Mhr Capital Partners Lp v. Presstek

• Decision Date: 24 June 2009
• Docket Number: No. 114.,114.
• Citation: 912 N.E.2d 43,12 N.Y.3d 640
• Parties: MHR CAPITAL PARTNERS LP et al., Appellants, v. PRESSTEK, INC., Respondent, et al., Defendant.
• Court: New York Court of Appeals Court of Appeals

912 N.E.2d 43

12 N.Y.3d 640

MHR CAPITAL PARTNERS LP et al., Appellants, v. PRESSTEK, INC., Respondent, et al., Defendant.

No. 114.

Court of Appeals of New York.

June 24, 2009.

Kasowitz, Benson, Torres & Friedman LLP, New York City (Michael M. Fay, David S. Rosner, Michael P. Bowen and Kim Conroy of counsel), for appellants.

Hartman & Craven LLP, New York City (Victor M. Metsch and Colleen D. Dalton of counsel), for respondent.

OPINION OF THE COURT

GRAFFEO, J.

In this breach of contract action, we conclude that defendant's obligation to perform under a stock purchase agreement did not arise because an express condition precedent was not fulfilled. We therefore affirm the order of the Appellate Division so holding.

In 2003, defendant Presstek, Inc. and its wholly owned subsidiary, defendant Silver Acquisitions Corp., entered into discussions to purchase A.B. Dick Company (ABD)—a financially distressed graphic arts and printing supplier—from its parent corporation, Paragon Corporate Holdings, Inc. The negotiations culminated in a June 2004 stock purchase agreement, which provided that Paragon would receive $24 million in cash and approximately $20 million worth of Presstek's stock in exchange for ABD's stock. Under an ancillary agreement incorporated into the stock purchase agreement, plaintiffs MHR Capital Partners LP and its affiliates (collectively, MHR)—major creditors of ABD—agreed to the terms of the stock purchase arrangement and waived their rights in return for the payment of over $10 million in cash and stock from Presstek.

On June 16, 2004, Presstek, Silver, ABD, Paragon and MHR executed a separate escrow agreement that required the stock purchase agreement and related documents to be placed in escrow and released upon the occurrence of certain conditions. Specifically, the escrowed materials were not to be released "unless and until" Key Corporate Capital, Inc. (Key Bank), ABD's lender, consented to the stock purchase transaction "on the terms and conditions contained herein." Further, the escrow agreement obligated Paragon to obtain Key Bank's approval before "the close of business on June 22, 2004," together with the bank's execution of a consent form annexed to the escrow agreement. The escrow agreement stated that Presstek was to destroy or return the escrowed documents deemed "null and void" if Key Bank did not sign the consent form by June 22.

In the consent document, Presstek agreed to satisfy ABD's outstanding indebtedness with a combination of cash and Presstek stock (rather than cash only) and Key Bank was required both to continue funding ABD "by increasing its total aggregate lending commitment to [Paragon] as necessary to ensure adequate funding for [ABD] through the closing" and forbear from declaring any default under its loan agreement with ABD until the deal closed. Key Bank, however, refused to execute the consent form. Instead, on June 22, 2004, Key Bank faxed a one-page letter to Presstek that "consent[ed]" to the transaction, but included terms that differed from some of the requirements in the consent form. In particular, Key Bank did not consent to fund ABD "as necessary," nor did it agree not to declare a default. Presstek terminated the stock purchase transaction later that day.

The following month, Presstek and Silver entered into a more lucrative asset purchase agreement with ABD and Paragon. The new agreement contained no provision for Presstek's satisfaction of ABD's outstanding indebtedness to MHR. As required by this new agreement, ABD filed for bankruptcy in Delaware. Paragon applied to the United States Bankruptcy Court for the District of Delaware for an order authorizing the sale of ABD's assets to Presstek pursuant to an auction process that would allow third parties to offer higher bids. MHR filed objections to the auction sale of ABD's assets on the basis that Presstek and Silver were not "good faith" purchasers within the meaning of 11 U.S.C. § 363(m).

After an evidentiary hearing, the Bankruptcy Court overruled MHR's objections and approved the sale. The United States District Court for the District of Delaware dismissed MHR's appeal as moot because MHR had failed to seek a stay. The District Court also noted that, in any event, Presstek's pre-bankruptcy proceeding behavior had no bearing on whether it was a good faith purchaser under the Bankruptcy Code.¹

In February 2005, MHR commenced this action for breach of contract against Presstek and Silver, alleging that they improperly terminated the stock purchase agreement.² The complaint seeks $14 million in damages. Following discovery, Presstek moved for summary judgment dismissing the complaint.

Supreme Court granted the motion and dismissed the complaint, concluding that the Bankruptcy Court's approval of the sale of ABD's assets over MHR's objections precluded this breach of contract action under principles of res judicata and collateral estoppel (see 2007 WL 2815416, 2007 N.Y. Slip Op. 32322[U]). The Appellate Division, with two Justices dissenting, affirmed, albeit on a different ground (55 A.D.3d 12, 863 N.Y.S.2d 154 [1st Dept.2008]). The majority held that Key Bank's failure to sign the consent form by June 22, 2004, which it characterized as a condition precedent, relieved Presstek of any obligation to close under the stock purchase agreement. The dissent would have reinstated the complaint, finding an issue of fact as to whether Presstek had improperly prevented Key Bank from executing the consent form.

MHR appeals as of right based on the two-Justice dissent...