Metropolitan Life Ins. Co. v. RJR Nabisco, Inc.
| Decision Date | 09 June 1989 |
| Docket Number | No. 88 Civ. 8266 (JMW).,88 Civ. 8266 (JMW). |
| Citation | 716 F. Supp. 1526 |
| Parties | METROPOLITAN LIFE INSURANCE COMPANY and Jefferson-Pilot Life Insurance Company, Plaintiffs, v. RJR NABISCO, INC. and F. Ross Johnson, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Philip Howard, Howard, Darby & Levin, New York City, for plaintiffs.
E. Michael Bradley, Scott Tross, Brown & Wood, New York City, for defendant RJR Nabisco.
Kenneth Logan, Michael Lamb, Simpson Thacher & Bartlett, New York City, for KKR.
On April 28, 1989, the investment firm of Kohlberg Kravis Roberts & Company ("KKR") completed its $25 billion leveraged buy-out ("LBO") of defendant RJR Nabisco, Inc. ("RJR Nabisco" or "the company"). That unprecedented transaction continues to produce novel applications for relief. Defendant now moves for a preliminary injunction pursuant to Fed.R.Civ.P. 65(a) and (b) to toll certain periods within which the company can cure an alleged default and to stay a Notice of Acceleration issued by plaintiff bondholders. For the reasons set forth below, RJR Nabisco's motion is granted in part and denied in part.
Plaintiffs filed the present action in November of 1988, shortly after RJR Nabisco's then-Chief Executive Officer, F. Ross Johnson, proposed an LBO of the company. Following a bidding war among various investment groups, including the one led by Johnson, the company accepted an LBO proposal advanced by KKR. Plaintiffs hold roughly $350 million of the company's bonds, issued prior to the LBO. In the wake of Johnson's initial proposal and in light of the debt incurred to complete the transaction, plaintiffs claim that the value of their bonds dropped significantly. By an Opinion and Order dated May 31, 1989 ("Prior Opinion" or "Opinion"), 716 F.Supp. 1504, this Court granted defendants summary judgment on two counts in plaintiffs' Amended Complaint, judgment on the pleadings as to portions of another count, and dismissed for want of requisite particularity various fraud claims asserted by plaintiffs. Plaintiffs were given twenty days to replead. The Court's prior Opinion not only more fully sets forth the background to this action but also describes the parties with greater detail than will be repeated here. The Court presumes familiarity with its earlier Opinion.
The present motion traces its origins to six Notices of Default and one Notice of Acceleration issued by plaintiffs Metropolitan Life Insurance Company ("MetLife") and Jefferson-Pilot Life Insurance Company ("Jefferson-Pilot") in early May of this year. The Notice of Acceleration applies to MetLife's $10 million of bond holdings in Del Monte, a subsidiary of RJR Nabisco. Plaintiffs' six Notices of Default address roughly $170 million of their holdings in other bond issues of RJR Nabisco.1 No questions are raised regarding alleged defaults as to a remaining $175 million of plaintiffs' bonds which are either (a) due to mature before the default periods expire ($100 million) or (b) covered by explicit procedural provisions requiring, before a Notice of Default can be issued, either the consent of the indenture Trustee, or that plaintiffs hold at least 25 percent of the outstanding bonds at issue ($75 million).
Id. at 350. Plaintiffs apparently claim that, while there are no actual mortgages, liens or subordination agreements that trigger the negative pledge covenants, the post-LBO financial structure of RJR Nabisco amounts to a violation of that express guarantee. Defendant strenuously disputes that contention and, in response to plaintiffs' Notices, has counterclaimed for a declaratory judgment that it has not violated the negative pledge covenants in those debt issues.
Bradley Aff.Exh. I, § 6.01(d). The other indentures presently at issue contain similar provisions, although their cure periods range from sixty to ninety days. As noted previously, the Del Monte Guarantee Agreement contains no express cure period whatsoever.
The procedure contemplated by these express provisions is clear. The Trustee or holders of twenty-five percent of the outstanding bonds can submit a Notice of Default, which triggers the cure period, during which time the company can cure the default. If the company believes it is not in default, then the company can seek a declaratory judgment that no default in fact has occurred. If a court agrees, then the bondholders' Notice becomes meaningless. If, however, a court disagrees with the company, then the company can cure its violation.
By its present motion, the company asks this Court to stay, or toll, the express cure periods in certain bond indentures pending this Court's analysis of the negative pledge provision. As the company contends, RJR Nabisco "should not be forced to give up its contractual right to a cure period in order to litigate the merits of whether there has been a default." D. Reply at 4. The bondholders resist any tolling pending litigation on whether a default has occurred on the ground that the indentures do not provide for such relief, and that defendants should be held to their contracts.
In light of defendant's request for an expedited hearing, the Court heard oral argument on RJR Nabisco's motion on May 25, 1989. Subsequent to that argument, and by Order dated May 26, 1989, the Court requested the parties to brief the question of whether the Court should toll the cure periods.2 Before it issued its May 26 Order, the Court had received only one letter apiece from both plaintiffs and defendant on this question. Based on the very incomplete record then before it, and relying on defendant's contention that plaintiffs' actions threatened to trigger cross-defaults of other RJR Nabisco debt instruments in the range of $16 to $19 billion, the Court entered a temporary restraint that not only tolled the cure periods but also stayed the effect of plaintiffs' Notice of Acceleration of the Del Monte debt for the brief period needed by the Court to determine that very question — namely, the appropriateness of a preliminary injunction ordering such a tolling and stay until the Court decides the underlying merits of the alleged default. Upon the representation of RJR Nabisco's counsel made in Court, the Court also enjoined defendant from selling certain assets subject to plaintiffs' notices of default until the Court had addressed the tolling question. The Court then agreed to decide upon further submissions the present motion for injunctive relief on an expedited basis.
Based upon the more complete record now before it, the Court can fully address defendant's application for a preliminary injunction.
The standard for a preliminary injunction or a temporary restraining order pursuant to Fed.R.Civ.P. 65 is familiar. The party seeking such equitable relief must show a risk of irreparable harm and either (1) a likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make a fair ground for litigation and a balance of hardships tipping in the movant's favor. The Video Trip Corporation v. Lightning Video, Inc., 866 F.2d 50 (2d Cir.1989).
If nothing else, the parties agree that RJR Nabisco has a right to cure in a timely fashion defaults under indentures that include explicit cure periods, and a right to seek a declaratory judgment that the negative pledge covenant has not been violated. In bringing its motion, however, RJR Nabisco confronts two immediate obstacles. First, the company cannot escape the fact that it was originally sued in the Southern District of New York, an unfortunate circumstance for any litigant inasmuch as this district remains the country's busiest. Given the caseload of each court in the district, motions cannot always be heard and decided before the expiration of an expressly bargained for contractual cure period.
Second, on its motion for a declaratory judgment the company confronts adversaries who seek substantial discovery. That remains plaintiffs' right, of course — although presumably they based their unequivocal Notices of Default and Acceleration on at least some already obtained information. Without explicitly providing for discovery, the Court's May 26, 1989 Order envisioned an expedited briefing schedule on the negative pledge covenants and the submission of the parties' reply papers by June...
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Metropolitan Life Ins. Co. v. RJR Nabisco, Inc.
...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). appeal, plaintiffs contend principally that (1) the injunction impermissibly altered the parties' agreements, and (2) RJR failed to meet ......
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Fidelity Summer St. Trust v. Toronto Dominion (Texas) Inc., Civil Action No. 02-11285-GAO (D. Mass. 8/14/2002)
...reasonableness of a restriction on assignment must be evaluated "in the context of all the facts." Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 716 F. Supp. 1526, 1534 (S.D.N.Y. 1989). A showing that the restriction will diminish the price at which property can be sold, by itself, also ......