In re Premier Int'l Holdings Inc.

• Decision Date: 19 November 2010
• Docket Number: Bankruptcy No. 09–12019 (CSS).,Adversary No. 10–50061 (CSS).
• Citation: 443 B.R. 320
• Parties: In re PREMIER INTERNATIONAL HOLDINGS, INC., et al., Debtors.Six Flags, Inc., Plaintiff,v.Parc Management, LLC, Parc Operations, LLC, Parc 7F–Operations Corporation, Parc Elitch Gardens, LLC, Parc White Water Bay, LLC, Parc Frontier City, LLC, Parc Splashtown, LLC, Parc Waterworld, LLC, and Parc Enchanted Parcs, LLC, Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

443 B.R. 320

In re PREMIER INTERNATIONAL HOLDINGS, INC., et al., Debtors.Six Flags, Inc., Plaintiff,

v.Parc Management, LLC, Parc Operations, LLC, Parc 7F–Operations Corporation, Parc Elitch Gardens, LLC, Parc White Water Bay, LLC, Parc Frontier City, LLC, Parc Splashtown, LLC, Parc Waterworld, LLC, and Parc Enchanted Parcs, LLC, Defendants.

Bankruptcy No. 09–12019 (CSS).

Adversary No. 10–50061 (CSS).

United States Bankruptcy Court, D. Delaware.

Nov. 19, 2010.

Benesch, Friedlander, Coplan & Aronoff LLP, Raymond H. Lemisch, Wilmington, DE, David M. Wells, Gunster, Yoakley & Stewart, P.A., Jacksonville, FL, for Defendants.Richards, Layton & Finger, P.A., Daniel J. DeFranceschi, Marcos A. Ramos, Zachary I. Shapiro, Wilmington, DE, Gregory A. Markel, Kathryn F. Shreeves, Cadwalader, Wickersham & Taft LLP, New York, NY, for Six Flags, Inc.

OPINION ¹

CHRISTOPHER S. SONTCHI, Bankruptcy Judge.

INTRODUCTION

Before this Court is the defendants' motion to dismiss related to an action filed by Six Flags, Inc. The adversary action asserts causes of action for (i) turnover pursuant to 11 U.S.C. § 542(b) (Count I); (ii) breach of contract (Counts II and III); and (iii) declaratory judgment pursuant to 28 U.S.C. §§ 2201 and 2202 (Count IV). The Complaint seeks turnover of property of the estate, damages, and declaratory relief resulting from the defendant's alleged breach of an unsecured promissory note. For the reasons set forth below, the Court grants the motion to dismiss Counts II and IV; and grants, without prejudice, the motion to dismiss Counts I and III.

JURISDICTION

This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2). Venue is proper pursuant to 28 U.S.C. § 1409.

FACTUAL AND PROCEDURAL BACKGROUND

I. Procedural History

In June 2009, Six Flags, Inc. (“Six Flags”) ² commenced its Chapter 11 cases by filing a voluntary petition in this Court. Subsequently, Six Flags filed a complaint against the defendants, Parc Management, LLC, Parc Operations, LLC, Parc 7F–Operations Corp., Parc Elitch Gardens, LLC, Parc Frontier City, LLC, Parc Splashtown, LLC, Parc Waterworld, LLC, and Parc Enchanted Parks, LLC (collectively, “Parc”).³ The Complaint seeks turnover of property of the estate, damages, and declaratory relief resulting from Parc's alleged breach of the terms of an unsecured promissory note. ⁴ Parc filed a motion to dismiss all counts of the Complaint. This matter is ripe for decision.

II. Factual HistoryA. The Parties

Plaintiff, Six Flags, is a Delaware corporation with its principal place of business in New York, New York. Six Flags owns and operates amusement parks throughout the United States.

Defendants, Parc Management, LLC and Parc 7F–Operations Corporation, are both incorporated and have principal places of business in Florida. The remaining Parc subsidiaries are similarly incorporated as Florida limited liability companies. Through its family of companies, Parc owns and operates amusement parks and family entertainment venues across North America.

B. The Amusement Park Acquisition Deal

In April 2007, Parc acquired nine amusement parks from Six Flags for $312 million. Parc paid $275 million of the purchase price in cash. The remainder was financed by Six Flags through an unsecured subordinated promissory note (the “Note”) with a face value of $37,000,000 that Parc agreed to pay, with interest, over approximately ten years. Contemporaneously, Parc entered into a number of sale-leaseback transactions with a non-party, CNL Financial Group, Inc. (“CNL”), whereby CNL purchased the parks from Parc then leased them back to Parc. Six Flags also assisted Parc in this financing arrangement by executing a Limited Rent Guaranty, guaranteeing Parc's lease obligations and/or deferring payments under the Note up to a maximum amount of $9,999,999.⁵

The dispute between the parties involves the first paragraph of the Note (the “Contested Provision”). This operative provision of the Note, outlining the payment schedule specifically states:

Accrued and unpaid interest only shall be due and payable monthly on the outstanding principal balance at the applicable Interest Rate beginning on May 1, 2007, and continuing on the first (1st) day of each month thereafter until the Maturity Date. In addition, the principal shall be due and payable in consecutive annual payment of ONE MILLION SEVEN HUNDRED THOUSAND AND NO/100TH DOLLARS (U.S. $1,700,000.00), on the first day of January beginning on January 1, 2008 and continuing on each anniversary thereof through and including January 1, 2016, and the entire indebtedness evidenced hereby shall be due and payable in full, together with a balloon principal payment of TWENTY ONE MILLION SEVEN HUNDRED THOUSAND AND NO/100TH DOLLARS (U.S. $21,700,000.00) on the Maturity Date; provided, however, that if the amount of the Limited Rent Guaranty (Six Flags) to be provided by the holder in favor of the Landlords (as defined therein) under the Leases as of the date of this Note is less than $9,999,999 (the excess of $9,999,999 over the amount of such guaranty, the “Deferred Amount”), then payments of principal and interest under this Note shall be deferred until such time as the total amount of deferred payments of principal and interest (such deferred payments, the “Accrued Deferred Payments”) equals the Deferred Amount, and the Deferred Amount shall be added to the balloon payment due hereunder; provided, further, however, that the Deferred Amount shall be reduced (but not below zero) by an amount equal to (i) $1,000,000 on January 1 of each year plus (ii) the amount of any Amount Funded ⁶ (as such term is defined in the Limited Rent Guaranty (Six Flags)); concurrently, therewith, the amount if any, by which the Accrued Deferred Payments exceeds the Deferred Amount, as adjusted, shall be paid in full to the Holder. If an Equity Event ⁷ (as such term is defined in the Limited Rent Guaranty (Six Flags)) occurs after the date of this Note, then the Deferred Amount shall be further reduced (but not below zero) by the amount of the net proceeds received by the Obligors upon consummation of such subsequent Equity Event effective as of the date of such Equity Event; concurrently, therewith, the amount if any, by which the Accrued Deferred Payments exceeds the Deferred Amount, as adjusted, shall be paid in full to the Holder.⁸

More simply, the Contested Provision provides that interest payments are due monthly, while principal payments are due annually, and the remainder of the principal will be paid in a balloon payment on the maturity date of the Note. However, the Contested Provision provides for a deferral of principal and interest payments. The Contested Provision states that Parc may defer payments of principal up to a maximum amount of approximately $10 million (the “Deferred Amount”). Per the calculation set forth in the Contested Provision, as of April, 2007, the Limited Rent Guarantee was $0. Thus, as of the date the Note was entered, the Deferred Amount was $9,999,999.00. Therefore, principal and interest payments were deferred until such amounts actually deferred (the “Accrued Deferred Payments”) equaled the Deferred Amount (“Equalization”).

Furthermore, the Deferred Amount was subject to three particular reductions: (1) $1 million each January 1st, (2) the value of any guaranteed rent paid by Six Flags under the Limited Rent Guaranty, and (3) the amount of net proceeds from an Equity Event.⁹

The Note designates that the laws of New York shall apply in the event of a dispute between the parties.¹⁰

C. The Subordination and Intercreditor Agreement

The Note contemplated that Parc would enter into a working capital facility with another lender and, in the case of default under this working capital facility, payments under the Note would be subordinated to payments under the working capital facility.¹¹ Section IV of the Note states:

[Note Holder] agrees that the payment of all obligations owing to it pursuant hereto are and will be subordinated to the prior payment in full of any and all indebtedness and other obligations incurred by the Obligors under ... the Working Capital Facility, provided that, such subordination of Holder in favor of the Working Capital Facility lender shall permit the payment of scheduled principal and interest payments under this Note so long as no default or event of default has occurred and is continuing under the Working Capital Facility.¹²

Section IV further provides that “nothing contained in [the] Note shall impair or otherwise affect the obligation of the Obligors to make regular monthly payments of interest and annual payments of principal as provided in the first paragraph.” ¹³

Parc entered into a working capital facility with SunTrust Bank (“SunTrust”). Accordingly, on April 15, 2008, Parc, Six Flags, and SunTrust entered into a subordination and intercreditor agreement (the “Subordination Agreement”). Under the Subordination Agreement, until Parc paid SunTrust in full, the only payments Parc could make to Six Flags were “Permitted Subordinated Debt Payments.” ¹⁴ The Subordination Agreement defines “Permitted Subordinated Debt Payments” as “regularly scheduled payments of interest on and principal of the Subordinated Debt due and payable on a non-accelerated basis in accordance with the terms of the Subordinated Debt Documents.” ¹⁵ Furthermore, the Subordination Agreement states that it shall not impair Parc's payment obligations to either Six Flags or SunTrust.¹⁶ However, the Subordination Agreement further provides that if there is “any conflict between any term, covenant, or condition” in the Subordination Agreement and the Note, the provisions of the Subordination Agreement shall control and govern. ¹⁷

The Subordination Agreement designates that the laws of Florida shall apply in the event of a dispute between the parties.¹⁸

D. The Contract Dispute

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