AM General Holdings LLC v. The Renco Group, Inc. -and- The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
CA 7639-VCS and CA 7668-VCS
| Del. Ch. | May 17, 2017Background
- Renco (plaintiff) and MacAndrews AMG (defendant) are members of AM General Holdings LLC (Holdco) governed by a 2004 Holdco Agreement allocating profits, losses and capital accounts.
- MacAndrews AMG, as managing member, caused Holdco to distribute $72.8 million to itself in Dec 2012 and Feb 2013; Renco alleges those distributions breached the Holdco Agreement and seeks restoration.
- The parties dispute how to compute Revalued Capital Accounts (RCAs) using the appraisal process in the Agreement; a third appraiser (VRC) later produced a substantially lower valuation than MacAndrews AMG’s original valuations.
- Key contractual provisions: §4.4 (definition of RCA), §8.3(a) (limits on allocations to prevent Renco exceeding 80% RCA or profits), §8.3(b) (Renco’s election to cause distributions to restore RCA balance), and §9.4(c) (restriction on distributions to MacAndrews AMG if its RCA would be ≤20%).
- Renco argues the post-appraisal RCA showed MacAndrews AMG was under 20% and thus barred from distributions; Renco says it could elect to receive the disputed distributions to restore RCA balance. MacAndrews AMG argues the Agreement requires application of §8.3(a) reallocations first, so its distributions were permissible.
- The parties filed cross-motions for partial summary judgment on breach of contract and declaratory relief; the Court found the contested provisions reasonably susceptible to competing interpretations and denied the motions to permit extrinsic evidence and further fact development.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the $72.8M distributions breached the Holdco Agreement | Distributions were improper because post-appraisal RCAs showed MacAndrews AMG’s RCA ≤20%, barring distributions and entitling Renco to elect to receive the funds to restore RCAs | Distributions were proper because the Agreement requires applying §8.3(a) reallocations (hypothetical sale losses) before any §8.3(b) election, so MacAndrews AMG’s RCA calculations justified distributions | Denied summary judgment for both sides; provisions ambiguous and susceptible to reasonable competing interpretations |
| Proper sequencing/interaction of §8.3(a), §8.3(b) and §9.4(c) (allocation vs. distribution rights) | §8.3(b) is an available, standalone remedy allowing Renco to elect distributions to correct RCA imbalance; §9.4(c) prohibits distributions to MacAndrews AMG when its RCA would be ≤20% so Renco’s election should have prevailed | §8.3(a)’s mandatory reallocations must be applied in computing RCAs (per §4.4) before §8.3(b) can be invoked; §9.4(c) prevents distributions that would reduce MacAndrews AMG below 20% and operates within the reallocation scheme | Court found both constructions reasonable; contract ambiguous; extrinsic evidence needed to ascertain intent |
| Whether the third-appraisal results automatically entitle Renco to relief | Renco: VRC valuation lowered Holdco value, producing RCA imbalance that triggers Renco’s §8.3(b) election rights | MacAndrews AMG: the third appraisal is only one input to RCA calculation and does not change the contractual sequence governing reallocations and distributions | Court did not decide on merits; held appraisal dispute relevant but interpretation of contract requires further factual development |
| Whether cross-motions may be treated as a Rule 56(h) stipulation for decision on the record | Renco: (implicit) court may decide if provisions unambiguous after record | MacAndrews AMG: (implicit) court should not decide if factual/extrinsic issues remain | Court refused to treat motions as stipulation because the record is inadequate to resolve contractual ambiguity; denied motions without prejudice and ordered further discovery |
Key Cases Cited
- Rhone-Poulenc Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192 (Del. 1992) (contract ambiguous only if reasonably susceptible to different interpretations)
- Telxon Corp. v. Meyerson, 802 A.2d 257 (Del. 2002) (summary judgment standard principles)
- United Rentals, Inc. v. RAM Hldgs., Inc., 937 A.2d 810 (Del. Ch. 2007) (party must show its contract construction is the only reasonable interpretation to prevail on cross-motions)
- Alexander Indus., Inc. v. Hill, 211 A.2d 917 (Del. 1965) (court may deny summary judgment and develop facts when contract interpretation is contested)
- Bank of New York Mellon v. Commerzbank Capital Funding Trust II, 65 A.3d 539 (Del. 2013) (more natural reading is a factor but does not end ambiguity analysis)
- Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228 (Del. 1997) (court may consider extrinsic evidence when contract language is uncertain)
- Bernstein v. TractManager, Inc., 953 A.2d 1003 (Del. Ch. 2007) (discussion of Rule 56(h) stipulation practice)