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

• Decision Date: 04 January 2016
• Docket Number: No. 09–10023 (REG) (Jointly Administered),Adversary Proceeding No. 09–1375 (REG),09–10023 (REG) (Jointly Administered)
• Citation: 543 B.R. 127
• 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

543 B.R. 127

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.

No. 09–10023 (REG) (Jointly Administered)

Adversary Proceeding No. 09–1375 (REG)

United States Bankruptcy Court, S.D. New York.

Signed January 4, 2016

BROWN RUDNICK, LLP, Seven Times Square, New York, New York 10036, By: Sigmund S. Wissner–Gross, Esq., May Orenstein, Esq., One Financial Center, Boston, Massachusetts 02111, By: Steven D. Pohl, Esq. (argued), Counsel for Edward S. Weisfelner, Litigation Trustee of the LB Litigation Trust.

QUINN, EMANUEL, URQUHART & SULLIVAN, LLP, 51 Madison Avenue, 22nd Floor, New York, New York 10010, By: Richard I. Werder, Jr., Esq., Susheel Kirpalani, Esq., Benjamin Finestone, Esq. (argued), Attorneys for Defendants Access Industries, Inc.; Access Industries Holdings LLC; AI International, S.à .r.l.; Nell Limited; BI S.à .r.l; Len Blavatnik; Lincoln Benet; Philip Kassin; Peter Thorén; and Alex Blavatnik.

DECISION AND ORDER ON DEFENDANT BI S.À.R.L.'S MOTION TO DISMISS COUNTS 14 AND 19 OF THE COMPLAINT

ROBERT E. GERBER, UNITED STATES BANKRUPTCY JUDGE

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 conveyances, 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 relating to Counts 14 and 19.⁶

Those counts relate to a shareholder distribution of 100 million Basell made on December 7, 2007, about two weeks before the closing of the Merger (the "December Distribution "), that allegedly "drained Basell of the capital that it would soon desperately need to continue in operation and meet its obligations."⁷ In Count 14, the Trustee seeks to hold various defendants, including BI S.à.r.l., the parent of Basell before the Merger, liable for extra-contractual tort under Articles 1382 and 1383 of the Luxembourg Civil Code for approving the December Distribution. In Count 19, the Trustee seeks to avoid and recover the December Distribution as a fraudulent transfer under sections 548 and 550 of the Bankruptcy Code.⁸

Defendant BI S.à.r.l. moves, pursuant to Fed.R.Civ.P. 12(b)(2), to dismiss Counts 14 and 19 for lack of personal jurisdiction, and, pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss Count 19 for failure to state a claim, on grounds that the avoidance powers of section 548 of the Bankruptcy Code do not apply to the December Distribution because it was an extraterritorial transaction.

For the reasons set forth below, the Court:

(1) Grants the motion to dismiss Counts 14 and 19 for lack of personal jurisdiction, but grants leave to the Trustee to amend the Complaint to remedy its jurisdictional deficiencies (without granting further jurisdictional discovery); and

(2) Denies the motion to dismiss Count 19 for failure to state a claim upon which relief can be granted.

The bases for the Court's determination follow.

Facts

The Complaint is quite detailed, at over 140 pages, but most of those details are unnecessary for purposes of the motions being decided here. Useful background may be found in the Court's prior opinions in the actions brought by the Trustee against selling shareholders, familiarity with which is assumed. To minimize the length of this decision, the Court summarizes background facts essential for context and ease of reference, but otherwise only focuses on facts relevant to Counts 14 and 19.

As previously noted, the gist of the Trustee's claims is that the Merger—and more importantly, the highly leveraged financing of the Merger—left the newly formed Resulting Company, Lyondell and many of their affiliates insolvent, inadequately capitalized, and grossly overleveraged. Prior to the Merger, Basell AF GP S.à.r.l. ("Basell GP ") was the general partner of Basell, and BI S.à.r.l. was the immediate corporate parent of Basell GP. BI S.à.r.l. held 99.99% of the capital stock of Basell (with Basell GP holding the rest).⁹ BI S.à.r.l. is an entity organized under the laws of Luxembourg, and was at all relevant times directly and wholly owned by Nell Limited.¹⁰ Nell Limited is a Gibraltar entity owned by Access Industries Holdings LLC ("Access Industries ") and NAG Investments, LLC, both Delaware entities and both owned and controlled by Leonard Blavatnik ("Blavatnik "),¹¹ Chairman and President of Access Industries.¹²

On December 7, 2007, two weeks before the closing of the Merger, Basell made the December Distribution to its shareholders, BI S.à.r.l. and Basell GP. According to the Complaint, the distribution was "initiated by Blavatnik after he had begun to implement his plan of acquiring Lyondell,"¹³ proposed by Basell's general partner (Basell GP), and approved by Basell's shareholders (BI S.à.r.l. and Basell GP), each acting through their managers.¹⁴

According to the Complaint, at all relevant times, the managers of BI S.à.r.l. were:

(i) Alex Blavatnik, who was also a vice president of Access Industries Holdings;

(ii) Peter Thoren ("Thoren "), who was also an executive vice president as Access Industries Holdings and manager of AI Chemical;

(iii) Alan Bigman ("Bigman ") who was also a representative of Basell GP pre-Merger and Resulting Company General Partner post-Merger, and a board member of Lyondell as of March 28, 2008; and

(iv) Simon Baker ("Baker ") who was also a representative of Basell GP pre-Merger and Resulting Company General Partner post-merger.

In addition, the Complaint asserts that management of Basell GP included Bigman, Richard Floor and Philip Kassin, both of whom were also members of the board of the Resulting Company.

Discussion

The standards for deciding a motion to dismiss under Fed.R.Civ.P. 12(b)(6) are well known. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face."¹⁵ But legal conclusions couched as factual allegations are not entitled to the assumption of the truth.¹⁶ "A claim has facial plausibility," the Supreme Court has explained:

when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.¹⁷

Determining whether a complaint states a plausible claim for relief is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.¹⁸

A trial court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient."¹⁹ A complaint is "deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference."²⁰ Where the plaintiff has relied "on the terms and effect of a document in drafting the complaint," the court may consider the document on a dismissal motion.²¹ Defendants may raise affirmative defenses on a motion to dismiss, but only "if the defense appears on the face of the complaint."²²

I.This Court's Jurisdiction over BI...