Hildene Opportunities Master Fund, Ltd. v. Arvest Bank
897 F.3d 980
8th Cir.2018Background
- In 2003 Bannister (a bank holding company) formed a trust that issued $20 million of trust preferred securities (TruPS) under an Indenture with U.S. Bank as trustee; the TruPS funded Union Bank (Bannister’s bank subsidiary) to qualify as Tier 1 capital.
- The Indenture’s Article XI (§11.1) required that if the “Company” sold or conveyed "all or substantially all" of its property, the purchaser must assume payment obligations (the “successor obligor” clause); the Indenture defined “Company” as Bannister and its successors and assigns.
- Union Bank became severely undercapitalized after the financial crisis; Bannister deferred TruPS payments and regulators increased oversight and capital demands; FDIC cross-guaranty exposure and regulatory pressure spurred a sale.
- In 2012 Arvest purchased substantially all of Union Bank’s assets and assumed most liabilities (deposits) under an Asset Purchase Agreement that did not assume Bannister’s Indenture obligations; the transaction closed with regulatory approvals and FDIC waiver of cross-guaranty.
- Hildene (a TruPS-related investor) sued Bannister and Arvest alleging breach of the successor obligor clause and tortious interference by Arvest; district court granted summary judgment dismissing the tortious interference claim because Bannister did not breach §11.1 and Arvest used no improper means.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bannister breached the Indenture’s successor obligor provision by the Arvest transaction | Hildene: the sale of Union Bank’s assets effectively transferred Bannister’s value and so triggered §11.1 successor-obligor requirement | Bannister/Arvest: §11.1 applies only to sales of the Company (Bannister)’s own property or capital stock; Bannister retained its Union Bank stock | Court: No breach — §11.1’s plain text covers Bannister’s property, not subsidiary assets; Bannister retained its stock so provision not triggered |
| Whether the term “property” or “Company” in §11.1 includes assets of Bannister’s subsidiary (Union Bank) | Hildene: "property" should include subsidiary assets when those assets constitute the parent’s material value | Defendants: Parent does not own subsidiary assets; drafters could have included subsidiary-asset restrictions but did not | Court: "Company" and "property" interpreted by plain meaning under New York law to mean Bannister’s own property; does not encompass subsidiary assets |
| Whether Hildene can maintain a tortious interference claim against Arvest dependent on a breach of the Indenture | Hildene: tortious interference claim survives because the transaction violated the Indenture’s successor-obligor clause | Arvest: tortious interference requires an underlying contractual breach; no breach occurred here | Court: Because Bannister did not breach the Indenture, Hildene’s tortious interference claim fails (court therefore did not reach other defenses) |
Key Cases Cited
- Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039 (2d Cir.) (interpretation of indenture provisions and successor-obligor context)
- In re BankAtlantic Bancorp, Inc. Litig., 39 A.3d 824 (Del. Ch.) (successor-obligor issues in bank holding company sale of bank stock)
- Dole Food Co. v. Patrickson, 538 U.S. 468 (parent does not own subsidiary’s assets for certain legal purposes)
- Cortlandt St. Recovery Corp. v. Bonderman, 96 N.E.3d 191 (N.Y.) (contracts that are clear and unambiguous are enforced by plain meaning)
- Quadrant Structured Prods. Co. v. Vertin, 16 N.E.3d 1165 (N.Y.) (sophisticated parties are presumed aware of model indenture commentaries)
- HIP, Inc. v. Hormel Foods Corp., 888 F.3d 334 (8th Cir.) (standard of review for summary judgment)
- Matter of Envirodyne Indus., Inc., 29 F.3d 301 (7th Cir.) (use of industry commentaries as interpretive aids)