Whitebox Concentrated Convertible Arbitrage Partners, L.P. v. Superior Well Servs., Inc.

• Decision Date: 25 October 2012
• Citation: 2012 N.Y. Slip Op. 07143,20 N.Y.3d 59,956 N.Y.S.2d 439,980 N.E.2d 487
• Parties: WHITEBOX CONCENTRATED CONVERTIBLE ARBITRAGE PARTNERS, L.P., et al., Appellants, v. SUPERIOR WELL SERVICES, INC., Respondent.
• Court: New York Court of Appeals Court of Appeals

20 N.Y.3d 59

980 N.E.2d 487

956 N.Y.S.2d 439

2012 N.Y. Slip Op. 07143

WHITEBOX CONCENTRATED CONVERTIBLE ARBITRAGE PARTNERS, L.P., et al., Appellants,

v.SUPERIOR WELL SERVICES, INC., Respondent.

Court of Appeals of New York.

Oct. 25, 2012.

Ross & Orenstein LLC, Minneapolis, Minnesota (John B. Orenstein of counsel), and Zeichner Ellman & Krause LLP, New York City (Yoav M. Griver, Michael E. Sims and Tracee E. Davis of counsel), for appellants.

Simpson Thacher & Bartlett LLP, New York City (Bruce D. Angiolillo, Jonathan K. Youngwood and Summer Craig of counsel), for respondent.

OPINION OF THE COURT

GRAFFEO, J.

In this case we are asked to determine whether a corporation is entitled to the dismissal of a complaint that seeks to compel the repurchase of preferred stock. Considering the allegations and documentary proof in the shareholders' favor, we conclude that dismissal is not warranted and that the complaint should be reinstated.

I

Plaintiffs own approximately 54,000 shares of a series of preferred stock issued by defendant Superior Well Services, Inc. Unlike Superior's common stock, the preferred stock carries no voting rights, but it does confer some special benefits. Among them is a requirement that Superior repurchase the preferred stock at a price of $1,000 per share (plus accrued dividends) in the event that a “fundamental change” occurs.

The document that governs the rights and obligations of the parties sets forth five scenarios that qualify as a fundamental change, two of which are relevant in this case:

“(i) a ‘person’ or ‘group’ within the meaning of Section 13(d)(3) of the [Securities and] Exchange Act becomes the direct or indirect ‘beneficial owner,’ as defined in Rule 13d–3 under the Exchange Act, of shares of the Common Stock or other capital stock of the Corporation [i.e., Superior] representing more than 50% of the voting power of the Common Stock ...; provided that this clause ... shall not apply to a transaction covered in clause (iii) below, including any exception thereto; or ...

“(iii) the Corporation merges or consolidates with or into any other Person, or any Person merges with the Corporation, other than a merger, consolidation or other transaction in which ... the Corporation is the surviving entity.”

Stated more plainly, subdivision (i) provides that a fundamental change is established if a designated entity controls more than half of the voting power of Superior's common stock, unless that occurs via a transaction listed in subdivision (iii). Subdivision (iii), in turn, directs that a merger or consolidation of Superior with or into another company (or vice versa) constitutes a fundamental change, but not if Superior is “the surviving entity” following the merger, consolidation or transaction. Thus, in this case, the preferred stockholders would be entitled to $1,000 per share if an entity acquired more than 50% of Superior's common stock, unless such acquisitionwas the result of a merger with another company and Superior remained the surviving entity after the transaction.

In 2010, Superior entered into an “agreement and plan of merger” with Nabors Industries Ltd. and its wholly-owned subsidiary, Diamond Acquisition Corp., which was created for the sole purpose of facilitating the acquisition of Superior. According to the agreement, Nabors would use Diamond to make a tender offer of approximately $22 for each share of Superior's common stock. Once Diamond acquired a majority of the common stock, it would merge with Superior and then cease to exist, thereby making Nabors the majority shareholder of Superior.

When plaintiffs became aware of the agreement, they invoked the fundamental change provision and demanded that Superior repurchase their preferred stock at $1,000 per share. Superior refused to do so, claiming that the arrangement did not qualify as a fundamental change under the terms of the governing agreement. The plan was then executed: Diamond acquired over 92% of Superior's common stock; it merged into Superior; Superior liquidated the remaining common stock; Diamond went out of existence; and Nabors became the sole owner of Superior.

Plaintiffs commenced this action seeking a declaration that Superior must repurchase their shares of preferred stock because a fundamental change took place. Based on the language of the fundamental change provision, Superior moved to dismiss under CPLR 3211 claiming that a repurchase was not required since Superior survived the merger. Plaintiffs responded that, at the very least, it was ambiguous whether the initial tender offer was covered under subdivision (i) of the fundamental change provision or whether subdivision (iii) was applicable since not one, but two, companies—Superior and Nabors—survived the merger.

Supreme Court denied Superior's motion to dismiss, concluding that at the pleading stage of the case, the fundamental change provision was subject to different interpretations. The Appellate Division reversed and dismissed the complaint, viewing Diamond's acquisition of the common stock and Superior's subsequent merger with Diamond as a single transaction from which Superior emerged as the surviving entity, triggering the exception in subdivision (iii) of the fundamental change provision (86 A.D.3d 431, 926 N.Y.S.2d 292 [1st Dept.2011] ). We granted leave to appeal (17 N.Y.3d 716, 934 N.Y.S.2d 374, 958 N.E.2d 553 [2011] ) and now reverse.

II

Plaintiffs maintain that the Appellate Division should not have dismissed the complaint because there is a reasonable view that the transaction at issue was a tender offer covered by subdivision (i) of the fundamental change clause, not a merger or consolidation within the meaning of subdivision (iii); that the various steps leading to the merger were separate transactions rather than a single, integrated plan; and that, even if subdivision (iii) applies, Superior was not the sole “surviving entity” because Nabors continued to exist. Superior contends that the language of the fundamental change provision unequivocally establishes that the company is not obligated...