Wavedivision Holdings, LLC v. Highland Capital Mgmt., L.P.

• Decision Date: 19 July 2012
• Docket Number: No. 649,2011.,649
• Citation: 49 A.3d 1168
• Parties: WAVEDIVISION HOLDINGS, LLC and Michigan Broadband, LLC, Plaintiffs Below–Appellants, v. HIGHLAND CAPITAL MANAGEMENT, L.P., Trimaran Capital Partners, L.P., Highland Floating Rate Advantage Fund, a Delaware statutory trust; Highland Crusader Fund GP, L.P., a Delaware limited partnership; and Pioneer Floating Rate Trust, a Delaware statutory trust, Defendants Below–Appellees.
• Court: United States State Supreme Court of Delaware

49 A.3d 1168

WAVEDIVISION HOLDINGS, LLC and Michigan Broadband, LLC, Plaintiffs Below–Appellants,

v.HIGHLAND CAPITAL MANAGEMENT, L.P., Trimaran Capital Partners, L.P., Highland Floating Rate Advantage Fund, a Delaware statutory trust; Highland Crusader Fund GP, L.P., a Delaware limited partnership; and Pioneer Floating Rate Trust, a Delaware statutory trust, Defendants Below–Appellees.

No. 649, 2011.

Supreme Court of Delaware.

Submitted: May 16, 2012.

Decided: July 19, 2012.

Court Below: Superior Court of the State of Delaware in and for New Castle County, C.A. No. 08C–11–132.

Upon appeal from the Superior Court. AFFIRMED.

Gary F. Traynor, Esquire, and Tayna E. Pino, Esquire, of Pricket, Jones & Elliot, P.A., of Wilmington, Delaware; Of Counsel: Don Paul Badgley, Esquire, and Randall Johnson, Esquire (argued), of Badgley–Mullins Law Group, of Seattle, Washington, for Appellants.

Daniel K. Hogan, Esquire, of The Hogan Firm, of Wilmington, Delaware; Of Counsel: Paul B. Lackey, Esquire (argued), and Michael P. Aigen, Esquire, of Lackey Hershman LLP, of Dallas, Texas, for Appellees Highland Capital Management, L.P., Highland Crusader Offshore Partners, L.P., and Highland Crusader Fund GP L.P.

Stephen B. Brauerman, Esquire, and Justin R. Alberto, Esquire, of Bayard, P.A., of Wilmington, Delaware; Of Counsel: Arthur H. Ruegger, Esquire (argued), of SNR Denton US LLP, of New York, New York, for Appellee Trimaran Capital Partners, LLC.

Michael F. Bonkowski (argued), Esquire, of Cole Schotz Meisel Forman & Leonard, P.A., of Wilmington, Delaware, for Appellee Highland Floating Rate Advantage Fund.

Kenneth J., Nachbar, Esquire and Karl G. Randall, Esquire, of Morris, Nichols, Arsht & Tunnell LLP, of Wilmington, Delaware; Of Counsel: Frances S. Cohen, Esquire (argued), of Bingham McCutchen LLP of Boston, Massachusetts, for Appellee Pioneer Floating Rate Trust.

Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS, and RIDGELY, Justices, constituting the Court en Banc.

RIDGELY, Justice:

Plaintiffs–Below/Appellants WaveDivision Holdings, LLC and Michigan Broadband, LLC (collectively, “Wave”) entered into two exclusive agreements with third-party Millennium Digital Media Systems, LLC (“Millennium”) to purchase cable television systems from Millennium. Millennium terminated the agreements and instead pursued a refinancing with its note holders and senior lenders. In a separate proceeding, the Court of Chancery found Millennium liable to Wave for breach of contract and awarded Wave $14,872,000 in damages. ¹

Wave also brought an action in the Superior Court against Millennium's note holders and senior lenders, Defendants–Below/Appellees Highland Capital Management L.P., (“Highland Capital”), Highland Crusader Funds (“Highland Crusader”), Highland Floating Rate Fund (“Highland Floating Rate”), Trimaran Capital Partners, L.P. (“Trimaran”), and Pioneer Floating Rate Trust (“Pioneer”), et al. (collectively, “Appellees”). Wave sought damages against Appellees, contending, inter alia, that the Appellees tortiously interfered with the Wave–Millennium contract. The Superior Court granted summary judgment to Appellees on this claim, concluding that any interference was justified under Delaware law and that Appellee Pioneer did not have actual or imputed knowledge of the underlying contract. For the reasons that follow, we agree and affirm.

Facts and Procedural History²

Wave is a Washington-based provider of broadband cable services. Millennium, a Delaware entity, owned and operated cable systems in Michigan, Maryland, and the Northwest.

During the late 1990s, Millennium obtained financing by selling $70 million of unsecured high-yield senior increasing rate notes (the “IRNs”). The holders of the IRNs (the “IRN Holders”) included investment funds held or managed by Trimaran and Highland Capital. In particular, Highland Capital controlled, owned and/or managed funds of Highland Crusader, Highland Floating Rate, and Pioneer, all of whom became IRN Holders. The IRN Agreement gave the IRN Holders certain rights relating to the disposition of Millennium's assets and access to Millennium's company information.

Millennium also extended credit to first-tier senior secured creditors (the “Senior Lenders”) under a First Amended and Restated Credit Agreement (the “Credit Agreement”), which Millennium entered into on December 29, 2000. The Credit Agreement gave the Senior Lenders a first priority lien on substantially all of Millennium's assets. The Senior Lenders had priority over the IRN Holders. Like the IRN Agreement, the Credit Agreement gave the Senior Lenders disclosure and consent rights. Section 7.03(c) of the Credit Agreement provided in relevant part:

[N]either [Millennium] nor any Subsidiary will, directly or indirectly....

Section 7.03. [S]ell, lease, transfer or otherwise dispose of its properties, assets ... to any Person ... and except as follows:

* * * Dispositions of additional assets outside the ordinary course of business with the prior written consent of the Required Lenders, in their sole and absolute discretion, which consent, if given, shall in any event be contingent upon the threshold conditions set forth in clauses (i), (ii), (iii), and (iv) of Section 7.03(b) above.

Funds managed by Highland Capital began purchasing Millennium's senior debt in February 2005.

In the mid–2000s, Millennium faced growing financial problems. To avoid default, Millennium sought covenant relief from the Senior Lenders. The parties executed a Fifth Amendment to the Senior Secured Agreement on May 31, 2005 (the “Fifth Amendment”). The Fifth Amendment required Millennium to sell all or substantially all of its assets to repay the Senior Lenders.

Millennium engaged Daniels & Associates to market its assets for sale. Wave submitted an offer to purchase the Michigan and Northwest cable systems from Millennium for $157 million. On December 19, 2005, Wave and Millennium signed a Letter of Intent for the purchase and sale of those systems. The Letter of Intent contained an exclusivity clause providing that Millennium would not “offer, seek to offer, or entertain or discuss any offer, to sell, directly or indirectly, the Systems.”

On January 5, 2006, Millennium made a presentation to the IRN Holders about Millennium's financial status and recommended that the Wave–Millennium deal be approved. The IRN Holders stated that they believed the price was inadequate. Trimaran and Highland Capital, both IRN Holders, suggested that Millennium make a presentation about the IRN Holders' potential return on their investment if they provided a capital infusion.

Despite the IRN Holders' negative reaction to the proposed Wave–Millennium deal, Millennium's Management Committee continued to pursue it. One month after the presentation, Millennium and Wave entered into an Asset Purchase Agreement (the “APA”) for the Michigan system and a Unit Purchase Agreement (the “UPA”) for the Northwest System.³ Both Agreements required the consent of the IRN Holders and the Senior Lenders, unless Wave and Millennium reasonably believed that such consent was not necessary. The Agreements required Millennium to use commercially reasonable efforts to obtain the required approvals and prohibited Millennium from, inter alia, initiating or engaging in any discussions for purposes of making any proposal, “that may reasonably be expected to lead to, any effort or attempt by any other Person to seek or effect the acquisition of the Business, any ownership interests in the LLC, any of the Systems, or the Transferred Assets.”

The IRN Holders engaged a consulting firm, Barrier Advisors (“Barrier”), to prepare a recommendation as to: (1) whether or not the IRN Holders should consent to the Agreements; and (2) potential alternatives to the Agreements. Barrier concluded that the IRN Holders would not recover their investment if the Agreements closed. Barrier then considered the potential return for the IRN Holders if instead they provided Millennium with a capital infusion to upgrade the systems.

Around the time that Barrier was retained, Highland Capital purchased additional senior debt, in order to protect its stake in Millennium. Highland Financial Corporation, not a defendant in the action below, submitted a refinancing proposal to Millennium on March 8, 2006. The proposal called for a full debt-for-equity swap of the IRNs and was contingent upon termination of the Agreements. One month later, Highland Capital and Trimaran informed Millennium that they would not consent to the Agreements in their capacity as IRN Holders.

On April 19, 2006, Wave informed Millennium that it had reviewed the IRN Agreement and had concluded that the IRN Holders' consent to the APA and UPA was not required. Wave informed Millennium that, “Pursuant to Section 6.3(c)(iii) of the [IRN Agreement], [Wave] therefore deem[s] consent of the IRN holders to be obtained.” On April 21, Highland Capital sent a letter to Wave on behalf of seven Senior Lenders, including Highland Floating Rate and Pioneer (the “April 21 Letter”). In the April 21 Letter, Highland Capital informed Millennium that the undersigned Senior Lenders did not consent to the APA and UPA, stating:

Please be advised that the undersigned Lenders do not consent to the Proposed Dispositions.

* * *

The undersigned Lenders currently hold more than 50% of the sum of the aggregate outstanding principal amount of the Loans, and therefore, without the consent of the undersigned Lenders, the Proposed Dispositions remain prohibited by 7.03(c) of the Credit Agreement.

In the proceedings below, Pioneer argued that it had no knowledge of the APA and UPA, or the April 21 Letter.

On July 28, 2006, Millennium notified Wave of its decision to terminate the Agreements. That same day, Millennium accepted the refinancing proposal from Highland Capital, Trimaran and the other IRN Holders, pursuant to which the IRN Holders' interests were converted into equity interests....