Tap Holdings, LLC v. Orix Fin. Corp.
| Decision Date | 07 November 2014 |
| Docket Number | No. 600691/10.,600691/10. |
| Citation | 5 N.Y.S.3d 330 (Table) |
| Parties | TAP HOLDINGS, LLC, Irving Place Capital Partners II, LP, Irving Place Capital Investors II, LP, Irving Place Capital MB–PSERS II, LP, the BSC Employee Fund V11, LP, and IPC Manager II, LLC, for Themselves and in the Right and on Behalf of Tap Operating Company LLC, Plaintiffs, v. ORIX FINANCE CORP., Maps CLO Fund I, LLC, Maps CLO Fund II, Ltd, Wells Fargo Bank, N.A., Union Bank of California, N.A., CIT Lending Services Corporation, Bank Midwest, N.A., Brown Brothers Harriman & Co., Prudential Insurance Company of America, OFS Funding, LLC, OFSI Fund III, Ltd., CIT CLO I Ltd., Tap Automotive Holdings, LLC, Gregory Adler, Kenneth C. Cleveland, and Edward M. Kleinschmidt, Defendants, Orix Finance Corp., Maps CLO Fund I, LLC, Maps CLO Fund II, LTD, Wells Fargo Bank, N.A., Union Bank of California, N.A., CIT Lending Services Corporation, Bank Midwest, N.A., Brown Brothers Harriman & Co., Prudential Insurance Company of America, OFS Funding, LLC, OFSI Fund III, Ltd., CIT CLO I Ltd., Counterclaim–Plaintiffs, v. Tap Holdings, LLC, Irving Place Capital Partners II, L.P., Irving Place Capital Investors II, L.P., Irving Place Capital MB–PSERS II, L.P., and the BSC Employee Fund VII, L.P., Counterclaim–Defendants. |
| Court | New York Supreme Court |
Ivan O. Kline, Esq., Friedman & Wittenstein, for Plaintiff.
Edwin Baum, Esq., Crowell Moring, for Defendant (Orix).
James H. Neale, Esq., Norton Rose Fulbright, for Defendant (New Tap).
In motion sequence 020, plaintiff IPC Manager II, LLC (IPC Manager) moves for an order pursuant to CPLR 3212(a) and (e) granting its motion for summary judgment on the eighth cause of action for successor liability set forth in the second amended complaint (Complaint) against defendant TAP Automotive Holdings, LLC (New Tap), and severing the cause of action as against New Tap, and pursuant to CPLR 4311, referring the matter to a referee to hear and report on the amounts due under the notes which are the subject of the eighth cause of action.
In motion sequence 021, defendants ORIX Finance Corp. (now known as ORIX Corporate Capital Inc.), MAP Clo Fund I, LLC, MAPS CLO Fund II, Ltd., Wells Fargo Bank, N.A., Union Bank, N.A., CIT Lending Services Corporation, Bank Midwest, N.A., Union Bank N.A., CIT Lending Services Corporation, Bank Midwest N.A. (Now known as Armed Forces Bank, N.A.), Brown Brothers Harriman & Co., The Prudential Insurance Company of America, OFS Funding, LLC, OFSI Fund III, Ltd. and CIT CLO I. Ltd. (collectively, the Senior Lenders) move pursuant to CPLR 3212 granting their motion for summary judgment and dismissing the third through eighth causes of action in the complaint.
In motion sequence 022, defendant/counterclaim-plaintiff New Tap moves for partial summary judgment against the IPC Manager and in favor of New Tap on the eighth cause of action.
Motion sequence numbers 020–022 are herein consolidated for disposition.
The following facts are undisputed, except where noted.
Plaintiffs Irving Place Capital Partners II, L.P., Irving Place Capital Investors II, L.P., Irving Place Capital MB–PSERS II, L.P., and The BSC Employee Fund VII, L.P. (IPC Investors), are limited partnerships. The IPC Investors own, through an intermediate holding company, plaintiff TAP Holdings, LLC, a majority of the membership interests of non-party Tap Operating Co., LLC (Tap). Since 2005, Tap Holdings held 100% of the membership interests in Tap.
In 2005, the Senior Lenders extended senior secured loans to nonparty Tap Operating Company, LLC (Tap) in the amount of $60 million in connection with Tap's acquisition of an automotive parts company (Senior Secured Credit Facility). Pursuant to Senior Secured Credit Facility, the Senior Lenders took a security interest in substantially all of Tap's assets. Tap Holdings guaranteed the secured loans and granted the Senior Lenders a security interest in 100% of its Tap membership units.
Tap made another significant acquisition in 2006, financed by an additional $30 million term secured loan extended by the Senior Lenders, and the issuance of senior subordinated notes (Subordinated Notes) held by non-parties Allied Capital Corporation (Allied) and JZ Capital Partners Limited (JZ Capital) (together, the Noteholders). Defendants Orix Finance Corp. (Orix) was the administrative agent for the Senior Secured Credit Facility.
In addition to the financing provided by the Senior Lenders and the Noteholders, Tap Holdings contributed approximately $86 million to the equity of Tap, by 2006.
Plaintiff IPC Manager is the assignee of the claims of the Noteholders, and also manages three of the IPC Investors (IPC Manager Rule 19–A Statement, ¶ 23).
Throughout 2008, Tap was in default of certain technical covenants in the Senior Secured Credit Facility. Rather than declare Tap in default, the Senior Lenders and Tap entered into a series of forbearance agreements, pursuant to which, in exchange for equity infusions by the IPC Investors, the Senior Lenders agreed not to exercise their rights to seek payment of the full loan amount or to enforce their security interests (IPC Manager Rule 19–A Statement ¶¶ 33–38).
In June 2008, the IPC Investors executed a participation agreement with the Senior Lenders wherein they acknowledged events of default under the Senior Secured Credit Facility. In the participation agreement, the IPC Investors provided a partial guaranty, in the form of a promise to purchase $7 million of subordinated “last-out” participation interests in the Senior Secured Credit Facility, in the event of a payment default by Tap.
In December 2008, Orix exercised its rights as a secured creditor with respect to the membership units of Tap pledged by Tap Holdings, terminated Tap Holdings' voting rights and removed all of Tap's board members-with the exception of one, and appointed two individuals to the Board (IPC Manager Rule 19–A Statement ¶¶ 39–41). In January 2009, the Senior Lenders refused to extend the forbearance period, and declared an event of default under the Senior Secured Credit Facility based upon Tap's failure to comply with certain financial covenants. On the same day, the Senior Lenders demanded the IPC Investors fund the guaranty under the participation agreement and purchase the $7 million last-out participation interests.
On October 30, 2009, the Senior Lenders and New Tap, a newly-created entity, voted to proceed with a sale of all of Tap's assets to New Tap pursuant to Article 9 of the UCC (Asset Transfer).
In the Asset Transfer, the Senior Lenders accepted all of the assets of Tap, including its goodwill, in satisfaction of its obligations under the Senior Secured Credit Facility. The assets were then sold to New Tap in exchange for $66 million in new, senior secured notes, and New Tap's assumption of certain liabilities of Tap totaling more than $20 million (New Tap's Rule 19–A Statement in Opp., ¶ 84). New Tap did not assume obligations of the amounts due to plaintiffs, including to the Noteholders under the Notes, on which Tap owed approximately $38,446,712 on the eve of the Asset Transfer.
The Asset Transfer purportedly did not include any notice to Tap Holdings or the public in general, nor did did the Senior Lenders arrange for an auction or any other mechanism by which other parties, including plaintiffs, would be able to submit a competing offer (Plaintiffs' Counter-statement of Material Facts, ¶ 113 O).
According to plaintiffs, Tap's performance had strongly rebounded during the third quarter of 2009 just prior to the Asset Transfer. The IPC Investors valued Tap at substantially in excess of $66 million when the Asset Transfer was effectuated, and assert that they would have sought to acquire the business themselves at a price in excess of $66 million had they been given the opportunity to do so (Plaintiffs' Counter-statement of Material Facts, ¶ 115 A).
In March 2010, IPC Manager and the Noteholders entered in an assignment agreement (Assignment Agreement), whereby the latter assigned and transferred claims that arose with respect to the Asset Transfer (Exhibit 107, annexed to the Kline Aff.).
The IPC Manager, as assignee of the claims of the Noteholders, asserts a claim for successor liability against the Senior Lenders and New Tap arising out of New Tap's failure to pay down the Notes. In support of the claim, the IPC Manager alleges that the Asset Transfer was specifically structured with the intent to shear Tap of its assets while leaving it without the ability to pay the Noteholders. New Tap has allegedly engaged in a de facto merger with Tap, and exists as a mere continuation of Tap and its subsidiaries. Further, IPC Manager alleges that the Senior Lenders formed New Tap solely for the purpose of receiving the assets and business of Tap, albeit fraudulently conveyed, and dominated and directed New Tap's acquisition of those assets for the purpose of fraudulently transferring Tap's assets. The IPC Manager seeks to hold New Tap and the Senior Lenders jointly and severally liable for all obligations and amounts owed by Tap and its subsidiaries to the Noteholders on the Notes.
Defendants previously moved to dismiss the claim for successor liability, which this Court denied, on April 11, 2012 (N.Y.SCEF Doc. No. 230). The First Department affirmed this Court's decision the following year (Tap Holdings, LLC, 109 AD3d 167 ).
The IPC Manager moves for summary judgment on its claim for successor liability on the ground that there are no material facts in dispute that New Tap is a “virtual clone” of Tap, and is a successor to Tap for breach of the Notes under two theories of successor liability: mere continuation and de facto merger. The IPC Manager relies upon undisputed evidence that, as part of the Asset Transfer, Tap transferred substantially all of its assets, including its name and goodwill to New Tap. New Tap assumed virtually all of...
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