Weisfelner v. Blavatnik (In re Lyondell Chem. Co.)
Decision Date | 04 January 2016 |
Docket Number | Adversary Proceeding No. 09–01375(REG),Case No. 09–10023(REG) (Jointly Administered) |
Citation | 543 B.R. 417 |
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. |
Court | U.S. Bankruptcy Court — Southern District of New York |
BROWN RUDNICK, LLP, Attorneys for Plaintiff Edward S. Weisfeiner, Litigation Trustee of the LB Litigation Trust, Seven Times Square, New York, New York 10036, By: Sigmund S. Wissner–Gross, Esq. (argued), May Orenstein, Esq., One Financial Center, Boston, Massachusetts 02111 By: Steven D. Pohl, Esq.
PORTER & HEDGES, LLP, Attorneys for Former Lyondell Director and Officer Defendants Reliant Energy Plaza, 1000 Main Street, 36th Floor, Houston, Texas 77002 By: John Higgins, Esq. (argued), Eric D. Wade, Esq.,
DENTONS U.S. LLP, Attorneys for Former Lyondell Director and Officer Defendants 1221 Avenue of the Americas, New York, New York 10020 By: Peter D. Wolfson, Esq., Arthur H. Ruegger, Esq.,
DEBEVOISE & PLIMPTON, LLP, Attorneys for Defendant Stephen I. Chazen, 919 Third Avenue, New York, New York 10022 By: Lorna G. Schofield, Esq., Tricia B. Sherno, Esq., Jessica Simonoff, Esq.
COVINGTON & BURLING, LLP, Attorneys for Defendant C. Bart de Jong and Edward J. Dineen, 620 Eighth Avenue, New York, New York 10018, By: Diane F. Coffino, Esq., Andres A. Ruffino, Esq., Andrea J. Gildea, Esq.
DECISION AND ORDER ON DEFENDANTS' MOTION TO DISMISS COUNT 4
In late December 2007, Basell AF S.C.A. ("Basell "), a Luxembourg entity controlled by Leonard Blavatnik ("Blavatnik "), acquired Lyondell Chemical Company ("Lyondell "), a Delaware corporation headquartered in Houston—forming a new company after a merger (the "Merger "), LyondellBasell Industries AF S.C.A. (as used by the parties, "LBI, " or here, the "Resulting Company "),1 Lyondell's parent—by means of a leveraged buyout ("LBO "). The LBO was 100% financed by debt, which, as is typical in LBOs, was secured not by the acquiring company's assets, but rather by the assets of the company to be acquired. Lyondell took on approximately $21 billion of secured indebtedness in the LBO, of which $12.5 billion was paid out to Lyondell stockholders.
In the first week of January 2009, less than 13 months later, a financially strapped Lyondell filed a petition for chapter 11 relief in this Court.2 Lyondell's unsecured creditors then found themselves behind that $21 billion in secured debt, with Lyondell's assets effectively having been depleted by payments of $12.5 billion in loan proceeds to stockholders. Lyondell's assets were allegedly also depleted by payments incident to the LBO and the Merger—of approximately $575 million in transaction fees and expenses, and another $337 million in payments to Lyondell officers and employees in change of control payments and other management benefits.
Those events led to the filing of what are now five adversary proceedings—three against shareholder recipients of that $12.5 billion, one dealing with unrelated issues,3 and one other—this action, which was originally the first of the five—against Blavatnik and companies he controlled; Lyondell's officers and directors; and certain others.
In his Amended Complaint (the "Complaint ") in this adversary proceeding (brought, like the others, under the umbrella of the jointly administered chapter 11 cases of Lyondell, the Resulting Company and their affiliates (the "Debtors ")), Edward S. Weisfelner (the "Trustee "), the trustee of the LB Litigation Trust (one of two trusts formed to prosecute the Debtors' claims), asserts a total of 21 claims against the defendants in this action. The 21 claims variously charge breaches of fiduciary duty; the aiding and abetting of those alleged breaches; intentional and constructive fraudulent transfers, unlawful dividends, and a host of additional bases for recovery under state law, the Bankruptcy Code, and the laws of Luxembourg, under which several of the Basell entities were organized.4 The Complaint also seeks to equitably subordinate defendants' claims that might otherwise be allowed.
The Trustee's Complaint, in turn, engendered a large number of motions to dismiss. This is one of several opinions ruling on those motions5 —here, the motion to dismiss Count 4, charging that Merger–related payments to Lyondell's Pre–Merger Directors and Pre–Merger Officers (each as defined below, and collectively, the "Pre–Merger Ds & Os ") were intentional fraudulent transfers.
In deciding these motions, the Court does not write on a clean slate. It issued two earlier decisions (in three other Lyondell–related actions) dismissing other intentional fraudulent transfer claims—there, in actions against Lyondell's former shareholders.6 Though the sums that were sought differed (as did the bases upon which each defendant was cashed out), the allegations supporting the requisite scienter in each largely overlapped with those here—particularly those as to the alleged conduct of the Pre–Merger Officers in fabricating certain "refreshed" projections to support the $48 per share Merger price, and of Pre–Merger Directors in sanctioning the "refreshed" projections.
While fully recognizing the seriousness of the allegations against some of the Pre–Merger Ds & Os (particularly Lyondell CEO Dan Smith)—and well understanding their relevance to claims for breach of fiduciary duty and fraud—the Court does not see these allegations as supporting claims for intentional fraudulent transfers. The reasons for that view largely appear in the Second Shareholders Decision, and need not be addressed at comparable length here.
For the reasons discussed in the Second Shareholders Decision and below, the Pre–Merger Ds & Os' motion to dismiss Count 4 of the Complaint is granted.
Before the events that are the subject of this action, Lyondell was a publicly traded chemicals company headquartered in Texas. Lyondell's Board of Directors at the time (collectively, the "Pre–Merger Directors ") consisted of 10 elected outside directors (the "Outside Directors ") and one additional director, Dan Smith ("Smith "), Lyondell's CEO. Lyondell's COO, Morris Gelb ("Gelb "), was not a director at the time of the Merger. But Gelb became one as of March 28, 2008, along with Edward Dineen ("Dineen "), who was Lyondell's former Senior Vice President of the Chemicals and Polymers business segment.
Gelb and Dineen were among the 12 senior Lyondell executives, including Smith (collectively, the "Pre–Merger Officers "), who collectively received over $158 million in "Change of Control" payments and over $93 million in Merger consideration pursuant to the Merger, on account of stock options, restricted stock, performance units, severance/retirement plans and other benefits.8
Similarly, Lyondell's Outside Directors received, as a result of the Merger, a total of approximately $19 million in Change of Control payments and Merger consideration.
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Weisfelner v. Blavatnik (In re Lyondell Chem. Co.)
...harm). The inquiry focuses on the intent of the transferor, not the transferee. See Weisfelner v. Blavatnik (In re Lyondell Chem. Co.) , 543 B.R. 417, 425 n.36 (Bankr. S.D.N.Y. 2016) ("The intent must be the intent of the transferor."); see also Silverman v. Actrade Capital, Inc. (In re Act......
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Weisfelner v. Hofmann (In re Lyondell Chem. Co.)
...largely the same reasons it dismissed those claims in this action. Blavatnik Action, 543 B.R. 428, 441 (S.D.N.Y.2016) ; Blavatnik Action, 543 B.R. 417, 423 (S.D.N.Y.2016). While some constructive fraud claims have been dismissed, others remain pending. See Blavatnik Action, Dkt. No. 772 (Ba......
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Weisfelner v. Hofmann (In re Lyondell Chem. Co.)
...same reasons it dismissed those claims in this action. Blavatnik Action, 543 B.R. 428, 441 (Bankr. S.D.N.Y. 2016); Blavatnik Action, 543 B.R. 417, 423 (Bankr. S.D.N.Y. 2016). While some constructive fraud claims have been dismissed, others remain pending. See Blavatnik Action, Dkt. No. 772 ......
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