544 B.R. 75
Bankr. S.D.N.Y.2016Background
- In Dec 2007 Basell (controlled by Leonard Blavatnik) acquired Lyondell in an LBO that left the Resulting Company (LyondellBasell) with roughly $20.7–21 billion of secured debt and $12.5 billion paid to shareholders. Lyondell filed Chapter 11 in Jan 2009.
- The Trustee (Weisfelner) brought a 21‑count adversary complaint alleging breaches of fiduciary duty, fraudulent transfers, unlawful dividends, recharacterization and other claims against sellers, Blavatnik‑controlled entities, and Lyondell officers/directors.
- Counts 12, 15, and 16 concern a $750 million unsecured revolving credit facility (the Revolver) provided by Access/AI entities: Count 12 alleges breach for refusal to fund a $750M draw on Dec 30, 2008; Count 15 seeks to recharacterize a $300M October 15 advance as equity; Count 16 asserts illegal dividends if that advance were equity and its rapid repayments were dividends.
- The Revolver Agreement contained a New York choice‑of‑law indemnity/damage‑limitation clause disallowing recovery of “special, punitive, indirect or consequential damages,” but did not bar restitutionary recovery.
- The Lenders conceded, for 12(b)(6) purposes, breach but moved to dismiss Count 12 on the damages‑limitation clause; Post‑Merger Directors moved to dismiss Count 15 (recharacterization) and, contingent on that, Count 16 (illegal dividends).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of Revolver damages‑limitation clause (Count 12) | Trustee: provision unenforceable under NY law due to unequal bargaining power or egregious misconduct; alternatively restitution remains available | Lenders: clause is enforceable; bars consequential/special damages | Court: clause enforceable — no alleged disparity in bargaining power and no allegations of malice/grossly reckless conduct tied to the specific breach sufficient to invoke Kalisch‑Jarcho exception |
| Availability of restitution for fees paid under Revolver (Count 12) | Trustee: even if clause enforceable, restitution (unjust enrichment/fees ~ $12M) is distinct from consequential damages and recoverable | Lenders: restitution is barred as "special" damages under clause | Court: restitution is distinct from consequential damages; Trustee plausibly alleged unjust enrichment and may recover restitution; Count 12 survives only to that extent |
| Recharacterization of $300M October 15 advance as equity (Count 15) | Trustee: circumstances (insolvency, insider lender, unsecured advance, expectations of repayment from future earnings) support recharacterization under AutoStyle/SubMicron factors | Post‑Merger Directors: loan documentation, maturity, fixed interest, repayment, and contemporaneous conduct show bona fide debt; AutoStyle factors do not support recharacterization | Court: applying AutoStyle/SubMicron, majority of factors and indicia (documentation, label, interest, repayment) weigh against recharacterization; Count 15 dismissed without leave to amend |
| Illegal dividends based on repayments (Count 16) | Trustee: if $300M is equity, the rapid repayments (Oct 16, 17, 20) were unlawful dividends to insider and actionable | Post‑Merger Directors: contingent on recharacterization failing, no basis for dividend claim | Court: because recharacterization claim fails, payments cannot be treated as dividends; Count 16 dismissed without leave to amend |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading plausibility standard for Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard articulated)
- Kalisch‑Jarcho, Inc. v. City of New York, 58 N.Y.2d 377 (1983) (contractual damage limitations unenforceable where breach evinces intentional wrongdoing or gross recklessness)
- In re SubMicron Sys. Corp., 432 F.3d 448 (3d Cir. 2006) (setting framework for recharacterization and weighing multi‑factor test)
- In re AutoStyle Plastics, Inc., 269 F.3d 726 (6th Cir. 2001) (adopting Roth Steel factors for debt vs. equity characterization)
- Three S Delaware, Inc. v. DataQuick Info. Sys., Inc., 492 F.3d 520 (4th Cir. 2007) (restitution/unjust enrichment award not barred by consequential‑damages waiver)
- Metropolitan Life Ins. Co. v. Noble Lowndes Int’l, Inc., 84 N.Y.2d 430 (1994) (enforcing limitation on consequential damages where breach lacked malice or willful intent)