Yucaipa American Alliance Fund I, LP v. Ehrlich, 111517 FED3, 16-3664

Docket Nº:16-3664
Opinion Judge:SCIRICA, CIRCUIT JUDGE
Party Name:YUCAIPA AMERICAN ALLIANCE FUND I, LP, a Delaware Limited Partnership; YUCAIPA AMERICAN ALLIANCE PARALLEL FUND I, LP, a Delaware Limited Partnership, Appellants v. RICHARD A. EHRLICH; STEPHEN H. DECKOFF; LESLIE A. MEIER; JEFFREY A. SCHAFFER; BDCM OPPORTUNITY FUND II, LP, A Delaware Limited Partnership; BLACK DIAMOND CLO 2005-1 LTD, a Cayman ...
Judge Panel:Before: CHAGARES, SCIRICA, and FISHER, Circuit Judges
Case Date:November 15, 2017
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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YUCAIPA AMERICAN ALLIANCE FUND I, LP, a Delaware Limited Partnership; YUCAIPA AMERICAN ALLIANCE PARALLEL FUND I, LP, a Delaware Limited Partnership, Appellants

v.

RICHARD A. EHRLICH; STEPHEN H. DECKOFF; LESLIE A. MEIER; JEFFREY A. SCHAFFER; BDCM OPPORTUNITY FUND II, LP, A Delaware Limited Partnership; BLACK DIAMOND CLO 2005-1 LTD, a Cayman Islands Limited Liability Company; SPECTRUM INVESTMENT PARTNERS, LP, a Delaware Limited Partnership

No. 16-3664

United States Court of Appeals, Third Circuit

November 15, 2017

NOT PRECEDENTIAL

Submitted Pursuant to Third Circuit LAR 34.1(a) April 4, 2017

On Appeal from the United States District Court for the District of Delaware (D. Del. No. 1-15-cv-00373) District Judge: Honorable Sue L. Robinson

Before: CHAGARES, SCIRICA, and FISHER, Circuit Judges

OPINION [*]

SCIRICA, CIRCUIT JUDGE

This case involves events surrounding the bankruptcies of Allied Systems Holdings, Inc. and a dispute between hedge funds who hold portions of Allied's first lien debt. Plaintiffs are two hedge funds managed by Yucaipa Companies, LLC, (collectively "Yucaipa"). Defendants are hedge funds managed by Black Diamond and Spectrum Investment Partners, and their employees (collectively "BD/S"). Yucaipa alleges BD/S engaged in a conspiracy to induce Yucaipa to take a detrimental position in Allied's bankruptcy, resulting in damages in the form of equitable subrogation of Yucaipa's first lien debt holdings by the bankruptcy court and resulting legal fees. Yucaipa asserts claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962, as well as state law claims for fraud and tortious interference with business relations.

The District Court granted BD/S's motion to dismiss the RICO claims and declined to exercise supplemental jurisdiction over the remaining state law claims, and Yucaipa appealed. We will affirm.

I.

A.

The origins of this case lie in the first bankruptcy of Allied in 2007 in the United States Bankruptcy Court for the District of Delaware and a tangled web of resulting litigation. After the bankruptcy, Yucaipa became the majority shareholder of Allied under the plan of reorganization and controlled the board of directors. To finance the reorganization and emergence from bankruptcy, in May 2007, Allied borrowed $265 million of first lien debt from numerous lenders pursuant to a credit agreement. BD/S were among the lenders, and held a minority stake in the first lien debt.

The terms of the credit agreement are essential to the present dispute. Under its terms, a lender or lenders holding 50% or more of the first lien debt can act as "requisite lenders" who have the authority to declare events of default, demand immediate payment by Allied of the balance of the loan, or commence foreclosure. As Allied's majority equity holder, Yucaipa was expressly forbidden by the terms of the credit agreement from acting as a requisite lender.

In 2008, Allied defaulted on the first lien debt and stopped making interest payments. Subsequently, Allied agreed to an amendment of the credit agreement, which gave Yucaipa the right to purchase first lien debt, but under certain restrictions, which continued to prevent Yucaipa from serving as the requisite lenders.

In February 2009, ComVest Investment Partners III, L.P., which is not a party to this suit, became the requisite lenders. Yucaipa negotiated directly with ComVest to acquire the majority of Allied's first lien debt. In addition, Yucaipa, as majority equity holder, caused Allied to enter a purported amendment to the credit agreement, which would have eliminated the restrictions on Yucaipa's ownership of Allied's first lien debt and allowed Yucaipa to become the requisite lenders. On the same day, Yucaipa declared itself the requisite lenders under the terms of the original credit agreement.

However, the proposed amendment was not approved by unanimous consent of the first lien debt lenders, as required by the original credit agreement. In January 2012, BD/S filed suit against Yucaipa in New York state court and successfully obtained a declaratory judgment that Yucaipa was not the requisite lenders because the purported amendment to the credit agreement was void.

While the New York action was pending, in May 2012, BD/S filed involuntary petitions for bankruptcy against Allied in the United States Bankruptcy Court for the District of Delaware. In adversarial proceedings in the bankruptcy court, both Yucaipa and BD/S claimed to be the requisite lenders under the credit agreement. The bankruptcy court determined BD/S were the requisite lenders and the District Court affirmed this determination.

The bankruptcy court supervised an auction of Allied's remaining assets. Jack Cooper Holdings Corporation, which is...

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