Metropolitan Life Ins. Co. v. RJR Nabisco, Inc.
| Decision Date | 25 June 1990 |
| Docket Number | No. 404,D,404 |
| Citation | 906 F.2d 884 |
| Parties | METROPOLITAN LIFE INSURANCE COMPANY and Jefferson-Pilot Life Insurance Company, Plaintiffs-Appellants, v. RJR NABISCO, INCORPORATED and F. Ross Johnson, Defendants, RJR Nabisco, Incorporated, Defendant-Appellee. ocket 89-7688. |
| Court | U.S. Court of Appeals — Second Circuit |
Philip K. Howard, New York City (Warren G. Caywood, Jr., Vivien Shelanski, David W. Haller, Howard, Darby & Levin, Harry P. Kamen, George K. Fenn, Jr., Nancy Mayer, Metropolitan Life Ins. Co. Law Dept., New York City, on the brief), for plaintiffs-appellants.
Kenneth R. Logan, New York City (Simpson Thacher & Bartlett, E. Michael Bradley, Brown & Wood, New York City, on the brief), for defendant-appellee.
Before KEARSE and WINTER, Circuit Judges, and LEVAL, District Judge. *
This appeal arises out of litigation stemming from the $25 billion leveraged buy-out ("LBO") of defendant RJR Nabisco, Incorporated ("RJR" or the "Company") by the investment firm of Kohlberg Kravis Roberts & Company ("KKR"). Plaintiffs Metropolitan Life Insurance Company ("MetLife") and Jefferson-Pilot Life Insurance Company ("Jefferson-Pilot") appeal from so much of an order of the United States District Court for the Southern District of New York, John M. Walker, then-District Judge, as granted a motion by RJR for an injunction tolling the running of contractual cure periods contained in indentures governing various RJR notes and debentures held by plaintiffs, pending adjudication of RJR's contention that there had been no default such as to trigger the cure periods. 716 F.Supp. 1526 (1989). On
appeal, plaintiffs contend principally that (1) the injunction impermissibly altered the parties' agreements, and (2) RJR failed to meet the requirements for preliminary injunctive relief. We agree that the district court did not give effect to the clear terms of the indentures, and we therefore vacate the order tolling the cure periods and remand for further proceedings.
Between 1975 and 1988, RJR issued at least nine series of notes and debentures (the "debt securities"). Plaintiffs, together with their subsidiaries, purchased notes and debentures in several of these series; by the fall of 1988, MetLife held approximately $340 million of these securities, and Jefferson-Pilot held approximately $9.3 million.
Each series of the debt securities was subject to one of four indentures dated April 1, 1977, June 15, 1982, October 15, 1982, or March 1, 1987. Each of the indentures included among its terms a so-called negative pledge covenant that prohibited RJR from mortgaging or pledging certain assets to secure other indebtedness unless the securities covered by the indenture were secured "equally and ratably with all indebtedness secured by such mortgage or pledge." (E.g., October 15, 1982 indenture Sec. 3.7; April 1, 1977 indenture Sec. 4.06). Each indenture also provided for a period during which RJR could cure a breach of the negative pledge covenant.
The two indentures at issue on this appeal are those dated October 15, 1982 and April 1, 1977. The cure provision of the October 15, 1982 indenture, insofar as it related to the negative pledge covenant, provided as follows:
In case one or more of the following Events of Default with respect to Securities ... shall have occurred and be continuing, that is to say:
....
(d) failure on the part of the Issuer duly to observe or perform any other of the covenants or agreements on the part of the Issuer in the Securities or in this Indenture contained for a period of 90 days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Default" hereunder and demanding that the Issuer remedy the same, shall have been given ... to the Issuer and the Trustee by the holders of at least 25% in aggregate principal amount of the Securities at the time Outstanding; ...
....
... If an Event of Default described in clause (d) ... occurs and is continuing, then and in each and every such case, unless the principal of all the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then Outstanding hereunder ... by notice in writing to the Issuer ... may declare the entire principal ... of all the Securities then Outstanding and interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable.
(October 15, 1982 indenture Sec. 5.1). Section 6.01 of the April 1, 1977 indenture was substantially identical, except that it provided only a 60-day cure period. The pertinent cure provisions of the June 15, 1982 and March 1, 1987 indentures were identical to or substantially in accordance with those of the October 15, 1982 indenture, providing for a 90-day period after receipt of a Notice of Default during which RJR could cure a default with respect to the negative pledge covenant.
In the fall of 1988, MetLife also held a $10 million note of RJR subsidiary Del Monte Corporation ("Del Monte") which was guaranteed by RJR and governed by a Guarantee and Amended Agreement dated April 1, 1984 (the "Del Monte Agreement"). The Del Monte Agreement contained a restriction, similar to the negative pledge covenants in the indentures, on RJR's pledging or mortgaging of assets. Unlike the indentures, however, the Del Monte Agreement
did not require any Notice of Default before the note could be accelerated, and it did not provide for a period in which default could be cured.
In October 1988, defendant F. Ross Johnson, then RJR's Chief Executive Officer, proposed to RJR an LBO of the Company's stockholders. This proposal sparked a bidding war for the Company that was concluded on December 1, 1988, when the Company accepted a bid from KKR.
After the announcement of the LBO, the RJR debt securities, previously rated "A", lost their "A" ratings. On November 17, 1988, anticipating that any LBO would seriously erode the value of the debt securities, MetLife commenced the present action against RJR and Johnson in New York State court alleging, inter alia, fraudulent conveyances and breach of implied covenants of good faith and fair dealing. RJR promptly removed the action to the district court, whereupon MetLife, now joined by Jefferson-Pilot, filed an amended complaint which added allegations of, inter alia, securities laws violations and fraud.
In January 1989, plaintiffs moved for summary judgment or, in the alternative, for a preliminary injunction prohibiting RJR from encumbering its assets unless it posted sufficient security to enable it to redeem the debt securities. RJR cross-moved for, inter alia, judgment on the pleadings dismissing parts of the complaint.
While these motions were pending, the LBO was completed, and RJR was merged into a KKR affiliate on April 28, 1989. Permanent financing for the LBO included bank loans of up to $12.75 billion pursuant to a credit agreement, and $5 billion of subordinated debt. The bank loan agreements required RJR to sell RJR assets valued at $5.5 billion and use the proceeds to repay some $5.5 billion of the LBO financing.
On May 8 and 10, while the parties' motions were still sub judice, plaintiffs sent RJR six Notices of Default pursuant to the indentures. The Notices alleged that the LBO financing arrangements requiring RJR to sell $5.5 billion in RJR assets and use the proceeds to repay LBO lenders were tantamount to a pledge of those assets to the LBO lenders without equal and ratable security for the holders of the securities covered by the indentures, and that these arrangements therefore violated the negative pledge covenants. MetLife also sent a Notice of Acceleration with respect to the $10 million Del Monte note. On May 9, RJR notified plaintiffs of its view that there had been no default and asked plaintiffs to rescind the Notices. Plaintiffs refused.
RJR moved in the district court for a preliminary injunction tolling the periods during which it could cure the alleged defaults. Eventually, it filed a counterclaim seeking, inter alia, (1) a declaratory judgment that the Notices of Default and Notice of Acceleration were invalid and that there was no default, and (2) damages for plaintiffs' "unreasonabl[e], reckless[ ], malicious[ ] and ... bad faith sending [of] the improper notices for the purpose of injuring RJR."
In an order dated May 26 ("May 26 Order"), the district court temporarily enjoined RJR from selling assets that were subject to the negative pledge covenant, to the extent that the proceeds were to be dedicated to repaying the LBO lenders, until the court could address the tolling issue. The May 26 Order set an expedited briefing schedule for RJR's motion, envisioning decision of the motion before July 8 and the expiration of the earliest cure period. Plaintiffs, however, sought reconsideration of the schedule, stating that it had the effect of precluding any opportunity for plaintiffs to have discovery on the claim. Plaintiffs apparently asserted that they needed some four months of discovery--a period that obviously exceeded the cure periods.
In a Memorandum and Order dated June 9, 1989 ("June 9 Order"), the district court vacated the stay against RJR's sales of assets and granted so much of RJR's motion unreasonable for a lender not only to force an adversary to seek a judicial disposition of the lender's claim but also to take actions which delay that disposition, while at the same time demanding that its adversary act at its peril in seeking that very legal ruling. Such circumstances call for a practical and equitable resolution.
as sought tolling of the cure periods in the April 1, 1977 and October 15, 1982 indentures...
To continue reading
Request your trial
-
Kidder Peabody & Co., Inc. v. Unigestion Intern.
... ... See Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U.S. 6, 13 & n. 9, 92 S.Ct. 165, 169 & n. 9, 30 L.Ed.2d ... at 1448, citing Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U.S. ___, ___, 113 S.Ct. 2085, 2090, 124 L.Ed.2d 194 ... Bank of New York, 957 F.2d 961, 976 (2d Cir.1992); Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 (2d Cir.1990) ... ...
-
Maniolos v. U.S.
... ... E.g., ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.2007); ... Am. Int'l Life Assurance Co., 681 F.Supp.2d 513, 520 (S.D.N.Y.2010) ... Feifer v. Prudential Ins. Co., 306 F.3d 1202, 1210 (2d Cir.2002); accord, e.g., ... Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 (2d Cir.1990) (Language whose ... ...
-
Medtech Products Inc. v. Ranir, LLC
... ... See Metro. Life Ins. Co. v. RJR Nabisco Inc., 906 F.2d 884, 889 (2d Cir.1990). A contract ... ...
-
TUCKER LEASING CAPITAL v. MARIN MEDICAL MGT.
... ... MARIN MEDICAL MANAGEMENT, INC., a California corporation, Gene Farber and Henry Grausz, ... U.S. Fire Ins. Co., 804 F.2d 9, 11 2d Cir.1986, cert. denied, 480 U.S ... , 944 F.2d 983, 987-88 2d Cir.1991, quoting Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 2d ... ...
-
§ 14.01 Operation of Condition of Limitation
...Inc. v. Pyramid Co. of Onondaga, No. 97-CV-1047 (N.D.N.Y. Aug. 13, 1998).[153] Metropolitan Life Insurance Co. v. RJR Nabisco, Inc., 906 F.2d 884 (2d Cir. 1990).[154] See ACIM NY, LLC v. Nissan N. Am., Inc., No. 17-CV-729-LTS, 2017 WL 782498 (S.D.N.Y. Feb. 28, 2017); Broad Fin. Ctr. LLC v. ......