Youngman v. Yucaipa Am. Alliance Fund I, L.P. (In re Ashinc Corp.)

Decision Date04 May 2021
Docket NumberAdv. Pro. No. 14-50971 (CSS),Adv. Proc. No.: 13-50530 (CSS),Case No. 12-11564 (CSS) (Jointly Administered)
Citation629 B.R. 154
Parties IN RE: ASHINC CORPORATION, et al., Debtors. Catherine E. Youngman, Litigation Trustee for Ashinc Corporation, et al., as Successor To the Official Committee of Unsecured Creditors of Ashinc Corporation, and Its Affiliated Debtors Plaintiff, BDCM Opportunity Fund II, LP, Black Diamond CLO 2005-1 Ltd., and Spetrum Investment Partners, L.P., Intervenors, v. Yucaipa American Alliance Fund I, L.P., and Yucaipa American Alliance (Parallel) Fund I, L.P., Defendants. Catherine E. Youngman, Litigation Trustee for Ashinc Corporation, et al., as Successor To BDCM Opportunity Fund II, LP., Black Diamond CLO 2005-1 Ltd., Spectrum Investment Partnters L.P., Black Diamond Commerical Finance, L.L.C., as Co-Administrative Agent, and Spectrum Commerical Finance LLC, as Co-Administrative Agent, Plaintiff, v. Yucaipa American Alliance Fund I, L.P., and Yucaipa American Alliance (Parallel) Fund I, L.P., Defendants
CourtU.S. Bankruptcy Court — District of Delaware

FOX ROTHSCHILD LLP, Seth A. Niederman, 919 Market Street, Suite 300, Wilmington, DE 19801, -and-, JOSEPH HAGE AARONSON LLC, Gregory P. Joseph, Douglas J. Pepe, Gila S. Singer, 485 Lexington Avenue, 30th Floor, New York, NY 10017, -and-, ZAIGER LLC, Jeffrey H. Zaiger, 432 Park Avenue, Suite 19A, New York, NY 10022, Counsel for the Litigation Trustee

YOUNG CONAWAY STARGATT & TAYLOR LLP, Michael R. Nestor, Michael S. Neiberg, 1000 North King Street, Wilmington, DE 19801, -and-, GIBSON, DUNN & CRUTCHER LLP, Robert A. Klyman, Maurice M. Suh, Kahn Scolnick, 333 South Grand Avenue, Los Angeles, CA 90071, Counsel for Defendants

OPINION1

Sontchi, C.J.

Table of Contents

INTRODUCTION...163

JURISDICTION...164

FACTUAL HISTORY...164

B. Facts/Background Applicable to this Matter...166

ANALYSIS...173

C. Estate Claim 5 and Lender Claim 2: Breach of Contact...175
D. Lender Claims 2 and 3: Breach of Contract and Breach of Duty of Good Faith and Fair Dealing - Statute of Limitations...183
F. Estate Claims 4 and 6: Specific Performance...187
G. Estate Claims 10, 11 and 13: Fraudulent Transfer and Disallowance of Claims Pursuant to § 502(d)...188
i. Relief Requested...188
ii. Relevant and Reiterated Facts...188
iii. Shifting Standard and Law...192
iv. Summary...203
H. Estate Claim 7 – Breach of Fiduciary Duty...203
i. The Fiduciary Duty Claim is not Duplicative of the Breach of Contract Claim...204
ii. There is Enough Evidence to Go to Trial on the Issue of Whether Yucaipa Obstructed Board Consideration to Benefit Itself...205
iii. JCT Negotiations...209
iv. Could Any Transaction with JCT Benefit Allied?...210
v. Corporate Opportunity...210
vi. Unnecessary and Unreasonable Fees...211
I. Lender Claim 4: Tortious Interference Against the Yucaipa Directors and Ron Burkle...215
INTRODUCTION2

Before the Court is the (i) Motion for Summary Judgment by Defendants Yucaipa American Alliance Fund I, L.P. and Yucaipa American Alliance (Parallel) Fund I, L.P.3 and (ii) the Litigation Trustee's Motion for Partial Summary Judgment .4 The dispute before the Court results from two complaints asserted against Defendants Yucaipa American Alliance Fund I, L.P. and Yucaipa American Alliance (Parallel) Fund I, L.P. (collectively, "Yucaipa") and certain individuals filed by (a) the Official Committee of Unsecured Creditors (the "Committee") and (b) BDCM Opportunity Fund II, LP, Black Diamond CLO 2005-1 Ltd. (collectively, "Black Diamond"), and Spectrum Investment Partners, L.P. ("Spectrum," and together with Black Diamond, "BD/S") (the Committee action and the BD/S action are not being pursued by the Trustee on behalf of the Trust, described more fulsomely below). The Trustee asserts a bevy of claims against Yucaipa related to the First Lien Credit Agreement5 ("FLCA," the lenders therein the "First Lien Lenders," and the debt therein, the "First Lien Debt") and its various amendments. The claims include breach of contract, breach of fiduciary duty, equitable subordination, recharacterization, tortious interference, fraudulent transfers, and disallowance of claims. The Trustee and Yucaipa each moved for summary judgment on a variety of these claims. This is the Court's opinion on the Cross-Motions for Summary Judgment. As detailed below (and summarily in a chart attached as Appendix hereto), the Court will grant, in part, and deny, in part, each motion. The Court will also enter judgment and award damages in favor of the Trustee on behalf of the Trust against Yucaipa on Estate Claims 5, 10, 11 and 13 and Lender Claim 2. The Court will also enter judgment, in part, in favor of the Trustee on behalf of the Trust against Yucaipa on Estate Claims 1 and 2 and Lender Claim 1. Finally, the Court will enter judgment in favor of Yucaipa against the Trust on Estate Claims 3, 4, and 6.

JURISDICTION

This Court has jurisdiction over this matter, pursuant to 28 U.S.C. § 1334. This is a core proceeding, pursuant to 28 U.S.C. § 157(b). Venue is proper in this District, pursuant to 28 U.S.C. §§ 1408 and 1409.

FACTUAL HISTORY
A. Procedural History

The Official Committee of Unsecured Creditors began litigation against Yucaipa on February 1, 20136 (Del. Bankr. Adv. 13-50530); thereafter, BD/S filed their own complaint against Yucaipa on November 19, 20147 (Del. Bankr. 14-50971). Under the Debtors' Modified First Amended Joint Chapter 11 Plan of Reorganization dated December 3, 20158 and a Litigation Trust Agreement dated December 20, 2016, the Estate Claims and Lender Claims are now jointly prosecuted by the Trustee.9

The litigation history between these parties has been long and arduous.10 Before the Court herein are Cross-Motions for Summary Judgment and their attendant briefs and declarations.11 The Court heard argument on these motions on February 4, 2021. This is the Court's decision thereon.

B. Facts/Background Applicable to this Matter
i. 2005 Bankruptcy and Yucaipa's Investment in Allied

The above-captioned debtor ("Allied" or the "Company") was a unionized car hauling company engaged in the transport of new vehicles in North America. On July 31, 2005, Allied filed a petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Northern District of Georgia12 (the "2005 Bankruptcy"). Yucaipa — a private equity firm founded by Ron Burkle — began analyzing investment opportunities in the Company in an effort spearheaded by Derex Walker, a Transaction Partner hired by Yucaipa in January 2006 to provide experience with restructuring and distressed debt investing. Yucaipa purchased approximately 66% of Allied's then outstanding $150 million in pre-petition senior secured notes for $81.6 million in May 2006. Yucaipa also financed Allied's purchase of used rigs for approximately $12.6 million, and later purchased $1.5 million in claims tendered by unsecured creditors for 25¢ on the dollar. Yucaipa's initial investments in Allied totaled approximately $95 million.

Allied emerged from the 2005 Bankruptcy in May 2007 under a Plan of Reorganization sponsored by Yucaipa and the International Brotherhood of Teamsters.13

Yucaipa converted its $95 million investment in Allied into 67% of reorganized Allied's equity under the Plan. Yucaipa obtained the ability to control Allied's Board of Directors (the "Board"), with the right to appoint three of Allied's five Board members and Allied's Chief Executive Officer (the fourth Board member), and a veto over Allied's fifth Board member, who was to be selected by the Creditors' Committee from the 2005 Bankruptcy.

ii. Allied's First and Second Lien Credit Agreements.

To finance its exit from the prior bankruptcy, Allied entered into a two-tiered financing structure with various lenders ("Lenders") comprising $265 million in first lien debt, governed by the FLCA, and $50 million in second lien debt, governed by a Second Lien Credit Agreement14 ("SLCA"). Both credit agreements were approved by the Georgia bankruptcy court in connection with the Joint Plan.

The first lien facility consisted of three types of debt: $180 million in term loans (the "Term Loans"), a $35 million revolving credit facility from the CIT Group/Business Credit, Inc. ("CIT"), and $50 million in letter of credit commitments ("LC Commitments"). The FLCA and SLCA were secured by a pledge of substantially all of Allied's assets, and both contained fixed interest rates. The Georgia bankruptcy court approved Allied's entry into both the FLCA and SLCA. As initially executed, the FLCA excluded Yucaipa from being an "Eligible Assignee," meaning that a holder of first lien debt could not sell, assign, or transfer any portion of its debt,...

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