimate Term Loan Agreement, dated as of April 8, 2010 (the “Term Loan Agreement”), about three weeks after the communications on which Highland bases its claims.²⁷

6. Other Matters That the Court May Consider

For reasons discussed below, the Court may consider other documents, which Highland elected not to reference expressly in its Complaint, but which Highland relied upon, characterized, or otherwise made reference to in its presentations to the Court, or as to which the Court may take judicial notice.

One such document was the Engagement Letter, which among other things described the nature of UBS' agency, which was characterized by Highland at paragraph 22 of its Complaint.²⁸ The...