Weisfelner v. Blavatnik (In re Lyondell Chem. Co.)

Citation567 B.R. 55
Decision Date21 April 2017
Docket NumberAdv. Pro. No. 09–01375 (MG),Case No. 09–10023 (CGM), Adv. Pro. No. 11–01844 (MG)
Parties IN RE: LYONDELL CHEMICAL COMPANY, et al., Debtors. Edward S. Weisfelner, as Litigation Trustee of the LB Litigation Trust, Plaintiff, v. Leonard Blavatnik, et al., Defendants. Edward S. Weisfelner, as Litigation Trustee of the LB Litigation Trust, Plaintiff, v. NAG Investments LLC, Defendant.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

BROWN RUDNICK LLP, Attorneys for Edward S. Weisfelner, as Litigation Trustee of the LB Litigation Trust, Seven Times Square, New York, NY 10036, By: Sigmund S. Wissner–Gross, Esq., May Orenstein, Esq., Justin S. Weddle, Esq.

BROWN RUDNICK LLP, One Financial Center, Boston, MA 02111, By: Steven D. Pohl, Esq.

QUINN EMANUEL URQUHART & SULLIVAN, LLP, Attorneys for the Access Defendants, 51 Madison Avenue, 22nd Floor, New York, NY 10010, By: Richard I. Werder, Jr., Esq., Susheel Kirpalani, Esq., Andrew J. Rossman, Esq., Rex Lee, Esq.KLEE TUCHIN BOGDANOFF & STERN, LLP, 1999 Avenue of the Stars, Thirty–Ninth Floor, Los Angeles, California 90067, By: Kenneth N. Klee, Esq.


MARTIN GLENN, United States Bankruptcy Judge


I. Introduction ... 61

A. Blavatnik, the Companies, and the Merger ...62
B. The Trustee Failed to Establish that Lyondell was Insolvent on Two Key Dates...63
C. The Trustee Also Failed to Establish that an Actual Fraudulent Transfer Occurred ...65

D. The Bulk of the Trustee's Remaining Claims Fail....66

II. Procedural History. ...67–

III. Jurisdiction and Venue ...68–

IV. Findings of Fact ... 68

A. Access and Leonard Blavatnik ...69
B. Access Acquires Basell ...70

C. Access's Early Interest in Merging Basell with a Refining Company....71

D. Access Acquires the Toehold Position and Enters into Negotiations with Lyondell....73

E. Lyondell Produces the Refreshed Projections....73

F. Access Offers $48 per Share for Lyondell ...76

G. The Merger Agreement is Executed....77

H. Post–Execution, Pre–Closing Developments ...77

I. The Merger/LBO Financing....78

J. The Merger Closes ...79

K. Post–Closing at LBI ...81

L. The Banks' Projections ...87

M. Expert Testimony Regarding Lyondell's and CMAI's Projections ...91

N. Expert Testimony Regarding Solvency....98

V. Legal Standards ... 107

A. Constructive Fraudulent Transfer....107

B. Intentional Fraudulent Transfer....114

C. Preference....118

D. Breach of Contract....121

E. Breach of Fiduciary Duties Under Luxembourg Law....123

VI. Discussion. ... 132

A. Constructive Fraudulent Transfer....132

B. Intentional Fraudulent Transfer....142

C. Preference....148

D. Breach of Contract....149

E. Claims Under Luxembourg Law....151

VII. Conclusion ... 159


Edward S. Weisfelner, as Litigation Trustee of the LB Litigation Trust1 (the "Trustee"), seeks to recover billions of dollars from Access,2 related entities, and employees, in this litigation on behalf of LyondellBasell creditors. The Trustee's claims arise out of the merger of Lyondell and Basell, orchestrated by Len Blavatnik's Access.

The parties narrowed the issues to be tried upon the submission of a joint pre-trial order. (ECF Doc. # 848.) The Trustee brings claims alleging: (i) actual fraudulent transfer; (ii) constructive fraudulent transfer; (iii) avoidable preference; (iv) breach of contract; and (v) breach of fiduciary duty and tort claims under Luxembourg law, with aiding and abetting under Texas law. Opening arguments took place on October 17, 2016. At trial, direct testimony was offered, primarily by written declarations with in-court cross examination, but also through live witnesses and deposition designations. After trial, the Trustee and the Defendants submitted detailed proposed findings of fact and conclusions of law. (See ECF Doc. ## 906–09.) The Court heard closing arguments on February 2, 2017.

A. Blavatnik, the Companies, and the Merger

Len Blavatnik is the founder and chairman of Access, and the owner (either directly or indirectly) of 100% of Access and numerous related companies. The Access group of companies acquired Basell, a Netherlands-based petrochemicals company, in 2005. The parties disputed Basell's exact equity value at trial, but Basell was undisputedly worth billions of dollars. Soon after acquiring Basell, Blavatnik began to pursue combining Basell with an American refining company, with the goal of developing Europe-based Basell into a global petrochemical and refining company. Blavtnik and his associates identified Lyondell as a compelling target.

Numerous Defense witnesses testified that the "industrial logic" and "strategy" of the Basell–Lyondell merger were sound: Basell was the world's largest supplier of polypropylene and advanced polyolefin products, and a European leader in production of polyethylene. Lyondell was the largest U.S. producer of ethylene and had recently assumed full ownership of a large oil refinery in Houston. Access and Basell considered Lyondell a good strategic fit for a combination with Basell, and anticipated significant synergies upon combining the two companies.

Access and Basell made an offer to acquire Lyondell in 2006, which was rejected. After unsuccessfully bidding on Lyondell's competitor Huntsman in 2007, Blavatnik and Access again focused on acquiring Lyondell. On May 9, 2007, an Access affiliate acquired a toehold position in Lyondell stock in advance of a potential merger. In June 2007, Blavatnik met with Lyondell CEO Dan Smith to discuss the proposed merger; after discussions between the two executives and within Basell management, Blavatnik eventually offered $48 per share to acquire Lyondell. In July 2007, Lyondell provided non-public due diligence materials, including refreshed projections, to Access, Basell, and a group of financing banks. Over several days in July, including all-day meetings over the weekend of July 14 and 15, Access, Basell, and the Banks conducted due diligence on the potential merger and received presentations from Lyondell management about its business and the refreshed projections. By this time, Access, Basell, and the Banks had already been monitoring Lyondell's performance for at least a year in connection with a possible merger.

On July 16, 2007, the Merger Agreement was signed and the Banks committed to fund the merger at a price of $48 per share. Access would contribute all of Basell's equity to the Merger, and Basell and Lyondell would be combined to form LyondellBasell Industries AF S.C.A. ("LBI"). In August 2007, an Access affiliate acquired additional Lyondell stock, bringing the total toehold position to 9.84% of Lyondell's outstanding shares. In September 2007, several months after the signing of the deal, Lyondell disclosed that it would miss its EBITDA projections for the third and fourth quarters, primarily because of rising feedstock prices. But Access, Basell, and the Banks were all satisfied that the fundamentals of the Merger remained sound, particularly because Basell was outperforming its own projections.

The Merger closed on December 20, 2007. The Merger financing totaled $20.3 billion, and left LBI with approximately $2.3 billion of liquidity at the Closing Date.

LBI was buffeted by a series of unplanned and, to some extent, unforeseeable events in the year after the Merger, including a deadly crane collapse and two unusually destructive hurricanes at its Houston refinery, wildly fluctuating oil prices, and the effects of the Great Recession at the end of 2008. LBI filed for bankruptcy protection under chapter 11 on January 6, 2008.

B. The Trustee Failed to Establish that Lyondell was Insolvent on Two Key Dates

The Trustee argues that the payments made to Blavatnik-owned entities on account of the pre-merger Toehold investment Blavatnik made in Lyondell stock are constructively fraudulent transfers. The Trustee also argues that loan repayments made in October 2008 on a drawn-down revolving credit facility, totaling $300 million, were preferential transfers. Essential to the Trustee's constructive fraudulent transfer claims and preference claim are proving that LBI was insolvent on December 20, 2007, when the Merger closed, as well as on October 16, 17 and 20 of 2008, when the loan repayments were made. So naturally, questions of solvency and capital adequacy were a central focus of this trial. The cornerstone of the Trustee's case is the assertion that the refreshed projections, prepared in response to Blavatnik's acquisition of the Toehold position, were fraudulently prepared and wildly inflated, and resulted in a combined company that was predestined to fail. In essence, the Trustee argues that a merger based on these refreshed projections necessarily left LBI with inadequate capital. The Trustee, however, failed to prove his case.

1. The Trustee Failed to Prove Insolvency on December 20, 2007

At trial, the Trustee called both industry experts, who attempted to cast the refreshed EBITDA projections as egregiously overstated, and financial experts, who attempted to paint the entire merger as doomed from the very beginning. But as evidence was presented at trial, serious flaws with the Trustee's experts were exposed, rendering the Trustee's experts' testimony largely unreliable. First, the Trustee's industry experts, CMAI, utilized modeling technology that was aptly characterized by the Defendants as a "black box" that contained hidden assumptions and "proprietary" elements that precluded the Defendants' experts, and the Court, from fully apprising the methods and merits of the model. The Trustee's financial experts, in turn, relied on the questionable analysis performed by the industry experts, but also offered suspect testimony of their own. One of the Trustee's solvency experts, in concluding that LBI was inadequately capitalized, cherry-picked a small subset of the many projections that were prepared by the financing banks, and manipulated them in a manner that both contradicted the consensus views of the banks, and misrepresented the...

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