Ubs Ag, Stamford Branch v. Healthsouth Corp.
| Decision Date | 06 June 2008 |
| Docket Number | No. 07 Civ. 8490 (LAP).,07 Civ. 8490 (LAP). |
| Citation | 645 F.Supp.2d 135 |
| Parties | UBS AG, STAMFORD BRANCH, Plaintiff, v. HEALTHSOUTH CORPORATION, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Robert J. Giuffra, Esq., Marc De Leeuw, Esq., William H. Wagener, Esq., Sullivan & Cromwell LLP, New York, NY, for plaintiff.
Gregory P. Joseph, Esq., Peter R. Jerdee, Esq., Sandra M. Lipsman, Esq., Gregory P. Joseph Law Offices LLC, New York, NY, for defendant.
In 2001 and 2002, Defendant HealthSouth Corporation ("HealthSouth") guaranteed $20 million in loans to MedCenterDirect.Com, Inc. ("MCDC") under a Credit Agreement (the "Credit Agreement" or the "Agreement") executed with Plaintiff UBS AG, Stamford Branch ("UBS AG"). In this action, UBS AG seeks to enforce that guarantee by way of summary judgment, and HealthSouth moves that the Court abstain. For the reasons set forth below, UBS AG's motion is GRANTED, and HealthSouth's motion is DENIED.
The loans at issue originated under the terms of a March 30, 2001, Credit Agreement between UBS AG, acting as Administrative Agent,1 and MCDC, the Borrower. (See Kalal Decl. Ex. A (Credit Agmt.) (hereinafter "Credit Agmt.").)2 That Agreement originally authorized an aggregate of $15 million in loans (see id. at 1), which MCDC unconditionally promised to pay, with interest, at maturity (see id. §§ 2.3, 2.4). The Credit Agreement was amended twice: first, on June 12, 2001 (the "June Amendment"), to delay the original Maturity Date from October 30, 2001, to March 30, 2002 (see Kalal Decl. Ex. F (June Amdt.)); and second, on March 28, 2002 (the "March Amendment"), further to delay the Maturity Date to March 28, 2003 and to increase the aggregate loan authorization to $20 million (see Kalal Decl. Ex. H (March Amdt.)).
The Credit Agreement provided that its terms and obligations would be construed and interpreted in accordance with New York law. (See Credit Agmt. § 12.11(a).) Moreover, the parties "irrevocably and unconditionally" submitted themselves to "the non-exclusive general jurisdiction" of the New York State courts and the District Court for the Southern District of New York (see id. § 12.11(b)(i)) and waived "any objection to the venue of . . . any such court or [any argument] that such action or proceeding was brought in an inconvenient court and agree[d] not to plead or claim the same" (id. § 12.11(b)(ii)).
"To induce each Lender" to make the loans contemplated under the Credit Agreement, HealthSouth agreed "unconditionally and irrevocably" to guarantee payment of MCDCs obligations under the Credit Agreement. (See Credit Agmt. art. XI (Guarantee) (hereinafter "the Guarantee").)3 In pertinent part, the Guarantee states This guarantee shall be construed as a continuing absolute and unconditional guarantee of payment without regard to the validity, regularity or enforceability of the Agreement or any Note or any guarantee thereof . . . and without regard to . . . any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or the Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge . . . of the Guarantor under the guarantee contained in this Article XI in bankruptcy or in any other instance[.]
(Id. § 11.4.)
As required by the terms of the Credit Agreement (see id. § 5.1(a)(iii)), the HealthSouth Board of Directors (the "Board") adopted a resolution authorizing execution of the Credit Agreement (see Kalal Decl. Ex. C (March 27, 2001 HealthSouth Board Resolution)). That resolution named several officers who were "authorized and directed to execute and deliver, in the name and on behalf of [HealthSouth], that certain Credit Agreement, dated as of March 30, 2001 . . . among [MCDC], as Borrower, [HealthSouth], as Guarantor, [and] UBS AG, Stamford Branch, as Administrative Agent . . . ." (Id.)4 It also acknowledged and approved the then-contemplated aggregate $15 million indebtedness and "such other terms, conditions and requirements" as HealthSouth's authorized signatories deemed appropriate. (Id.) The Board passed a similar resolution authorizing the March Amendment. (See Kalal Decl. Ex. I (March 15, 2002 HealthSouth Board Resolution).)
As additionally required by the Credit Agreement (see Credit Agmt. § 5.1(a)(ii)), HealthSouth's Corporate Counsel, William W. Horton, authored an opinion letter stating that, in his view, "[t]he execution, delivery and performance of the Loan Documents by the Guarantor: (a) have been duly authorized by all requisite corporate action of the Guarantor, and (b) will not violate any provision of law [or] the articles or certificate of incorporation of the Guarantor" (Kalal Decl. Ex. B (March 30, 2001 Horton Letter) at 2). Horton further opined that the loan documents "constitute the legal, valid and binding obligations of the Guarantor and are enforceable in accordance with their terms." (Id. at 3.)5 Again, Horton authored a similar opinion letter with respect to the March Amendment. (See Kalal Decl. Ex. J (March 28, 2002 Horton Letter).)
Shortly after the amended Maturity Date, UBS AG sent an invoice to MCDC for $20,190,914.86, reflecting the total outstanding principal and interest due under the Credit Agreement at that time. (See Kalal Decl. Ex. K (March 2003 Invoice).) It sent further invoices to both MCDC and HealthSouth on April 27, July 2 and October 12, 2004, and on January 5 and April 6, 2005. (See Kalal Decl. Exs. O-S (Invoices).) On July 12, 2005, UBS AG sent a final letter to MCDC and HealthSouth stating that UBS AG, in its capacity as Lender, thereby demanded payment of the outstanding principal and interest due under the Credit Agreement. (See Kalal Decl. Ex. T (July 12, 2005 Letter).) Neither HealthSouth nor MCDC responded to the invoices, and, as of December 17, 2007, the total due under the Credit Agreement stood at $29,348,336.04 and was accruing over $6000 in interest each day. (See Kalal Decl. ¶¶ 22, 24, 27.) HealthSouth does not dispute this calculation.
On August 28, 2002, HealthSouth shareholder Wade Tucker commenced a derivative action against, among others, various HealthSouth directors and officers (the "Alabama Action"). (See Hymer Decl. ¶ 2.)6 That litigation is currently pending in the Circuit Court of Jefferson County in the State of Alabama, and the operative complaint is the Third Amended Complaint (the "TAC"). (See id.)7 In general, the TAC alleges that HealthSouth's one-time CEO, Richard Scrushy, and the other named defendants, through their domination of HealthSouth's Board, engaged in a widespread and ongoing fraud conspiracy to, among other things, divert corporate money to themselves. (See TAC ¶ 28.) As one element of that fraud, the TAC alleges a pattern and practice of self-dealing among Scrushy and other HealthSouth directors and officers, effected by "establishing exclusive vendor relations with companies in which they own an interest and then benefiting monetarily from such relation." (Id. ¶ 129.)
According to the TAC, HealthSouth's relationship with MCDC was one such self-dealing adventure. It alleges that Scrushy and others were invested in MCDC and, through their manipulation of HealthSouth, inflated the value of MCDC in an effort to increase their anticipated profits from a future MCDC initial public offering (see id. ¶¶ 106-08). This was achieved by the named defendants' allegedly causing HealthSouth to invest in MCDC; although the TAC does not mention the Credit Agreement in this regard,8 it does mention an alleged $2 million loan or investment from HealthSouth to MCDC in December 1999 and "many more millions" since that time. (See id. ¶ 105.) Additionally, the named defendants allegedly caused HealthSouth to enter into a ten-year agreement that made MCDC the "exclusive e-procurement vendor for HealthSouth of medical products and supplies" (id. ¶ 107), a lucrative contract for MCDC whose terms were allegedly unfavorable for HealthSouth (id. ¶¶ 108-09). With respect to MCDC, the TAC concludes that "[t]he monies paid during 2000 through 2002 to MCDC constitute wrongdoing that has caused injury to [HealthSouth, and] the continued dealings and investment in MCDC constitutes a continuing tort." (Id. ¶ 110.) As a remedy for those alleged wrongs, the TAC demands "[r]epayment of monies advanced and loaned as `start up costs,' other loans made, and monies owed with respect to Defendants, and other business ventures that were owned and/or controlled by Defendants."
The TAC also alleges malfeasance on the part of UBS bankers amounting to complicity with the alleged fraud scheme at HealthSouth.9 To retain the "enormous fees" generated from orchestrating over $2 billion in deals for HealthSouth, certain UBS bankers allegedly falsely touted HealthSouth's stock by assigning it a higher rating than they thought it merited. (See id. ¶¶ 84-88.) According to the TAC, those bankers "well knew that they were assisting Scrushy [to] falsify the accounting and achieve his illicit goal of artificially inflating the market price of HealthSouth stock." (Id. ¶ 88.) For this conduct, the TAC concludes that UBS bankers "aided and abetted, and were part of the civil conspiracy to commit, the broad accounting misstatements [and] knew or should have known of the financial accounting improprieties and other wrongdoing [alleged in the TAC] and breached their duties to HealthSouth by failing to disclose . . . such conduct." (Id. ¶ 90.)
UBS Securities moved to dismiss or stay the claims against it in the Alabama Action on various grounds, including for failure to state a claim against UBS Securities, and to enforce outbound forum selection provisions in two other agreements between UBS Securities and HealthSouth. ...
To continue reading
Request your trial
-
Veleron Holding, B.V. v. Stanley
...is fiduciary in nature and imposes on an agent, among others, a duty of 'utmost good faith.' " UBS AG, Stamford Branch v. HealthSouth Corp., 645 F.Supp.2d 135, 144 (S.D.N.Y.2008) (quoting Elco Shoe Mfrs. v. Sisk, 260 N.Y. 100, 183 N.E. 191, 192 (1932) ; citing Lamdin v. Broadway Surface Adv......
-
1199seiu United Healthcare Workers E. v. PSC Cmty. Servs.
...losers because to do so would alchemize the doctrine into preclusion by another name."); UBS AG, Stamford Branch v. HealthSouth Corp., 645 F. Supp. 2d 135, 147 & n. 17 (S.D.N.Y. 2008). The Rooker- Feldman doctrine does not deprive this Court of jurisdiction.IV. Motion to Confirm Arbitration......
-
Aep Energy Serv. Gas Holding Co. v. Bank of Am.
...create a material issue of fact by submitting an affidavit disputing his own prior sworn testimony."); UBS AG v. HealthSouth Corp., 645 F.Supp.2d 135, 145 n. 14 (S.D.N.Y.2008) ("Just as a party may not, in order to defeat a summary judgment motion, create a material issue of fact by submitt......
-
Aep Energy Serv. Gas Holding Co. v. Bank Of Am., Docket No. 08-4196-cv (L)
...create a material issue of fact by submitting an affidavit disputing his own prior sworn testimony."); UBS AG v. HealthSouth Corp., 645 F. Supp. 2d 135, 145 n.14 (S.D.N.Y. 2008) ("Just as a party may not, in order to defeat a summary judgment motion, create a material issue of fact by submi......