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"paragraph_id": "para_3" }, { "text": "successor Indenture Trustee for the 7.875%", "paragraph_id": "para_4" }, { "text": "Senior Notes Due 2021 Issued by", "paragraph_id": "para_5" }, { "text": "FORESIGHT ENERGY LLC AND", "paragraph_id": "para_6" }, { "text": "FORESIGHT ENERGY FINANCE", "paragraph_id": "para_7" }, { "text": "CORPORATION,", "paragraph_id": "para_8" }, { "text": "Plaintiff,", "paragraph_id": "para_9" }, { "text": "v.", "paragraph_id": "para_10" }, { "text": "FORESIGHT ENERGY LLC, FORESIGHT", "paragraph_id": "para_11" }, { "text": "ENERGY FINANCE CORPORATION,", "paragraph_id": "para_12" }, { "text": "FORESIGHT ENERGY SERVICES LLC,", "paragraph_id": "para_13" }, { "text": "FORESIGHT ENERGY COAL SALES", "paragraph_id": "para_14" }, { "text": "LLC, FORESIGHT SUPPLY COMPANY", "paragraph_id": "para_15" }, { "text": "LLC, HILLSBORO ENERGY LLC,", "paragraph_id": "para_16" }, { "text": "MACOUPIN ENERGY LLC, OENEUS", "paragraph_id": "para_17" }, { "text": "LLC D/B/A SAVATRAN LLC, SUGAR", "paragraph_id": "para_18" }, { "text": "CAMP ENERGY, LLC, WILLIAMSON", "paragraph_id": "para_19" }, { "text": "ENERGY LLC, AMERICAN CENTURY", "paragraph_id": "para_20" }, { "text": "MINERAL LLC, AND AMERICAN", "paragraph_id": "para_21" }, { "text": "CENTURY TRANSPORT LLC,", "paragraph_id": "para_22" }, { "text": "Defendants.", "paragraph_id": "para_23" }, { "text": ":", "paragraph_id": "para_24" }, { "text": ":", "paragraph_id": "para_25" }, { "text": ":", "paragraph_id": "para_26" }, { "text": ":", "paragraph_id": "para_27" }, { "text": ":", "paragraph_id": "para_28" }, { "text": ":", "paragraph_id": "para_29" }, { "text": ":", "paragraph_id": "para_30" }, { "text": ":", "paragraph_id": "para_31" }, { "text": ":", "paragraph_id": "para_32" }, { "text": ":", "paragraph_id": "para_33" }, { "text": ":", "paragraph_id": "para_34" }, { "text": ":", "paragraph_id": "para_35" }, { "text": ":", "paragraph_id": "para_36" }, { "text": ":", "paragraph_id": "para_37" }, { "text": ":", "paragraph_id": "para_38" }, { "text": ":", "paragraph_id": "para_39" }, { "text": ":", "paragraph_id": "para_40" }, { "text": ":", "paragraph_id": "para_41" }, { "text": ":", "paragraph_id": "para_42" }, { "text": ":", "paragraph_id": "para_43" }, { "text": ":", "paragraph_id": "para_44" }, { "text": ":", "paragraph_id": "para_45" }, { "text": ":", "paragraph_id": "para_46" }, { "text": ":", "paragraph_id": "para_47" }, { "text": ":", "paragraph_id": "para_48" }, { "text": ":", "paragraph_id": "para_49" }, { "text": "C.A. No. 11059-VCL", "paragraph_id": "para_50" }, { "text": "MEMORANDUM OPINION", "paragraph_id": "para_51" }, { "text": "Date Submitted: November 17, 2015", "paragraph_id": "para_52" }, { "text": "Date Decided: December 4, 2015", "paragraph_id": "para_53" }, { "text": "Martin S. Lessner, James P. Hughes, Jr., Richard J. Thomas, YOUNG CONAWAY", "paragraph_id": "para_54" }, { "text": "STARGATT & TAYLOR, LLP, Wilmington, Delaware; Daniel A. Ross, Jayme T.", "paragraph_id": "para_55" }, { "text": "Goldstein, Christopher Guhin, STROOCK & STROOCK & LAVAN LLP, New York,", "paragraph_id": "para_56" }, { "text": "New York; Seth H. Lieberman, Patrick Sibley, PRYOR CASHMAN LLP, New York,", "paragraph_id": "para_57" }, { "text": "New York; Counsel for Plaintiff Wilmington Savings Fund Society, FSB, solely in its", "paragraph_id": "para_58" }, { "text": "capacity as successor trustee for the 7.875% Senior Notes due 2021 issued by Foresight", "paragraph_id": "para_59" }, { "text": "Energy LLC and Foresight Energy Finance Corporation.", "paragraph_id": "para_60" }, { "text": "1", "paragraph_id": "para_61" }, { "text": "M. Duncan Grant, James H.S. Levine, PEPPER HAMILTON LLP, Wilmington,", "paragraph_id": "para_62", "court_paragraph": 1 }, { "text": "Delaware; Counsel for Defendants Foresight Energy LLC, Foresight Energy Finance", "paragraph_id": "para_63" }, { "text": "Corporation, Foresight Energy Services LLC, Foresight Coal Sales LLC, Foresight", "paragraph_id": "para_64" }, { "text": "Supply Company LLC, Hillsboro Energy LLC, Macoupin Energy LLC, Oeneus LLC d/b/a", "paragraph_id": "para_65" }, { "text": "Savatran LLC, Sugar Camp Energy, LLC, Williamson Energy LLC, American Century", "paragraph_id": "para_66" }, { "text": "Mineral LLC, and American Century Transport LLC.", "paragraph_id": "para_67" }, { "text": "LASTER, Vice Chancellor.", "paragraph_id": "para_68" }, { "text": "2", "paragraph_id": "para_69" }, { "text": "Non-party Foresight Energy, L.P. (―Foresight Parent‖ or the ―Partnership‖) is the", "paragraph_id": "para_70", "court_paragraph": 2 }, { "text": "ultimate parent of a family of companies that operate in the coal industry. Foresight", "paragraph_id": "para_71" }, { "text": "Parent raised debt financing by causing two of its subsidiaries to issue senior notes (the", "paragraph_id": "para_72" }, { "text": "―Notes‖) pursuant to an indenture dated August 23, 2013 (the ―Indenture‖). Repayment", "paragraph_id": "para_73" }, { "text": "of principal is due in 2021, but if there has been a contractually defined ―Change of", "paragraph_id": "para_74" }, { "text": "Control,‖ then the subsidiaries who issued the Notes must offer to redeem them at 101%", "paragraph_id": "para_75" }, { "text": "of par, plus accrued but unpaid interest.", "paragraph_id": "para_76" }, { "text": "Plaintiff Wilmington Savings Fund Society, FSB currently serves as the trustee", "paragraph_id": "para_77" }, { "text": "under the Indenture (the ―Trustee‖). The Trustee filed suit, contending that a Change of", "paragraph_id": "para_78" }, { "text": "Control occurred.", "paragraph_id": "para_79" }, { "text": "The parties cross moved for judgment on the pleadings. The Trustee‘s motion is", "paragraph_id": "para_80" }, { "text": "granted as to Count I, which asserts that the defendants breached the Indenture by failing", "paragraph_id": "para_81" }, { "text": "to redeem the Notes. The Trustee‘s motion also is granted as to Count III, which seeks to", "paragraph_id": "para_82" }, { "text": "recover the Trustee‘s attorneys‘ fees and expenses. The Trustee‘s motion is denied as to", "paragraph_id": "para_83" }, { "text": "Count II, which asserts a violation of the implied covenant of good faith and fair dealing.", "paragraph_id": "para_84" }, { "text": "Because the defendants defaulted under the express language of the Indenture, there is no", "paragraph_id": "para_85" }, { "text": "need to consider whether they also breached an implied term. In light of the ruling on", "paragraph_id": "para_86" }, { "text": "Count I, the dispute over Count II is moot. The defendants‘ cross-motion is denied.", "paragraph_id": "para_87" }, { "text": "I. FACTUAL BACKGROUND", "paragraph_id": "para_88" }, { "text": "The facts are drawn from the pleadings, their exhibits, and other documents that", "paragraph_id": "para_89" }, { "text": "are integral to or incorporated into the pleadings by reference. This decision has", "paragraph_id": "para_90" }, { "text": "construed the allegations in the light most favorable to the defendants.", "paragraph_id": "para_91" }, { "text": "3", "paragraph_id": "para_92" }, { "text": "A. Foresight Parent and Its Subsidiaries", "paragraph_id": "para_93", "court_paragraph": 3 }, { "text": "Non-party Chris Cline has over thirty years‘ experience in the coal industry. In", "paragraph_id": "para_94" }, { "text": "2006, he founded the Foresight family of companies, which own and operate mines in", "paragraph_id": "para_95" }, { "text": "Illinois, Ohio, and West Virginia.", "paragraph_id": "para_96" }, { "text": "Foresight Parent is a Delaware limited partnership with common units that trade", "paragraph_id": "para_97" }, { "text": "on the New York Stock Exchange. As a Delaware limited partnership, Foresight Parent is", "paragraph_id": "para_98" }, { "text": "governed by the terms of its limited partnership agreement. The currently operative", "paragraph_id": "para_99" }, { "text": "agreement is the First Amended and Restated Agreement of Limited Partnership (the", "paragraph_id": "para_100" }, { "text": "―Parent LP Agreement‖).", "paragraph_id": "para_101" }, { "text": "Foresight Parent directly owns defendant Foresight Energy, LLC (―Foresight", "paragraph_id": "para_102" }, { "text": "Energy‖). Foresight Energy in turn owns the other entity defendants, including defendant", "paragraph_id": "para_103" }, { "text": "Foresight Energy Finance Corporation (―Foresight Finance‖). Together, Foresight Energy", "paragraph_id": "para_104" }, { "text": "and Foresight Finance issued the Notes (the ―Issuers‖). The remaining entity defendants", "paragraph_id": "para_105" }, { "text": "are operating subsidiaries of Foresight Energy that guaranteed the Issuers‘ obligations", "paragraph_id": "para_106" }, { "text": "under the Notes.1 They own the assets that comprise Foresight‘s coal business.", "paragraph_id": "para_107" }, { "text": "Foresight Energy GP, LLC (the ―General Partner‖) is a privately held Delaware", "paragraph_id": "para_108" }, { "text": "limited liability company that owns a non-economic general partner interest in Foresight", "paragraph_id": "para_109" }, { "text": "Parent and serves as its general partner. Under the Parent LP Agreement, the General", "paragraph_id": "para_110" }, { "text": "1 The guarantors are Foresight Energy Services LLC, Foresight Coal Sales LLC,", "paragraph_id": "para_111" }, { "text": "Foresight Supply Company LLC, Hillsboro Energy LLC, Macoupin Energy LLC,", "paragraph_id": "para_112" }, { "text": "Oeneus LLC d/b/a Savatran LLC, Sugar Camp Energy, LLC, Williamson Energy LLC,", "paragraph_id": "para_113" }, { "text": "American Century Mineral LLC, and American Century Transport LLC", "paragraph_id": "para_114" }, { "text": "4", "paragraph_id": "para_115" }, { "text": "Partner controls the business and affairs of Foresight Parent. Through its control over", "paragraph_id": "para_116", "court_paragraph": 4 }, { "text": "Foresight Parent, the General Partner controls the business and affairs of Foresight", "paragraph_id": "para_117" }, { "text": "Parent‘s many subsidiaries. The General Partner owns all of Foresight Parent‘s incentive", "paragraph_id": "para_118" }, { "text": "distribution rights (the ―Parent IDRs‖), which entitle the General Partner to an increasing", "paragraph_id": "para_119" }, { "text": "share of the distributable cash flow from Foresight Parent after holders of Foresight", "paragraph_id": "para_120" }, { "text": "Parent‘s common units receive certain minimum distributions.", "paragraph_id": "para_121" }, { "text": "As a Delaware limited liability company, the General Partner is governed by its", "paragraph_id": "para_122" }, { "text": "operating agreement. Before the events giving rise to this litigation, Foresight Reserves", "paragraph_id": "para_123" }, { "text": "and Michael J. Beyer, the CEO of the General Partner and Foresight Parent, were the sole", "paragraph_id": "para_124" }, { "text": "members of the General Partner. Foresight Reserves owned 99% of the membership", "paragraph_id": "para_125" }, { "text": "interests in the General Partner and Beyer owned the remaining one percent. Cline owned", "paragraph_id": "para_126" }, { "text": "100% of Foresight Reserves. Through Foresight Reserves, Cline controlled the General", "paragraph_id": "para_127" }, { "text": "Partner, Foresight Parent, and all of its subsidiaries.", "paragraph_id": "para_128" }, { "text": "B. The Notes", "paragraph_id": "para_129" }, { "text": "In 2013, the coal industry faced challenges, including environmental concerns and", "paragraph_id": "para_130" }, { "text": "price competition from other energy sources. Cline saw an opportunity to acquire", "paragraph_id": "para_131" }, { "text": "additional assets at discounted valuations. To finance his planned acquisitions, he caused", "paragraph_id": "para_132" }, { "text": "the Issuers to issue the Notes. The face amount of the Notes is $600 million. Under the", "paragraph_id": "para_133" }, { "text": "Indenture, the Issuers agreed to pay interest quarterly at a rate of 7.875% per annum and", "paragraph_id": "para_134" }, { "text": "repay principal in 2021.", "paragraph_id": "para_135" }, { "text": "Section 4.11 of the Indenture obligates the Issuers to redeem the Notes at 101% of", "paragraph_id": "para_136" }, { "text": "par in the event that Foresight Parent undergoes a Change of Control. It states:", "paragraph_id": "para_137" }, { "text": "5", "paragraph_id": "para_138" }, { "text": "Not later than 30 days following a Change of Control, the Issuers shall", "paragraph_id": "para_139", "court_paragraph": 5 }, { "text": "make an Offer to Purchase for all outstanding Notes at a purchase price", "paragraph_id": "para_140" }, { "text": "equal to 101% of the principal amount of the Notes plus accrued and", "paragraph_id": "para_141" }, { "text": "unpaid interest to (but excluding) the date of purchase . . . .", "paragraph_id": "para_142" }, { "text": "Indenture § 4.11 (the ―Redemption Clause‖).", "paragraph_id": "para_143" }, { "text": "The Indenture defines a Change of Control, in pertinent part, as", "paragraph_id": "para_144" }, { "text": "the consummation of any transaction (including, without limitation, any", "paragraph_id": "para_145" }, { "text": "merger or consolidation), in one or a series of related transactions, the result", "paragraph_id": "para_146" }, { "text": "of which is that any ―person‖ (as that term is used in Section 13(d)(3) of the", "paragraph_id": "para_147" }, { "text": "[Securities Exchange Act of 1934]), excluding [Cline and his affiliates],", "paragraph_id": "para_148" }, { "text": "becomes the Beneficial Owner, directly or indirectly, of more than 35% of", "paragraph_id": "para_149" }, { "text": "the Voting Stock of [the General Partner], measured by voting power rather", "paragraph_id": "para_150" }, { "text": "than number of shares, units or the like . . . .", "paragraph_id": "para_151" }, { "text": "Indenture at 10 (the ―Change of Control Definition‖). The Indenture defines ―Voting", "paragraph_id": "para_152" }, { "text": "Stock‖ as securities that have the power to ―vote for the election of‖ directors or", "paragraph_id": "para_153" }, { "text": "managers of the General Partner, ―to control the election of directors or managers‖ of the", "paragraph_id": "para_154" }, { "text": "General Partner, or simply the power to ―control‖ the General Partner. Indenture at 34.", "paragraph_id": "para_155" }, { "text": "The Indenture defines ―Beneficial Owner‖ as having ―the meaning assigned to such term", "paragraph_id": "para_156" }, { "text": "in Rule 13d-3‖ of the Securities Exchange Act of 1934. Id. at 8.", "paragraph_id": "para_157" }, { "text": "C. The Original Deal", "paragraph_id": "para_158" }, { "text": "Sometime before March 2015, Robert Murray approached Cline about potentially", "paragraph_id": "para_159" }, { "text": "acquiring control of the Foresight family of companies. Murray is the CEO of Murray", "paragraph_id": "para_160" }, { "text": "Energy Corporation, one of the largest coal companies in the United States.", "paragraph_id": "para_161" }, { "text": "On March 13, 2015, Murray Energy and Foresight Reserves announced that", "paragraph_id": "para_162" }, { "text": "Murray Energy would purchase a controlling stake in Foresight Parent. Murray Energy", "paragraph_id": "para_163" }, { "text": "would pay an aggregate purchase price of $1.395 billion and receive in return (i) an 80%", "paragraph_id": "para_164" }, { "text": "6", "paragraph_id": "para_165" }, { "text": "voting interest in the General Partner, (ii) a 77.5% economic interest in the General", "paragraph_id": "para_166", "court_paragraph": 6 }, { "text": "Partner, and (iii) a mix of common units and subordinated units in Foresight Parent", "paragraph_id": "para_167" }, { "text": "representing, in the aggregate, not more than a 51% limited partnership interest in", "paragraph_id": "para_168" }, { "text": "Foresight Parent (the ―Original Deal‖).", "paragraph_id": "para_169" }, { "text": "If the Original Deal had closed, it would have constituted a Change of Control", "paragraph_id": "para_170" }, { "text": "under the Indenture and triggered the Redemption Clause. To avoid having to pay $606", "paragraph_id": "para_171" }, { "text": "million to redeem the Notes, the Issuers solicited consents from holders of the Notes to", "paragraph_id": "para_172" }, { "text": "waive the Redemption Clause in return for a fee equal to 8% of the face amount of the", "paragraph_id": "para_173" }, { "text": "Notes, or $48 million. Payment of the fee was conditioned on the closing of the Original", "paragraph_id": "para_174" }, { "text": "Deal. Holders of a majority of the Notes gave their consent.", "paragraph_id": "para_175" }, { "text": "To finance the Original Deal, Murray Energy and Foresight Reserves had to raise", "paragraph_id": "para_176" }, { "text": "approximately $4.8 billion. By early April 2015, it became clear that they would fall", "paragraph_id": "para_177" }, { "text": "short. Pursuant to a Termination Agreement dated April 7, 2015, Murray Energy and", "paragraph_id": "para_178" }, { "text": "Foresight Reserves agreed that they could not raise the necessary financing and", "paragraph_id": "para_179" }, { "text": "terminated the transaction agreements governing the Original Deal. Because the Original", "paragraph_id": "para_180" }, { "text": "Deal was abandoned, the holders of the Notes did not receive a fee for consenting to", "paragraph_id": "para_181" }, { "text": "waive the Redemption Clause.", "paragraph_id": "para_182" }, { "text": "D. The Revised Deal", "paragraph_id": "para_183" }, { "text": "Murray Energy and Foresight Reserves subsequently agreed on modified terms for", "paragraph_id": "para_184" }, { "text": "their transaction (the ―Revised Deal‖). The terms of the Revised Deal are memorialized", "paragraph_id": "para_185" }, { "text": "in a Purchase and Sale Agreement between and among Murray Energy, Foresight", "paragraph_id": "para_186" }, { "text": "Reserves, and Beyer dated April 7, 2015. The Revised Deal closed on April 16, 2015.", "paragraph_id": "para_187" }, { "text": "7", "paragraph_id": "para_188" }, { "text": "Under the terms of the Revised Deal, Murray Energy paid $1.37 billion and", "paragraph_id": "para_189", "court_paragraph": 7 }, { "text": "received in return (i) a 34% voting interest in the General Partner, (ii) a 77.5% economic", "paragraph_id": "para_190" }, { "text": "interest in the General Partner, and (iii) a mix of common units and subordinated units in", "paragraph_id": "para_191" }, { "text": "Foresight Parent representing, in the aggregate, not more than a 51% limited partnership", "paragraph_id": "para_192" }, { "text": "interest in Foresight Parent. In addition, Murray Energy received an option to acquire an", "paragraph_id": "para_193" }, { "text": "additional 46% voting interest in the General Partner for $25 million exercisable at any", "paragraph_id": "para_194" }, { "text": "point during a five-year period (the ―GP Option‖).", "paragraph_id": "para_195" }, { "text": "The critical difference between the Original Deal and the Revised Deal was that", "paragraph_id": "para_196" }, { "text": "under the latter, Murray Energy only received a 34% voting interest in the General", "paragraph_id": "para_197" }, { "text": "Partner rather than an 80% voting interest. By only acquiring a 34% voting interest in the", "paragraph_id": "para_198" }, { "text": "General Partner, Murray Energy came in just below the 35% figure referenced in the", "paragraph_id": "para_199" }, { "text": "Change of Control Definition, which defines a Change of Control as any person other", "paragraph_id": "para_200" }, { "text": "than Cline or his affiliates becoming ―the Beneficial Owner, directly or indirectly, of", "paragraph_id": "para_201" }, { "text": "more than 35% of the Voting Stock of [the General Partner].‖ The defendants concede", "paragraph_id": "para_202" }, { "text": "that the Revised Deal set Murray Energy‘s voting interest at 34% and incorporated the", "paragraph_id": "para_203" }, { "text": "GP Option to avoid the 35% ownership threshold.", "paragraph_id": "para_204" }, { "text": "Through the GP Option, Murray Energy gained the right to pay $25 million to", "paragraph_id": "para_205" }, { "text": "acquire another 46% voting interest in the General Partner, which would result in Murray", "paragraph_id": "para_206" }, { "text": "Energy owning the full 80% voting interest that it would have purchased under the", "paragraph_id": "para_207" }, { "text": "Original Deal. The defendants concede that they structured the terms of the GP Option in", "paragraph_id": "para_208" }, { "text": "an effort to permit Murray Energy to disclaim Beneficial Ownership of the 46% voting", "paragraph_id": "para_209" }, { "text": "8", "paragraph_id": "para_210" }, { "text": "interest that is subject to the GP Option. To support that position, Murray Energy and", "paragraph_id": "para_211", "court_paragraph": 8 }, { "text": "Foresight Reserves built two conditions into the GP Option.", "paragraph_id": "para_212" }, { "text": "The first condition requires that Murray Energy give Foresight Reserves 61 days", "paragraph_id": "para_213" }, { "text": "advance notice before it can exercise the GP Option (the ―Notice Condition‖). The", "paragraph_id": "para_214" }, { "text": "drafters of the GP Option chose this time period because Rule 13d-3(d)(1)(i) provides", "paragraph_id": "para_215" }, { "text": "generally that a person may be considered the beneficial owner of a security if that person", "paragraph_id": "para_216" }, { "text": "has the right to acquire the security within 60 days. See 17 C.F.R. § 240.13d-3(d)(1)(i).", "paragraph_id": "para_217" }, { "text": "The defendants concede that they picked 61 days to contract around Rule 13d-3(d)(1)(i).", "paragraph_id": "para_218" }, { "text": "The second condition requires that before Murray Energy can exercise the GP", "paragraph_id": "para_219" }, { "text": "Option, Foresight Parent must have refinanced both the Notes and its outstanding credit", "paragraph_id": "para_220" }, { "text": "on terms ―reasonably acceptable to‖ Foresight Reserves such that the exercise of the GP", "paragraph_id": "para_221" }, { "text": "Option will not cause a Change of Control either for purposes of the Notes or the", "paragraph_id": "para_222" }, { "text": "Foresight Parent‘s other credit facilities (the ―Refinancing Condition‖). This condition", "paragraph_id": "para_223" }, { "text": "assists on the Beneficial Ownership front because cases have held that if the fulfillment", "paragraph_id": "para_224" }, { "text": "of a condition lies outside the option holder‘s control, then the holder does not have the", "paragraph_id": "para_225" }, { "text": "right to acquire the shares until the condition is fulfilled. The Refinancing Condition", "paragraph_id": "para_226" }, { "text": "makes explicit what Murray Energy and Foresight Reserves were trying to accomplish by", "paragraph_id": "para_227" }, { "text": "using the GP Option structure, viz., avoiding a Change of Control.", "paragraph_id": "para_228" }, { "text": "As part of the Revised Deal, Murray Energy received a number of governance", "paragraph_id": "para_229" }, { "text": "rights under a new operating agreement for the General Partner, officially titled the", "paragraph_id": "para_230" }, { "text": "Second Amended and Restated Limited Liability Company Agreement of Foresight", "paragraph_id": "para_231" }, { "text": "Energy GP LLC (the ―New GP Agreement‖). The original operating agreement only", "paragraph_id": "para_232" }, { "text": "9", "paragraph_id": "para_233" }, { "text": "authorized a single type of member unit. The New GP Agreement split the units in two", "paragraph_id": "para_234", "court_paragraph": 9 }, { "text": "by authorizing (i) Voting Units, which have the power to vote but do not give the holder", "paragraph_id": "para_235" }, { "text": "an economic interest in the General Partner, and (ii) GP IDR Units, which lack the power", "paragraph_id": "para_236" }, { "text": "to vote but which give the holder an economic interest in the General Partner. The parties", "paragraph_id": "para_237" }, { "text": "agreed on the following ownership table as of the closing of the Revised Deal:", "paragraph_id": "para_238" }, { "text": "Member IDR Units Voting Units", "paragraph_id": "para_239" }, { "text": "Murray Energy 775,000 340,000", "paragraph_id": "para_240" }, { "text": "Foresight Reserves 222,750 653,400", "paragraph_id": "para_241" }, { "text": "Beyer 2,250 6,600", "paragraph_id": "para_242" }, { "text": "Total 1,000,000 1,000,000", "paragraph_id": "para_243" }, { "text": "Section 6.2(a) of the New GP Agreement provides that the business and affairs of", "paragraph_id": "para_244" }, { "text": "the General Partner are governed by a board of directors (the ―GP Board‖). Section 6.1", "paragraph_id": "para_245" }, { "text": "provides that GP Board shall have at least three and no more than twelve members.", "paragraph_id": "para_246" }, { "text": "Under Section 6.1(a) the New GP Agreement, Murray Energy has the right to elect ―such", "paragraph_id": "para_247" }, { "text": "number of directors as is close as possible to, but not exceeding, its and its Affiliates‘", "paragraph_id": "para_248" }, { "text": "proportionate percentage (based on the number of Voting Units outstanding, with a", "paragraph_id": "para_249" }, { "text": "fraction rounded down) of the total number of directors.‖ This decision refers to the", "paragraph_id": "para_250" }, { "text": "directors that Murray Energy appoints as the ―Murray Directors.‖ Foresight Reserves has", "paragraph_id": "para_251" }, { "text": "the right to appoint the remaining number of directors.", "paragraph_id": "para_252" }, { "text": "Section 6.6(d) of the New GP Agreement provides that as long as Murray Energy", "paragraph_id": "para_253" }, { "text": "owns at least 10% of the Voting Units, the General Partner cannot engage in a list of", "paragraph_id": "para_254" }, { "text": "actions without either (i) the prior approval of a Murray Director, for matters that require", "paragraph_id": "para_255" }, { "text": "GP Board approval or (ii) the prior approval of Murray Energy for matters that require", "paragraph_id": "para_256" }, { "text": "10", "paragraph_id": "para_257" }, { "text": "member approval (collectively, the ―Blocking Rights‖). Under Section 6.4(c), a quorum", "paragraph_id": "para_258", "court_paragraph": 10 }, { "text": "for valid action by the GP Board requires the presence of at least one Murray Director.", "paragraph_id": "para_259" }, { "text": "The actions covered by the Blocking Rights include:", "paragraph_id": "para_260" }, { "text": "● Reducing the amount of the Foresight Parent‘s quarterly distribution.", "paragraph_id": "para_261" }, { "text": "● Consummating any merger that would result in more than 50% of the Voting", "paragraph_id": "para_262" }, { "text": "Units of the General Partner or 50% of the common units of Foresight Parent", "paragraph_id": "para_263" }, { "text": "being acquired or otherwise beneficially owned by any person other than Murray", "paragraph_id": "para_264" }, { "text": "Energy, Cline, or their affiliates.", "paragraph_id": "para_265" }, { "text": "● Changing the tax classification of Foresight Parent.", "paragraph_id": "para_266" }, { "text": "● Issuing additional membership interests of the General Partner or partnership", "paragraph_id": "para_267" }, { "text": "interests in Foresight Parent with rights senior to the common units.", "paragraph_id": "para_268" }, { "text": "● Proposing amendments to the Parent LP Agreement.", "paragraph_id": "para_269" }, { "text": "● Selling, assigning, or otherwise disposing of any Parent IDRs.", "paragraph_id": "para_270" }, { "text": "● Entering into transactions between the General Partner, Foresight Parent, or any of", "paragraph_id": "para_271" }, { "text": "its subsidiaries and Cline that exceed a given threshold.", "paragraph_id": "para_272" }, { "text": "● Removing, replacing, or diminishing the duties of the General Partner‘s CEO.", "paragraph_id": "para_273" }, { "text": "Section 6.6(b) of the New GP Agreement backstops the Blocking Rights by", "paragraph_id": "para_274" }, { "text": "ensuring that certain extraordinary actions require member approval, giving Murray", "paragraph_id": "para_275" }, { "text": "Energy the ability to exercise its Blocking Rights at both the GP Board and member", "paragraph_id": "para_276" }, { "text": "levels. Section 6.6(b) provides that approval of the members is required for ―any", "paragraph_id": "para_277" }, { "text": "extraordinary matter that would have, or would reasonably be expected to have, a", "paragraph_id": "para_278" }, { "text": "material effect, directly or indirectly, on the Members‘ interests in the Company.‖ Under", "paragraph_id": "para_279" }, { "text": "Section 6.6(b), extraordinary matters include, but are not be limited to:", "paragraph_id": "para_280" }, { "text": "● The commencement of any action relating to bankruptcy or insolvency of the", "paragraph_id": "para_281" }, { "text": "General Partner, Foresight Parent, or a material subsidiary.", "paragraph_id": "para_282" }, { "text": "11", "paragraph_id": "para_283" }, { "text": "● A merger, consolidation, recapitalization or similar transaction involving the", "paragraph_id": "para_284", "court_paragraph": 11 }, { "text": "General Partner, Foresight Parent, or a material subsidiary.", "paragraph_id": "para_285" }, { "text": "● A sale, exchange, or other transfer not in the ordinary course of business of a", "paragraph_id": "para_286" }, { "text": "substantial portion of the assets of Foresight Parent or a material subsidiary.", "paragraph_id": "para_287" }, { "text": "● Dissolution or liquidation of the General Partner or Foresight Parent,.", "paragraph_id": "para_288" }, { "text": "● A material amendment to the Partnership Agreement.", "paragraph_id": "para_289" }, { "text": "Through the Blocking Rights, Murray Energy obtained the ability to veto—and,", "paragraph_id": "para_290" }, { "text": "hence, control—the fate of transactions falling outside the ordinary course of business at", "paragraph_id": "para_291" }, { "text": "either the General Partner or Foresight Parent. Through other provisions, Murray Energy", "paragraph_id": "para_292" }, { "text": "obtained day-to-day operational control over the General Partner and Foresight Parent.", "paragraph_id": "para_293" }, { "text": "As part of the Revised Deal, Beyer resigned as the CEO of the General Partner and", "paragraph_id": "para_294" }, { "text": "Foresight Parent. He was replaced by Robert Moore, who is the nephew of Robert", "paragraph_id": "para_295" }, { "text": "Murray and who also serves as the CFO and COO of Murray Energy. Because replacing", "paragraph_id": "para_296" }, { "text": "the CEO is one of the extraordinary matters covered by the Blocking Rights, Moore", "paragraph_id": "para_297" }, { "text": "cannot be replaced without Murray Energy‘s consent.", "paragraph_id": "para_298" }, { "text": "Relatedly, the General Partner and Murray American Coal, Inc., a wholly-owned", "paragraph_id": "para_299" }, { "text": "subsidiary of Murray Energy, entered into a management services agreement dated April", "paragraph_id": "para_300" }, { "text": "30, 2015 (the ―Management Services Agreement‖). Pursuant to Section 3.3(a)(i) of that", "paragraph_id": "para_301" }, { "text": "agreement, Murray American has authority to ―manage, administer and oversee all", "paragraph_id": "para_302" }, { "text": "aspects of the operation of [Foresight‘s coal mining, processing, and transportation", "paragraph_id": "para_303" }, { "text": "facilities], including without limitation, the day-to-day operation, maintenance and", "paragraph_id": "para_304" }, { "text": "business of [those facilities]‖ through December 31, 2022.", "paragraph_id": "para_305" }, { "text": "12", "paragraph_id": "para_306" }, { "text": "Finally, Section 6.6(e)(v) of the New GP Agreement pre-authorizes various", "paragraph_id": "para_307", "court_paragraph": 12 }, { "text": "categories of related-party transactions between Murray Energy and Foresight Parent.", "paragraph_id": "para_308" }, { "text": "The only requirement for transactions in the covered categories is that ―Mr. Moore shall", "paragraph_id": "para_309" }, { "text": "provide prior written notice to the [GP] Board and [Foresight Reserves] of any proposed", "paragraph_id": "para_310" }, { "text": "[related-party transaction] with an estimated dollar value in excess of $10,000,000.‖", "paragraph_id": "para_311" }, { "text": "E. This Litigation", "paragraph_id": "para_312" }, { "text": "When Foresight Reserves announced the Revised Deal on April 7, 2015, it took", "paragraph_id": "para_313" }, { "text": "the position that the Revised Deal would not result in a Change of Control under the", "paragraph_id": "para_314" }, { "text": "Indenture. Foresight Reserves stated that it therefore would not offer to redeem the Notes.", "paragraph_id": "para_315" }, { "text": "In response to this announcement, holders of a majority of the Notes retained counsel and", "paragraph_id": "para_316" }, { "text": "took the position that the closing of the Revised Deal would constitute a Change of", "paragraph_id": "para_317" }, { "text": "Control and trigger the Redemption Clause.", "paragraph_id": "para_318" }, { "text": "The Trustee filed this action on May 22, 2015. The defendants answered the", "paragraph_id": "para_319" }, { "text": "Complaint, and the parties cross moved for judgment on the pleadings.", "paragraph_id": "para_320" }, { "text": "II. LEGAL ANALYSIS", "paragraph_id": "para_321" }, { "text": "After the closing of the pleadings, but within such time as not to delay trial, a party", "paragraph_id": "para_322" }, { "text": "may move for judgment on the pleadings. Ct. Ch. R. 12(c). ―In determining a motion", "paragraph_id": "para_323" }, { "text": "under Court of Chancery Rule 12(c) for judgment on the pleadings, a trial court is", "paragraph_id": "para_324" }, { "text": "required to view the facts pleaded and the inferences to be drawn from such facts in a", "paragraph_id": "para_325" }, { "text": "light most favorable to the non-moving party.‖ Desert Equities, Inc. v. Morgan", "paragraph_id": "para_326" }, { "text": "Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1205 (Del. 1993) (footnote", "paragraph_id": "para_327" }, { "text": "13", "paragraph_id": "para_328" }, { "text": "omitted). ―A motion for judgment on the pleadings may be granted only when no", "paragraph_id": "para_329", "court_paragraph": 13 }, { "text": "material issue of fact exists and the movant is entitled to judgment as a matter of law.‖ Id.", "paragraph_id": "para_330" }, { "text": "A. Count I: Breach of Contract", "paragraph_id": "para_331" }, { "text": "Count I asserts a claim for breach of contract. Under Section 6.01 of the Indenture,", "paragraph_id": "para_332" }, { "text": "―[a]n ‗Event of Default‘ occurs with respect to the Notes if: . . . (3) an Issuer fails to make", "paragraph_id": "para_333" }, { "text": "an Offer to Purchase and thereafter accept and pay for Notes tendered when and as", "paragraph_id": "para_334" }, { "text": "required pursuant to [the Redemption Clause].‖ Indenture § 6.01 (underlining of defined", "paragraph_id": "para_335" }, { "text": "term omitted). The Redemption Clause is triggered by a Change of Control.", "paragraph_id": "para_336" }, { "text": "As noted, the Change of Control Definition turns on whether someone other than", "paragraph_id": "para_337" }, { "text": "Cline and his affiliates has become the Beneficial Owner of more than 35% of the Voting", "paragraph_id": "para_338" }, { "text": "Units. The Change of Control Definition incorporates the definition of Beneficial Owner", "paragraph_id": "para_339" }, { "text": "from Rule 13d-3. That definition states, in relevant part:", "paragraph_id": "para_340" }, { "text": "(a) . . . [A] beneficial owner of a security includes any person who,", "paragraph_id": "para_341" }, { "text": "directly or indirectly, through any contract, arrangement, understanding,", "paragraph_id": "para_342" }, { "text": "relationship, or otherwise has or shares:", "paragraph_id": "para_343" }, { "text": "(1) Voting power which includes the power to vote, or to", "paragraph_id": "para_344" }, { "text": "direct the voting of, such security; and or,", "paragraph_id": "para_345" }, { "text": "(2) Investment power which includes the power to dispose, or", "paragraph_id": "para_346" }, { "text": "to direct the disposition of, such security.", "paragraph_id": "para_347" }, { "text": "(b) Any person who, directly or indirectly, creates or uses a trust,", "paragraph_id": "para_348" }, { "text": "proxy, power of attorney, pooling arrangement or any other contract,", "paragraph_id": "para_349" }, { "text": "arrangement, or device with the purpose of effect of divesting", "paragraph_id": "para_350" }, { "text": "such person of beneficial ownership of a security or preventing the vesting", "paragraph_id": "para_351" }, { "text": "of such beneficial ownership . . . shall be deemed for purposes of such", "paragraph_id": "para_352" }, { "text": "sections to be the beneficial owner of such security.", "paragraph_id": "para_353" }, { "text": ". . . .", "paragraph_id": "para_354" }, { "text": "14", "paragraph_id": "para_355" }, { "text": "(d) Notwithstanding the provisions of paragraphs (a) and (c) of this", "paragraph_id": "para_356", "court_paragraph": 14 }, { "text": "rule:", "paragraph_id": "para_357" }, { "text": "(1)(i) A person shall be deemed to be the beneficial owner of", "paragraph_id": "para_358" }, { "text": "a security, subject to the provisions of paragraph (b) of this rule, if", "paragraph_id": "para_359" }, { "text": "that person has the right to acquire beneficial ownership of such security, .", "paragraph_id": "para_360" }, { "text": ". . within sixty days, including but not limited to any right to acquire: (A)", "paragraph_id": "para_361" }, { "text": "Through the exercise of any option . . . ; provided, however,", "paragraph_id": "para_362" }, { "text": "any person who acquires a security or power specified in paragraph[]", "paragraph_id": "para_363" }, { "text": "(d)(1)(i)(A) . . . of this section, with the purpose or effect of changing or", "paragraph_id": "para_364" }, { "text": "influencing the control of the issuer, or in connection with or as a", "paragraph_id": "para_365" }, { "text": "participant in any transaction having such purpose or effect, immediately", "paragraph_id": "para_366" }, { "text": "upon such acquisition shall be deemed to be the beneficial owner of", "paragraph_id": "para_367" }, { "text": "the securities which may be acquired through the exercise or conversion of", "paragraph_id": "para_368" }, { "text": "such security or power.", "paragraph_id": "para_369" }, { "text": "17 C.F.R. § 240.13d-3(a)–(d).", "paragraph_id": "para_370" }, { "text": "The Trustee maintains that Murray Energy qualifies as a Beneficial Owner of 35%", "paragraph_id": "para_371" }, { "text": "or more of the General Partner‘s Voting Units under four different parts of Rule 13d-3:", "paragraph_id": "para_372" }, { "text": "(a)(1), (a)(2), (b), and (d)(1)(i). The Trustee is right under parts (a)(2) and (b), so there is", "paragraph_id": "para_373" }, { "text": "no need to address whether Murray Energy also is a Beneficial Owner under parts (a)(1)", "paragraph_id": "para_374" }, { "text": "and (d)(1)(i).", "paragraph_id": "para_375" }, { "text": "1. Rule 13d-3(a)(2): Shared Investment Power", "paragraph_id": "para_376" }, { "text": "Under Rule 13d-3(a)(2), a Beneficial Owner includes a person who ―directly or", "paragraph_id": "para_377" }, { "text": "indirectly, through any contract, arrangement, understanding, relationship, or otherwise", "paragraph_id": "para_378" }, { "text": "has or shares . . . (1) [i]nvestment power which includes the power to dispose, or to direct", "paragraph_id": "para_379" }, { "text": "the disposition of, such security.‖ Under Section 10.4(a) of the New GP Agreement,", "paragraph_id": "para_380" }, { "text": "Foresight Reserves cannot transfer any of its Voting Units in the General Partner to a", "paragraph_id": "para_381" }, { "text": "third party without Murray Energy‘s consent. The New GP Agreement is a contract, and", "paragraph_id": "para_382" }, { "text": "15", "paragraph_id": "para_383" }, { "text": "Murray Energy therefore ―through [a] contract . . . shares . . . the power to dispose‖ of", "paragraph_id": "para_384", "court_paragraph": 15 }, { "text": "Foresight Reserves‘ Voting Units.", "paragraph_id": "para_385" }, { "text": "According to a leading treatise on the Williams Act, ―the investment power", "paragraph_id": "para_386" }, { "text": "clause‖ in Rule 13d-3(a)(2) ―parallels the voting power clause [in Rule 13d-3(a)(1)] with", "paragraph_id": "para_387" }, { "text": "some exactitude. Therefore, our observations regarding the voting power clause can be", "paragraph_id": "para_388" }, { "text": "imported‖ to the investment power clause. Arnold S. Jacobs, The Williams Act—Tender", "paragraph_id": "para_389" }, { "text": "Offers and Stock Accumulations § 2:12 (2015 ed.). The treatise‘s ―observations regarding", "paragraph_id": "para_390" }, { "text": "the voting power clause‖ include that ―a power to veto a vote would be a shared power to", "paragraph_id": "para_391" }, { "text": "vote. Thus, both the person who makes the decision subject to a veto and the person who", "paragraph_id": "para_392" }, { "text": "can exercise the veto power shares the power, and both beneficially own the shares.‖ Id.", "paragraph_id": "para_393" }, { "text": "Imported to the investment power clause, the power to veto a transfer of shares is a", "paragraph_id": "para_394" }, { "text": "shared power to transfer. The person who makes the initial decision to transfer and the", "paragraph_id": "para_395" }, { "text": "person who can exercise a veto over that decision share the power to transfer, so both", "paragraph_id": "para_396" }, { "text": "beneficially own the shares.", "paragraph_id": "para_397" }, { "text": "Consistent with the treatise, the SEC has expressed its view in a no-action letter", "paragraph_id": "para_398" }, { "text": "that a veto power over the disposition of shares may confer beneficial ownership over the", "paragraph_id": "para_399" }, { "text": "shares for purposes of Rule 13d-3(a)(2). See BankAmerica Capital Corp., SEC No-", "paragraph_id": "para_400" }, { "text": "Action Letter, 1979 WL 13099 (Apr. 6 1979). The no-action letter is not binding", "paragraph_id": "para_401" }, { "text": "precedent, but it provides additional persuasive authority.", "paragraph_id": "para_402" }, { "text": "Section 10.4(a) of the New GP Agreement states, in pertinent part:", "paragraph_id": "para_403" }, { "text": "[N]o Member may directly or indirectly transfer any of his/her/its Voting", "paragraph_id": "para_404" }, { "text": "Units or IDR Units in [the General Partner] to a non-Member without the", "paragraph_id": "para_405" }, { "text": "express written consent of [Murray Energy] and [Foresight Reserves],", "paragraph_id": "para_406" }, { "text": "16", "paragraph_id": "para_407" }, { "text": "which consent may be withheld in [Murray Energy‘s] and/or [Foresight", "paragraph_id": "para_408", "court_paragraph": 16 }, { "text": "Reserves‘] sole and absolute discretion, except for any Permitted Transfer.", "paragraph_id": "para_409" }, { "text": "As is customary, a Permitted Transfer is defined under Section 10.4(b) to include", "paragraph_id": "para_410" }, { "text": "transfers to an affiliate or for purposes of estate planning. As to other transfers of Voting", "paragraph_id": "para_411" }, { "text": "Units, Foresight Reserves only can dispose of its Voting Units if Murray Energy gives", "paragraph_id": "para_412" }, { "text": "consent, which Murray Energy can withhold in its ―sole and absolute discretion.‖", "paragraph_id": "para_413" }, { "text": "New York law governs the Indenture. See Indenture § 12.08. Under New York", "paragraph_id": "para_414" }, { "text": "law, ―courts ordinarily to give the words and phrases employed their plain and", "paragraph_id": "para_415" }, { "text": "commonly-accepted meanings.‖ Law Debenture Tr. Co. of N.Y. v. Petrohawk Energy", "paragraph_id": "para_416" }, { "text": "Corp., 2007 WL 2248150, at *6 (Del. Ch. Aug. 1, 2007) (Strine, V.C.) (citing Laba v.", "paragraph_id": "para_417" }, { "text": "Carey, 29 N.Y.2d 302, 308 (N.Y. 1971)). Under the plain language of Rule 13d-3(a)(2)", "paragraph_id": "para_418" }, { "text": "and the New GP Agreement, Murray Energy‘s veto right over Foresight Reserves‘ ability", "paragraph_id": "para_419" }, { "text": "to transfer its Voting Units makes Murray Energy the Beneficial Owner of the Voting", "paragraph_id": "para_420" }, { "text": "Units owned by Foresight Reserves. Murray Energy, therefore, is the Beneficial Owner", "paragraph_id": "para_421" }, { "text": "of both the 34% voting interest represented by its Voting Units and the 66% voting", "paragraph_id": "para_422" }, { "text": "interest held by Foresight Reserves.", "paragraph_id": "para_423" }, { "text": "In an attempt to avoid this outcome, the defendants rely on the word ―the.‖", "paragraph_id": "para_424" }, { "text": "According to the defendants, the Indenture excluded the possibility of shared Beneficial", "paragraph_id": "para_425" }, { "text": "Ownership by stating that a Change of Control only would occur if a person other than", "paragraph_id": "para_426" }, { "text": "Foresight Reserves became ―the Beneficial Owner‖ of more than 35% of the Voting", "paragraph_id": "para_427" }, { "text": "Units in the General Partner. In other words, despite incorporating a definition which", "paragraph_id": "para_428" }, { "text": "contemplated that Beneficial Ownership could arise through shared control, the Indenture", "paragraph_id": "para_429" }, { "text": "17", "paragraph_id": "para_430" }, { "text": "overrode those concepts by using the definite article ―the‖ rather than the indefinite", "paragraph_id": "para_431", "court_paragraph": 17 }, { "text": "article ―a.‖ In support of this reading, the defendants rely on a decision in which this", "paragraph_id": "para_432" }, { "text": "court observed that, in general usage, ―placing the article ‗the‘ in front of a word", "paragraph_id": "para_433" }, { "text": "connotes the singularity of the word, whereas using ‗a‘ implies that the modified noun is", "paragraph_id": "para_434" }, { "text": "but one of several of that kind.‖ ION Geophysical Corp. v. Fletcher Int’l, Ltd., 2010 WL", "paragraph_id": "para_435" }, { "text": "4378400, at *8 (Del. Ch. Nov. 5, 2010).", "paragraph_id": "para_436" }, { "text": "Rejecting the defendants‘ argument threatens no violence to the general principle", "paragraph_id": "para_437" }, { "text": "correctly identified in ION Geophysical. Under the plain language of Rule 13d-3, a", "paragraph_id": "para_438" }, { "text": "person can become ―the‖ Beneficial Owner of 35% or more of the Voting Units through", "paragraph_id": "para_439" }, { "text": "shared control, and that singular person remains ―the‖ Beneficial Owner of 35% or more", "paragraph_id": "para_440" }, { "text": "of the Voting Units even if another person also is or becomes ―the‖ Beneficial Owner of", "paragraph_id": "para_441" }, { "text": "35% or more of the Voting Units.", "paragraph_id": "para_442" }, { "text": "This interpretation comports with how the SEC itself applies Rule 13d-3. For", "paragraph_id": "para_443" }, { "text": "example, Item 403(a) of Regulation S-K requires that a registrant provide the following", "paragraph_id": "para_444" }, { "text": "information:", "paragraph_id": "para_445" }, { "text": "(a) Security ownership of certain beneficial owners. Furnish the", "paragraph_id": "para_446" }, { "text": "following information . . . with respect to any person . . . who is known to", "paragraph_id": "para_447" }, { "text": "the registrant to be the beneficial owner of more than five percent of any", "paragraph_id": "para_448" }, { "text": "class of the registrant‘s voting securities.", "paragraph_id": "para_449" }, { "text": ". . . .", "paragraph_id": "para_450" }, { "text": "2. For the purposes of this Item, beneficial ownership shall be", "paragraph_id": "para_451" }, { "text": "determined in accordance with Rule 13d-3 under the Exchange Act", "paragraph_id": "para_452" }, { "text": "(§240.13d-3 of this chapter). Include . . . amounts as to which the beneficial", "paragraph_id": "para_453" }, { "text": "owner has (A) sole voting power, (B) shared voting power, (C) sole", "paragraph_id": "para_454" }, { "text": "investment power, or (D) shared investment power.", "paragraph_id": "para_455" }, { "text": "18", "paragraph_id": "para_456" }, { "text": "17 C.F.R. § 229.403 (emphasis added). As used in Item 403(a), the term ―the beneficial", "paragraph_id": "para_457", "court_paragraph": 18 }, { "text": "owner‖ includes both ―shared voting power‖ and ―shared investment power.‖ It thus uses", "paragraph_id": "para_458" }, { "text": "the term ―the beneficial owner‖ despite the possibility that there could be multiple", "paragraph_id": "para_459" }, { "text": "beneficial owners.", "paragraph_id": "para_460" }, { "text": "The same is true in ordinary English. A person may be called ―the owner,‖ even if", "paragraph_id": "para_461" }, { "text": "that person is not necessarily ―the sole owner.‖ George Steinbrenner was often referred to", "paragraph_id": "para_462" }, { "text": "as ―the owner‖ of the New York Yankees, when in fact he was one of the owners. See", "paragraph_id": "para_463" }, { "text": "Parks v. Steinbrenner, 131 A.D.2d 60, 61-62 (N.Y. App. Div. 1st Dep‘t 1987) (describing", "paragraph_id": "para_464" }, { "text": "Steinbrenner as ―the owner of an embattled team‖ while acknowledging that he was the", "paragraph_id": "para_465" }, { "text": "principal owner rather than the exclusive owner).", "paragraph_id": "para_466" }, { "text": "Ultimately, ―the essence of proper contract interpretation‖ under New York law is", "paragraph_id": "para_467" }, { "text": "―to enforce a contract in accordance with the true expectations of the parties in light of", "paragraph_id": "para_468" }, { "text": "the circumstances existing at the time of the formation of the contract.‖ Reiss v. Fin.", "paragraph_id": "para_469" }, { "text": "Performance Corp., 279 A.D.2d 13, 19 (N.Y. App. Div. 1st Dep‘t 2000). As counsel to", "paragraph_id": "para_470" }, { "text": "the defendants recognized at oral argument, ―the underlying purpose of the [Change of", "paragraph_id": "para_471" }, { "text": "Control Definition] is for the noteholders to be assured that Mr. Cline is basically in", "paragraph_id": "para_472" }, { "text": "charge.‖ Dkt. 64 at 15. By any reasonable reading of the New GP Agreement, Cline is no", "paragraph_id": "para_473" }, { "text": "longer basically in charge. Murray Energy is now basically in charge.", "paragraph_id": "para_474" }, { "text": "After taking into account the underlying purpose of the Change of Control", "paragraph_id": "para_475" }, { "text": "Definition, the text and application of Rule 13d-3, and the plain meaning of the", "paragraph_id": "para_476" }, { "text": "Indenture, it is not possible to interpret the use of the definite article ―the‖ before the term", "paragraph_id": "para_477" }, { "text": "Beneficial Owner as excluding shared control. Murray Energy‘s veto right over Foresight", "paragraph_id": "para_478" }, { "text": "19", "paragraph_id": "para_479" }, { "text": "Reserves‘ ability to transfer its Voting Units makes Murray Energy the Beneficial Owner", "paragraph_id": "para_480", "court_paragraph": 19 }, { "text": "of the Voting Units owned by Foresight Reserves.", "paragraph_id": "para_481" }, { "text": "2. Rule 13d-3(b): The Anti-Evasion Language", "paragraph_id": "para_482" }, { "text": "The parties debated at length in their briefs whether Murray Energy is the", "paragraph_id": "para_483" }, { "text": "Beneficial Owner of the Voting Units that it has the right to acquire under the GP Option.", "paragraph_id": "para_484" }, { "text": "As discussed in the Factual Background, the defendants admit that Murray Energy and", "paragraph_id": "para_485" }, { "text": "Foresight Reserves sought to contract around the ownership triggers in Rule 13d-3 by", "paragraph_id": "para_486" }, { "text": "incorporating the Notice Condition and the Refinancing Condition. The Notice Condition", "paragraph_id": "para_487" }, { "text": "uses 61 days rather than 60 days as the relevant time period because, generally speaking,", "paragraph_id": "para_488" }, { "text": "a person is only considered the beneficial owner of a security if that person has the right", "paragraph_id": "para_489" }, { "text": "to acquire the security through the exercise of an option within 60 days. 17 C.F.R. §", "paragraph_id": "para_490" }, { "text": "240.13d-3(d)(1)(i). The Refinancing Condition requires that any refinancing must be", "paragraph_id": "para_491" }, { "text": "―reasonably acceptable to‖ Foresight Reserves because cases have held that if a condition", "paragraph_id": "para_492" }, { "text": "is outside the option holder‘s control, then the option holder lacks the power to acquire", "paragraph_id": "para_493" }, { "text": "the shares until the condition is met. See, e.g., Transcon Lines v. A.G. Becker, Inc., 470 F.", "paragraph_id": "para_494" }, { "text": "Supp. 356, 370-71 (S.D.N.Y. 1979) (holding that a party‘s right to acquire a security did", "paragraph_id": "para_495" }, { "text": "not make that party the beneficial owner of the security because such a right was", "paragraph_id": "para_496" }, { "text": "contingent on the occurrence of external events).", "paragraph_id": "para_497" }, { "text": "In the abstract, efforts to structure a transaction to avoid tripping the terms of an", "paragraph_id": "para_498" }, { "text": "indenture are perfectly permissible. ―Issuers of corporate debt do not breach their", "paragraph_id": "para_499" }, { "text": "contractual obligations by structuring transactions to avoid triggering a mandatory", "paragraph_id": "para_500" }, { "text": "20", "paragraph_id": "para_501" }, { "text": "redemption provision in favor of Noteholders.‖2 But contract drafters can respond. In an", "paragraph_id": "para_502", "court_paragraph": 20 }, { "text": "ever-evolving contractual arms race, sophisticated parties can anticipate efforts to evade", "paragraph_id": "para_503" }, { "text": "the terms of an agreement. One means of responding is by expanding the literal terms.", "paragraph_id": "para_504" }, { "text": "Another is through provisions triggered by efforts to evade the literal terms.", "paragraph_id": "para_505" }, { "text": "In this case, the drafters of the Indenture chose a definition of Beneficial Owner", "paragraph_id": "para_506" }, { "text": "that contains anti-evasion language. Rule 13d-3(b) provides, in relevant part:", "paragraph_id": "para_507" }, { "text": "Any person who, directly or indirectly, creates or uses a . . . contract,", "paragraph_id": "para_508" }, { "text": "arrangement, or device with the purpose or effect of divesting such person", "paragraph_id": "para_509" }, { "text": "of beneficial ownership of a security or preventing the vesting of such", "paragraph_id": "para_510" }, { "text": "beneficial ownership . . . shall be deemed . . . to be the beneficial owner of", "paragraph_id": "para_511" }, { "text": "such security.", "paragraph_id": "para_512" }, { "text": "17 C.F.R. § 240.13d-3(b). At oral argument, and consistent with the plain language of the", "paragraph_id": "para_513" }, { "text": "Indenture, the defendants‘ counsel agreed that the definition of Beneficial Owner in the", "paragraph_id": "para_514" }, { "text": "Indenture incorporated the anti-evasion aspects of Rule 13d-3. See Dkt. 64 at 22.", "paragraph_id": "para_515" }, { "text": "The defendants concede that they carefully attempted to evade the Change of", "paragraph_id": "para_516" }, { "text": "Control Definition. In their opening brief, they stated: ―The parties to the Option", "paragraph_id": "para_517" }, { "text": "Agreement structured the option exercise period carefully to avoid running afoul of the", "paragraph_id": "para_518" }, { "text": "beneficial ownership requirements of Rule 13d-3 . . . .‖ Dkt. 42 at 33. At the same time,", "paragraph_id": "para_519" }, { "text": "they took steps to vest Murray Energy with practical control over the General Partner,", "paragraph_id": "para_520" }, { "text": "2 Law Debenture Trust, 2007 WL 2248150, at *7; accord Concord Real Estate", "paragraph_id": "para_521" }, { "text": "CDO 2006-1, Ltd. v. Bank of Am. N.A., 996 A.2d 324, at 339 (Del. Ch. 2010); see", "paragraph_id": "para_522" }, { "text": "Mangano v. Pericor Therapeutics, Inc., 2009 WL 4345149, at *5 & n.49 (Del. Ch. Dec.", "paragraph_id": "para_523" }, { "text": "1, 2009) (noting that the Court will not redraft a contract because one of the parties", "paragraph_id": "para_524" }, { "text": "structured a transaction through a ―loophole‖ in contractual language that the parties", "paragraph_id": "para_525" }, { "text": "could have addressed).", "paragraph_id": "para_526" }, { "text": "21", "paragraph_id": "para_527" }, { "text": "both in terms of extraordinary transactions, where the Blocking Rights apply, and", "paragraph_id": "para_528", "court_paragraph": 21 }, { "text": "ordinary course of business operations, where Murray Energy runs the show through", "paragraph_id": "para_529" }, { "text": "Moore and the Management Services Agreement. For purposes of the Change of Control", "paragraph_id": "para_530" }, { "text": "Definition, this is sufficient to trigger the anti-evasion aspect of Rule 13d-3(b).", "paragraph_id": "para_531" }, { "text": "The pricing of the Revised Deal reflects the fact that Murray Energy acquired de", "paragraph_id": "para_532" }, { "text": "facto control. In the Original Deal, Murray Energy would have paid $1.395 billion to", "paragraph_id": "para_533" }, { "text": "acquire a package of securities that included 80% of Voting Units. In the Revised Deal,", "paragraph_id": "para_534" }, { "text": "Murray Energy paid $1.37 billion to acquire the same package of securities, but only 34%", "paragraph_id": "para_535" }, { "text": "of the Voting Units. The exercise price for the GP Option is $25 million, reflecting the", "paragraph_id": "para_536" }, { "text": "difference in the purchase price. If Murray Energy truly did not gain control over the", "paragraph_id": "para_537" }, { "text": "General Partner and Foresight Parent in the Revised Deal, then it means that Cline, a", "paragraph_id": "para_538" }, { "text": "savvy businessman with over 30 years‘ experience in the coal industry, extracted a", "paragraph_id": "para_539" }, { "text": "control premium in the Original Deal of just 1.8%. That is preposterous.3 In fact, Murray", "paragraph_id": "para_540" }, { "text": "3 In contrast to the purported 1.8% control premium, a number of studies have", "paragraph_id": "para_541" }, { "text": "found that control premia in mergers and acquisitions typically range between 30 and", "paragraph_id": "para_542" }, { "text": "50%. See, e.g., FactSet Mergerstat, Control Premium Study 1st Quarter 2012 2 (2012)", "paragraph_id": "para_543" }, { "text": "(finding 12-month median control premia of between 34 and 44% for each quarter from", "paragraph_id": "para_544" }, { "text": "the first quarter of 2009 until the first quarter of 2012),", "paragraph_id": "para_545" }, { "text": "http://www.bvmarketdata.com/pdf/CPS1q12Sample.pdf; Jens Kengelbach & Alexander", "paragraph_id": "para_546" }, { "text": "Roos, The Boston Consulting Group, Riding the Next Wave in M&A: Where Are the", "paragraph_id": "para_547" }, { "text": "Opportunities to Create Value? 10 (2011) (finding an average acquisition premium of", "paragraph_id": "para_548" }, { "text": "36% in mergers and acquisitions from 2008 to 2011),", "paragraph_id": "para_549" }, { "text": "https://www.bcg.com/documents/file78141.pdf; G. William Schwert, Markup Pricing in", "paragraph_id": "para_550" }, { "text": "Mergers and Acquisitions, 41 J. Fin. Econ., 153, 162 (1996) (finding an average control", "paragraph_id": "para_551" }, { "text": "premium of 37% for successful mergers and acquisitions between 1975 and 1991).", "paragraph_id": "para_552" }, { "text": "22", "paragraph_id": "para_553" }, { "text": "Energy received de facto control in the Revised Deal, which is why it paid virtually the", "paragraph_id": "para_554", "court_paragraph": 22 }, { "text": "same amount as in the Original Deal.", "paragraph_id": "para_555" }, { "text": "It follows that Murray Energy and the defendants (as they admit) sought to ―use[]", "paragraph_id": "para_556" }, { "text": "a . . . contract . . . with the purpose or effect of preventing the vesting of such beneficial", "paragraph_id": "para_557" }, { "text": "ownership.‖ 17 C.F.R. § 240.13d-3(b). Under Rule 13d-3(b), Murray Energy is therefore", "paragraph_id": "para_558" }, { "text": "―deemed . . . to be the beneficial owner of such security.‖ Id.", "paragraph_id": "para_559" }, { "text": "To avoid this result, the defendants rely on a concurring opinion in a case that", "paragraph_id": "para_560" }, { "text": "addressed the disclosure obligations of a Schedule 13D filer and construed the", "paragraph_id": "para_561" }, { "text": "requirements of Rule 13d-3(b) in that context. See CSX Corp. v. Children’s Inv. Fund", "paragraph_id": "para_562" }, { "text": "Mgmt. (UK) LLP, 654 F.3d 276 (2d Cir. 2011) (Winter, J., concurring). Recognizing that", "paragraph_id": "para_563" }, { "text": "Rule 13d as a whole is designed to prevent the accumulation of concealed positions,", "paragraph_id": "para_564" }, { "text": "Judge Winter observed in his concurrence in CSX that for Rule 13d-3(b) to apply, ―the", "paragraph_id": "para_565" }, { "text": "transaction must include a component that provides a substantial equivalence of the rights", "paragraph_id": "para_566" }, { "text": "of ownership relevant to control, or include steps that stop short of, or conceal, the", "paragraph_id": "para_567" }, { "text": "vesting of ownership, while nevertheless ensuring that such ownership will vest at the", "paragraph_id": "para_568" }, { "text": "signal of the would-be owner.‖ Id. at 305. The defendants correctly observe that the", "paragraph_id": "para_569" }, { "text": "Revised Deal made no effort to conceal the GP Option or the terms of the New GP", "paragraph_id": "para_570" }, { "text": "Agreement. In my view, Judge Winter‘s judicial gloss on Rule 13d as requiring an", "paragraph_id": "para_571" }, { "text": "element of concealment makes perfect sense for purposes of that regulation. But when the", "paragraph_id": "para_572" }, { "text": "drafters of the Indenture incorporated the concept of Beneficial Ownership into the", "paragraph_id": "para_573" }, { "text": "Change of Control Definition, I do not believe that they were concerned about", "paragraph_id": "para_574" }, { "text": "concealment. As the parties agree, they were concerned with whether anyone other than", "paragraph_id": "para_575" }, { "text": "23", "paragraph_id": "para_576" }, { "text": "Cline gained the ability to influence the Foresight family of companies. The Change of", "paragraph_id": "para_577", "court_paragraph": 23 }, { "text": "Control Definition, when read as part of the Indenture as a whole, does not incorporate", "paragraph_id": "para_578" }, { "text": "any concealment requirement.", "paragraph_id": "para_579" }, { "text": "Under the anti-evasion language of Rule 13d-3(b), which the Indenture", "paragraph_id": "para_580" }, { "text": "incorporates by reference in the Change of Control Definition, Murray Energy is the", "paragraph_id": "para_581" }, { "text": "Beneficial Owner of the Voting Units that are subject to the GP Option. The Revised", "paragraph_id": "para_582" }, { "text": "Deal therefore caused a Change of Control within the meaning of the Indenture.", "paragraph_id": "para_583" }, { "text": "3. An Event of Default Occurred", "paragraph_id": "para_584" }, { "text": "A Change of Control occurred on April 16, 2015, when the Revised Deal closed.", "paragraph_id": "para_585" }, { "text": "Under the Redemption Clause, the Issuers had to offer to redeem the Notes within 30", "paragraph_id": "para_586" }, { "text": "days. They failed to do so, giving rise to an Event of Default. Under Section 6.01(3), the", "paragraph_id": "para_587" }, { "text": "Trustee is entitled to an order compelling the Issuers to perform their obligations under", "paragraph_id": "para_588" }, { "text": "the Redemption Clause.", "paragraph_id": "para_589" }, { "text": "B. Count II: Breach Of The Implied Covenant", "paragraph_id": "para_590" }, { "text": "Count II asserts a claim for breach of the implied covenant of good faith and fair", "paragraph_id": "para_591" }, { "text": "dealing. Because of the ruling on Count I, there is no need to reach this claim. The", "paragraph_id": "para_592" }, { "text": "Trustee is entitled to relief under the express language of the Indenture, rendering it", "paragraph_id": "para_593" }, { "text": "unnecessary to consider implied obligations. Count II is moot.", "paragraph_id": "para_594" }, { "text": "C. Count III: Indemnification", "paragraph_id": "para_595" }, { "text": "Count III seeks indemnification for the Trustee‘s reasonable costs and expenses,", "paragraph_id": "para_596" }, { "text": "including attorneys‘ fees. Section 7.07 of the Indenture states:", "paragraph_id": "para_597" }, { "text": "24", "paragraph_id": "para_598" }, { "text": "The Issuers, jointly and severally, failing which each Guarantor,", "paragraph_id": "para_599", "court_paragraph": 24 }, { "text": "jointly and severally, shall reimburse the Trustee upon request for all", "paragraph_id": "para_600" }, { "text": "reasonable out-of-pocket expenses incurred or made by it . . . . Such", "paragraph_id": "para_601" }, { "text": "expenses shall include the reasonable compensation and out-of-pocket", "paragraph_id": "para_602" }, { "text": "expenses of the Trustee‘s agents and counsel.", "paragraph_id": "para_603" }, { "text": "The Issuers, jointly and severally, failing which each Guarantor,", "paragraph_id": "para_604" }, { "text": "jointly and severally, shall indemnify the Trustee . . . and hold it and them", "paragraph_id": "para_605" }, { "text": "harmless from and against any . . . expense (including attorneys‘ fees and", "paragraph_id": "para_606" }, { "text": "expenses) incurred by it or any of them arising out of or in connection with", "paragraph_id": "para_607" }, { "text": "the administration of this trust and the acceptance or performance of any of", "paragraph_id": "para_608" }, { "text": "its powers or duties hereunder . . . (including the costs and expenses of", "paragraph_id": "para_609" }, { "text": "enforcing this Indenture including this Section 7.07) . . . . The Issuers shall", "paragraph_id": "para_610" }, { "text": "not reimburse any expense or indemnify against any loss, liability or", "paragraph_id": "para_611" }, { "text": "expense incurred by the Trustee through the Trustee‘s own willful", "paragraph_id": "para_612" }, { "text": "misconduct or negligence.", "paragraph_id": "para_613" }, { "text": "Indenture § 7.07. The Trustee brought this action to enforce the Redemption Clause.", "paragraph_id": "para_614" }, { "text": "There are no allegations that its costs and expenses resulted from its own willful", "paragraph_id": "para_615" }, { "text": "misconduct or negligence. Under Section 7.07, the Trustee is entitled to its reasonable", "paragraph_id": "para_616" }, { "text": "costs and expenses, including attorneys‘ fees.", "paragraph_id": "para_617" }, { "text": "This decision decides only the issue of liability. It does not establish the specific", "paragraph_id": "para_618" }, { "text": "amount of reasonable costs and expenses, including attorneys‘ fees, to which the Trustee", "paragraph_id": "para_619" }, { "text": "is entitled.", "paragraph_id": "para_620" }, { "text": "III. CONCLUSION", "paragraph_id": "para_621" }, { "text": "The Trustee‘s motion for judgment on the pleadings is granted as to Counts I and", "paragraph_id": "para_622" }, { "text": "III. Count II is moot. The defendants‘ motion for judgment on the pleadings is denied.", "paragraph_id": "para_623" }, { "text": "The parties shall meet and confer regarding the amount of the Trustee‘s reasonable costs", "paragraph_id": "para_624" }, { "text": "and expenses. 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