Case Information
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------------- X
:
UMB BANK, N.A., :
:
Plaintiff, :
: 24-CV-8668 (JMF) -v- : : OPINION AND ORDER
BRISTOL-MYERS SQUIBB COMPANY et al., :
:
Defendants. :
:
---------------------------------------------------------------------- X
JESSE M. FURMAN, United States District Judge:
This case is the latest chapter in a $6.7 billion contract dispute arising out of the November 2019 acquisition by Bristol-Myers Squibb Company (“BMS”) of Celgene Corporation (“Celgene”). See ECF No. 45 (“Compl.”), ¶¶ 1-2. In connection with the acquisition, BMS issued to Celgene shareholders contingent value rights, also known as CVRs, which would have value only if the Food and Drug Administration (“FDA”) approved marketing applications for three of Celgene’s most valuable drug products by specified milestone dates. ¶¶ 2-3. If FDA approval of any of these drugs came even one day late, the agreement governing the CVRs (the “CVR Agreement”) would automatically terminate and the CVRs would be rendered worthless. ¶¶ 3, 16-17; see ECF No. 1-1 (“CVR Agrmt.”). Plaintiff UMB Bank, N.A. (“UMB”), purportedly as Trustee for the CVR holders, alleges that BMS, in order to avoid paying CVR holders the $6.7 billion they otherwise would have been due, slow rolled the approval process for one drug, causing it to be approved thirty-six days after the relevant milestone. Compl. ¶¶ 1, 20. It alleges that BMS breached the CVR Agreement by failing to use “Diligent Efforts” to get the therapy approved on time, id. ¶¶ 134-42, and by failing to maintain its electronic trading system for CVRs after the CVR Agreement was terminated, id. ¶¶ 143-64.
UMB first filed suit against BMS on June 3, 2021,
see
No. 21-CV-4897 (JMF)
(S.D.N.Y.), ECF No. 1, but — after extensive discovery — the Court ended up dismissing the
case for lack of subject-matter jurisdiction,
see UMB Bank, N.A. v. Bristol-Myers Squibb Co.
,
No. 21-CV-4897 (JMF),
BMS now moves, pursuant to Rules 12(b)(1) and 12(b)(6), to dismiss the case for lack of subject-matter jurisdiction and for failure to state a claim. See ECF No. 51; see also ECF No. 52 (“Def.’s Mem.”), at 9. BMS argues, among other things, that UMB still lacks standing to sue because the reconfirmation process could not validly install UMB as the successor Trustee. See Def.’s Mem. 9-16. For the reasons that follow, the motion is GRANTED in part and DENIED in part. In short, BMS’s motion to dismiss for lack of subject-matter jurisdiction is denied, but its motion to dismiss Counts III and V of the Complaint for failure to state a claim is granted. All other claims survive the motion to dismiss.
BACKGROUND
The Court assumes the parties’ familiarity with the underlying facts and procedural
history, which the Court summarizes only as necessary to explain its decisions on the instant
motion. The summary is drawn from the Complaint, the materials submitted by the parties in
connection with the instant motion, and the Court’s previous Orders in this case.
See Morrison
v. Nat’l Austl. Bank Ltd.
,
As noted, this dispute stems from BMS’s November 2019 acquisition of Celgene, a competitor in the pharmaceutical industry. Compl. ¶¶ 54-64. In September 2018, BMS proposed a merger that would result in Celgene becoming its wholly owned subsidiary. Id. ¶ 54. In an effort to bridge a gap between the parties with respect to Celgene’s valuation, BMS proposed issuing contingent value rights — or CVRs — to Celgene shareholders as additional consideration for their shares. Id. ¶¶ 54-55. At bottom, a CVR is a security that generally requires the issuer to make a payment to the holder of the security if a specified event occurs by a specified date. Id. ¶ 55. Following months of intense negotiations, BMS and Celgene agreed to a set of terms, which were ultimately memorialized in a merger agreement and accompanying CVR Agreement between BMS and Equiniti, as Trustee for the CVR holders — that became effective on November 20, 2019. ¶¶ 53, 56, 62-64.
In brief, the deal involved the issuance of CVRs by BMS, each of which would entitle its holder to a one-time $9 payment if certain “milestones” were met — specifically, approval by the FDA of three Celgene drug products (Liso-cel, Ozanimod, and Ide-cel) by specific dates. Id. ¶¶ 57-58. If any milestone was missed, however, the CVRs would expire worthless, and BMS would owe the CVR holders nothing. Id . ¶ 58. Under the terms of the CVR Agreement, BMS was required to “use Diligent Efforts to achieve the Milestone[s]” — with “Diligent Efforts” defined, in turn, as the “efforts of a Person to carry out its obligations in a diligent manner using such effort and employing such resources normally used by such Person in the exercise of its reasonable business discretion relating to the research, development or commercialization of a product, that is of similar market potential at a similar stage in its development or product life.” Id. ¶ 60 (quoting CVR Agrmt. §§ 7.8, 1.1).
A. The CVR Agreement
Several provisions of the CVR Agreement are relevant here. First, as noted above, the Agreement provides that only the Trustee is authorized to bring suit in the event of a default. Specifically, Section 8.1 provides that, in the event of a default, “either the Trustee by notice in writing to the Company or the Trustee upon the written request of the Majority Holders by notice in writing to the Company (and to the Trustee if given by the Majority Holders), shall bring suit to protect the rights of the Holders.” CVR Agrmt. § 8.1. Similarly, Section 8.4 states that, “[i]n case an Event of Default has occurred, has not been waived and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders under this CVR Agreement by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights . . . .” Id. § 8.4.
Second, the Agreement includes provisions regarding the resignation or removal of the Trustee and appointment of a successor Trustee. As relevant here, Section 4.10(b) provides that “[t]he Trustee . . . may resign at any time by giving written notice thereof to the Company.” Id. § 4.10(b). Section 4.10(c) provides that “[t]he Trustee may be removed at any time by an act of the Majority Holders, delivered to the Trustee and to the Company.” Id. § 4.10(c). And Section 4.10(e) provides, in relevant part, that
[i]f the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution or an action of the chief executive officer of the Company, shall promptly appoint a successor Trustee. If, within one year after any resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee shall be appointed by act of the Majority Holders delivered to the Company and the retiring Trustee, then the successor Trustee so appointed shall . . . become the successor Trustee and supersede the successor Trustee appointed by the Company.
Id. § 4.10(e). Finally, Section 4.10(f) provides that “[t]he Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event . . . to the Holders of Securities as their names and addresses appear in the Security Register.” § 4.10(f).
Significantly, “Holders” and “Majority Holders” are defined terms. The CVR Agreement defines “Holder” as “a Person in whose name a Security is registered in the Security Register.” § 1.1. Section 3.5, in turn, provides that BMS “shall cause to be kept at the office of the Trustee a register (the register maintained in such office and in any other office or agency designated . . . being herein sometimes referred to as the ‘Security Register’) in which, . . . [BMS] shall provide for the registration of Securities and of transfers of Securities.” Id. § 3.5(a). The CVR Agreement defines “Majority Holders,” meanwhile, as “Holders of at least a majority of the Outstanding CVRs” at “the time of determination.” § 1.1. Further, Section 1.4, which governs “Acts of Holders,” provides that such acts “may be embodied in and evidenced by one or more instruments . . . signed by such Holders in person or by an agent duly appointed in writing” and that BMS “may set a record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this CVR Agreement.” Id. § 1.4(a). “No such vote or consent shall be valid or effective for more than one hundred twenty (120) days after such record date.” Id. If no record date is set, “the record date . . . shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company.” Section 1.4 also provides that “[t]he fact and date of the execution by any Person of any such instrument or writing may be proved in any reasonable manner which the Trustee deems sufficient,” id. § 1.4(b), and that “[t]he ownership of Securities shall be proved by the Security Register. Neither the Company nor the Trustee . . . shall be affected by any notice to the contrary,” id. § 1.4(c).
Finally, Section 1.16 governs termination of the Agreement. It states, first, that the “CVR Agreement will, automatically and without any further action of any Party, terminate and be of no force or effect, and the Parties hereto shall have no liability or obligations hereunder, . . . if as of the end of the day on the Initial Milestone Target Date, either the [Liso-cel] Milestone or the Ozanimod Milestone has not occurred.” Id. § 1.16. That said, it further provides “that (A) Sections 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 1.12, 1.13, 4.7, 7.5, 7.9, 7.10, Article 8, this Section 1.16 and Section 1.1 (to the extent related to the foregoing) shall survive termination of this CVR Agreement in accordance with their terms; and (B) the termination of this CVR Agreement shall not relieve any Party of any liability arising from any material breach of its obligations under this CVR Agreement occurring prior to the Termination Date.” Id.
B. UMB I
In or about November 2020, some CVR investors grew increasingly concerned that BMS
would miss the milestone deadlines. In anticipation of that possibility, and litigation that might
follow, some CVR investors, UMB, and the existing Trustee, Equiniti, began discussing the
replacement of Equiniti with UMB as Trustee.
UMB I
,
In the meantime, the December 31, 2020 milestone deadline for Liso-cel passed without FDA approval. Compl. ¶ 15. The next day, BMS announced in a press release that “the [CVR] Agreement . . . terminated automatically in accordance with its terms and the CVRs are no longer eligible for payment under the CVR Agreement.” Id. ¶ 17. BMS then moved, over UMB’s objection, to instruct the New York Stock Exchange (“NYSE”) to delist the CVRs based on its view that “all rights pertaining to the CVRs were extinguished by the automatic termination of the CVR Agreement in accordance with its terms.” Id. ¶ 18. BMS also directed the DTC to “delete its entire position” of CVRs from its electronic system on January 11, 2021, based on its view that the CVRs were “void” and “worthless.” ¶ 19. DTC complied with BMS’s direction, which meant that CVR holders could no longer go to the DTC as registered CVR Holders to obtain present day authorizations.
On March 4, 2021, UMB notified BMS that BMS was in default under the CVR
Agreement “because, among other things, [it] had breached its obligations to use Diligent Efforts
to achieve the Liso-cel Milestone and had delisted the CVRs with the NYSE.” ¶ 127;
see
CVR Agrmt. § 8.1(b) (requiring a notice “specifying [any] default or breach and requiring it to
be remedied” to be given “to the Company by the Trustee or to the Company and the Trustee by
the Majority Holders”). After ninety days passed without BMS curing the alleged defaults,
see
CVR Agrmt. § 8.1(b) (establishing a ninety-day cure period after notice is given before suit can
be brought), UMB filed suit on June 3, 2021,
see
Compl. ¶ 24. Several months into discovery,
however, BMS discovered that UMB had not obtained authorization for the “Instrument of
Removal, Appointment and Acceptance” from the DTC, which, through its nominee Cede &
Co., was the registered holder of over 99% of CVRs. That is, DTC did not execute the
instrument purporting to effect the substitution, and no omnibus proxy from DTC was procured.
UMB I
,
By April 17, 2024, while BMS’s motion to dismiss was pending before the Court, a majority of CVR holders who held CVRs as of both December 9, 2020, and December 18, 2020, obtained proxies (or DTC confirmations) to assert all the rights of Cede & Co., as the DTC’s nominee and the Holder on the Security Register. ¶ 41. CVR holders asked their prime brokers or other CVR custodians who are the DTC participants to send instruction letters to the DTC asking it to cause Cede & Co. to authorize the CVR holders to take any and all actions that Cede & Co. was able to take under the CVR Agreement as of December 9, 2020, and December 18, 2020. Id. The DTC complied with these instructions and returned the signed proxy letters from Cede & Co. to the DTC participants, who then returned them to the relevant CVR holders. Id . Even after April 14, 2024, UMB continued to receive additional Confirmations and ultimately filed Confirmations from Holders of 392,525,875 CVRs (or 52.76% of outstanding CVRs) as of December 9, 2020, and 394,630,734 CVRs (or 53.05% of outstanding CVRs) as of December 18, 2020. Id . ¶¶ 43-44.
On September 30, 2024, the Court granted BMS’s motion to dismiss
UMB I
.
See UMB I
,
The Court’s dismissal of the initial suit was “ without prejudice to the refiling of a new lawsuit by a properly appointed Trustee.” Id. at *14. The Court observed that “any new lawsuit would likely have to confront the question of who the Trustee is now — namely, whether it is still Equiniti or, as a result of the ‘reconfirmation’ process earlier [in 2024], whether it is now UMB.” Id. Leaving that jurisdictional question “for another day,” the Court stated that “[a]ssuming that any such new lawsuit were to survive jurisdictional challenge, the Court would likely pick up where this case left off in terms of motions practice, discovery, and the like.” at *14 & n.5. Shortly thereafter, UMB filed this lawsuit. See ECF No. 1. In the operative Amended Complaint, UMB repeats its allegations that BMS breached the CVR Agreement by failing to use “Diligent Efforts” to achieve the first milestone. Compl. ¶¶ 134-42. It also adds claims for breach of contract and breach of the implied covenant of good faith and fair dealing for BMS’s failure to maintain the Security Register following termination. ¶¶ 143-64.
DISCUSSION
As noted, BMS moves for dismissal of the Complaint pursuant to Rule 12(b)(1) for lack
of subject-matter jurisdiction and pursuant to Rule 12(b)(6) for failure to state a claim.
See
ECF
No. 51. The Court begins, as it must, with the issue of subject-matter jurisdiction.
See, e.g.
,
Steel Co. v. Citizens for a Better Env’t
,
A. Motion to Dismiss for Lack of Subject-Matter Jurisdiction
Article III of the Constitution “restricts the federal ‘judicial Power’ to the resolution of
‘Cases’ and ‘Controversies.’”
Sprint Commc’ns Co., L.P. v. APCC Servs., Inc.
,
In resolving the present motion, the Court “pick[s] up where this case left off.”
UMB I
,
Two of BMS’s jurisdictional challenges require little discussion. BMS argues first that,
under the CVR Agreement, the effectiveness of the beneficial owner signatures that were
compiled in the “Instrument of Removal, Appointment and Acceptance” lapsed by no later than
April 17, 2021, which was “one hundred twenty (120) days” after the Instrument was delivered
to BMS on December 18, 2020. Defs.’ Mem. 13;
see
CVR Agrmt. § 1.4(a) (“No such vote or
consent shall be valid or effective for more than one hundred twenty (120) days after such record
date.”). Because those signatures expired in 2021, BMS asserts, they cannot be retroactively
validated by DTC proxies obtained more than three years later. That is wrong. Section 1.4(a)
sets an expiration date for votes taken by “Persons who were Holders of Securities.” CVR
Agrmt. § 1.4(a). And as the Court previously held, the beneficial holders were not “Holders”
within the meaning of the CVR Agreement. Accordingly, their December 2020 signatures —
and the 2020 Instrument of Removal — had no effect.
See UMB I
,
Second, BMS objects that UMB “has not shown an ‘act’ by a ‘majority of Holders’ through beneficial owner signatures for whom the DTC retroactively provided its proxy” because UMB’s arithmetic is faulty. Def.’s Mem. 15. But that argument fares no better. As UMB spells out in detail in its opposition, “UMB’s appointment was confirmed by Holders by 52.76% of CVRs as of December 9, 2020, and of 53.05% of CVRs as of December 18, 2020.” ECF No. 60 (“Pl.’s Opp’n”), at 17. Rather than dispute these figures, BMS’s reply asserts only that UMB relies on “untested factual assertions” and that the issue warrants additional discovery. See ECF No. 65 (“Def.’s Reply”), at 7. Without more, therefore, BMS’s second objection fails to provide a basis to dismiss at this stage of the litigation.
BMS’s third and final jurisdictional challenge requires more discussion, but it ultimately falls short as well. BMS argues that UMB could not validly replace Equiniti as Trustee because Section 4.10 of the CVR Agreement — which governs appointment of a successor trustee — was terminated on January 1, 2021, when the CVR Agreement terminated automatically. See CVR Agrmt. § 1.16; see also ECF No. 52 (“Def.’s Mem.”), at 13-14. It is undisputed that when the Liso-cel milestone deadline passed, the CVR Agreement “automatically terminated” pursuant to Section 1.16 of the Agreement. The dispositive question, then, is whether Section 4.10 was terminated along with the CVR Agreement or whether it survived such termination.
Under ordinary principles of contract construction, “agreements are construed in accord
with the parties’ intent. The best evidence of that intent is the parties’ writing.”
Marin v. Const.
Realty, LLC
,
Here, the CVR Agreement includes a survival clause in Section 1.16, which lists several
provisions that survive termination of the Agreement. It provides that “Sections 1.5, 1.6, 1.7,
1.8, 1.9, 1.10, 1.12, 1.13, 4.7, 7.5, 7.9, 7.10, Article 8, this Section 1.16 and Section 1.1 (to the
extent related to the foregoing) shall survive termination of this CVR Agreement in accordance
with their terms.” CVR Agrmt. § 1.16. Notably, Section 4.10 is missing from this list. Because
“[t]he clear and unambiguous provision of a set of terms in a contract should imply the exclusion
of non-listed terms,”
HealthPro Bioventures, LLC v. Prometic Life Scis. Inc.
, No. 10-CV-3295
(DLC),
Although a close call, the Court concludes that UMB has the better of the argument. As a
threshold matter, the Court rejects UMB’s claim that BMS’s argument is barred by the doctrine
of judicial estoppel.
See
Pl.’s Opp’n 16-17. That doctrine provides that “[w]here a party
assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he
may not thereafter, simply because his interests have changed, assume a contrary position,
especially if it be to the prejudice of the party who has acquiesced in the position formerly taken
by him.”
New Hampshire v. Maine
,
Here, UMB’s judicial estoppel argument rests on a statement BMS’s counsel made at oral argument in UMB I . See ECF No. 44-15 (“Tr.”), at 72-73. When the Court asked BMS’s counsel which entity would refile the action if the case was dismissed without prejudice, BMS’s counsel replied that “Equiniti is [T]rustee, Equiniti could choose to resign,” and “that would invoke the provisions of Section 4.10.” at 72. He proceeded to explain that Section 4.10 “is not expressly carved out of the termination . . . , but Article VIII is, and there’s no way to apply Article VIII without going through Section 4.10 if Equiniti were to resign.” at 72-73. In other words, at the time, BMS’s counsel adopted the exact position that UMB now presses (and that BMS now opposes). BMS concedes as much, noting in its reply memorandum of law that “BMS’s counsel was mistaken in suggesting at oral argument that a post-termination trustee resignation would invoke the provisions of Section 4.10.” Def.’s Reply 6 n.6 (cleaned up).
Although BMS has adopted a clearly inconsistent position, the Court concludes that
judicial estoppel does not apply here because the Court’s prior ruling left the issue unresolved.
See UMB I
,
Even so, the Court is ultimately persuaded — as BMS’s counsel once was — that “there’s no way to apply Article VIII without going through Section 4.10 if Equiniti were to resign,” Tr. 72-73, and that Section 4.10 accordingly must survive by implication. As discussed, Article 8 allocates authority to the Trustee to “bring suit to protect the rights of the Holders,” including in the event of default. CVR Agrmt. § 8.1. Article 8 thus assumes the existence of a Trustee capable of enforcing the CVR Agreement. Section 4.10, on the other hand, governs the resignation, removal, and replacement of the Trustee. See id. § 4.10. And as UMB points out, “[i]f Section 4.10(c), which governs the Trustee’s appointment, did not survive, the Trustee could go out of business, resign, or act against the Holders’ interests with no means for the Majority Holders (or anyone else) to replace it,” Pl.’s Opp’n 16, rendering the enforcement provisions of Article 8 ineffectual.
True, Section 4.10 is not listed in the Agreement’s survival clause, but that omission is
not fatal to UMB for two reasons. For one thing, Section 1.16 itself contemplates that non-listed
Agreement provisions may survive termination. It caveats that “the termination of this CVR
Agreement shall not relieve any Party of any liability arising from any material breach of its
obligations under this CVR Agreement occurring prior to the Termination Date.” CVR Agrmt.
§ 1.16. Thus, the text of Section 1.16 itself does not unambiguously support BMS’s view that
only the listed terms and no other terms in the Agreement would survive termination.
See, e.g.
,
Shivkov v. Artex Risk Sols., Inc.
,
Second, BMS’s reading is inconsistent with the Trust Indenture Act, the requirements of which the CVR Agreement expressly incorporates. Specifically, Section 1.7 of the CVR Agreement provides that the Trust Indenture Act trumps any conflicting provision of the CVR Agreement: “If any provision hereof limits, qualifies or conflicts with another provision which is required or deemed to be included in this CVR Agreement by any of the provisions of the Trust Indenture Act, such required or deemed provision shall control.” CVR Agrmt. § 1.7. As relevant here, the Trust Indenture Act requires that there be a “qualified” trustee “at all times.” 15 U.S.C. § 77jjj(a)(1). Section 4.10 ensures that a successor Trustee can be appointed in the event of resignation, removal, or another event. It follows, then, that the Trust Indenture Act — and Section 1.7 of the CVR Agreement — require the continued operation of Section 4.10.
BMS’s response is unpersuasive. It argues that Article 8 functions without Section 4.10 because the Trust Indenture Act supplies its own procedures for appointing a successor Trustee. According to BMS, if a post-termination Trustee were to “go out of business” or “resign,” Def.’s Reply 6, Section 77jjj(b) of the Act would require BMS to appoint a successor and the outgoing trustee would serve until replaced. The problem is that the Trust Indenture Act says no such thing. Section 77jjj(b) does not state that BMS would appoint a replacement. Instead, it provides only that, in the event a trustee has “a conflicting interest” — a scenario this case does not present — “the obligor upon the indenture securities shall take prompt steps to have a successor appointed in the manner provided in the indenture ,” 15 U.S.C. § 77jjj(b)(i) (emphasis added) — i.e., in accordance with Section 4.10. In other words, the Trust Indenture Act itself assumes the existence of contractual procedures for replacement of a trustee.
For these reasons, the Court concludes that BMS’s motion to dismiss for lack of subject- matter jurisdiction falls short and that UMB has standing to bring this new lawsuit.
B. Motion to Dismiss for Failure to State a Claim
That leaves BMS’s arguments for dismissal under Rule 12(b)(6) for failure to state a
claim. When reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court must “accept[]
all factual allegations in the complaint and draw[] all reasonable inferences in the plaintiff’s
favor.”
ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.
,
BMS moves to dismiss all five counts in UMB’s Complaint. The Court will begin by addressing BMS’s arguments for dismissing Counts I and II, before addressing Counts III through V — all of which relate to the actions BMS took to delist the CVRs — in tandem.
BMS’s arguments for dismissal of Counts I and II are easily rejected. BMS moves to
dismiss Count I — which requests a declaratory judgment that “UMB is the Trustee under the
CVR Agreement” and “Equiniti is no longer the Trustee under the CVR Agreement,” Compl.
¶ 133 — for the same reasons it asserted in support of its motion to dismiss for lack of subject-
matter jurisdiction.
See
Def.’s Mem. 25. Having already rejected those reasons above, the Court
denies BMS’s motion to dismiss Count I of the Complaint. The Court also denies BMS’s motion
to dismiss Count II — UMB’s breach of contract claim for failure to use diligent efforts,
see
Compl. ¶¶ 134-42 — which rests on BMS’s claim there has been no Event of Default that would
permit a trustee to sue.
See
Def.’s Mem. 22-25. The Court squarely rejected these arguments in
its June 24, 2022 Memorandum Opinion and Order resolving BMS’s Rule 12(b)(6) motion to
dismiss in
UMB I
,
see UMB Bank N.A. v. Bristol-Myers Squibb Co.
, No. 21-CV-4897 (JMF),
The rest of BMS’s arguments are aimed at Counts III, IV, and V of the Complaint, which stem from the post-termination actions that BMS took to delist and deregister the CVRs. Specifically, these claims revolve around UMB’s allegations that, “[b]y delisting the CVRs from the NYSE and directing the DTC to delete its participant electronic trading system, [BMS] frustrated the ability of individual CVR holders to obtain proxies from the DTC” and exercise their “rights to enforce the CVR Agreement.” Compl. ¶¶ 151-52. The Court considers each of BMS’s arguments for dismissal in turn.
First, against all three Counts, BMS objects that UMB did not deliver the requisite Notices of Default. See Def.’s Mem. 21-22. That is, although UMB’s 2024 Notice of Default alleged a breach of BMS’s “obligations to use Diligent Efforts,” it did not include notice that BMS had breached its obligations under Section 3.5 to maintain the Security Register (Count III), that BMS breached the implied covenant of good faith and fair dealing (Count IV), or that any condition precedent of the CVR Agreement requiring a beneficial holder to obtain a proxy from the Registered Holder was excused (Count V). The Court concludes, however, that the CVR Agreement does not require UMB to provide separate notice of Counts III, IV, and V. See Pl.’s Opp’n 24-25. Where “an Event of Default has occurred,” Section 8.4 of the CVR Agreement authorizes the Trustee to “protect and enforce its rights and the rights of the Holders under this CVR Agreement by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, . . . whether for the specific enforcement of any covenant or agreement contained in this CVR Agreement or in aid of the exercise of any power granted in this CVR Agreement . . . .” CVR Agrmt. § 8.4 (emphasis added). Here, UMB delivered notice of its claim that an Event of Default based on BMS’s Diligent Efforts breach had occurred. Section 8.4 thus accords UMB broad discretion to assert the claims it deems “most effectual” to “protect and enforce . . . the rights of the Holders,” id. , which in this case includes Counts III, IV, and V. BMS leaves this argument unanswered on reply and cites no authority that an Event of Default must be noticed for every additional claim a Trustee asserts. BMS’s notice argument thus fails.
Second, as to Count III, BMS argues that it cannot be liable under Section 3.5(a) of the CVR Agreement for failure to maintain the Security Register because Section 3.5(a) is not listed in Section 1.16’s survival clause, and therefore did not survive termination of the CVR Agreement. Def.’s Mem. 17-18. In response, UMB argues that Section 3.5 is yet another Agreement provision saved by implication because it too is necessary to effectuate Article 8’s enforcement provisions. This time around, however, the Court concludes that BMS has the better of the argument. According to UMB, the Majority Holders cannot act to direct a Trustee to enforce their rights under Article 8 — and oversee post-termination litigation — without a Security Register reflecting who those Holders are. See Pl.’s Opp’n 19. But as BMS points out, “[i]f . . . an Event of Default existed that empowered [the Trustee] to sue, then the conduct of such post-termination litigation could be overseen by ‘Majority Holders’ as of the termination date, December 31, 2020 — the records for which are available in the DTC system. The same Holders also would receive any recovery.” Def.’s Mem. 18 (internal citation omitted). Article 8’s enforcement provisions thus remain effective even in the event of Section 3.5(a)’s termination.
UMB’s responses are unavailing. UMB contends first that BMS’s reading lacks support
in the CVR Agreement,
see
Pl.’s Opp’n 19, but the exclusion of Section 3.5 from the
Agreement’s survival clause is exactly what supports BMS’s argument.
See HealthPro
Bioventures, LLC
,
BMS suggests that dismissal of Count III based on the termination of Section 3.5(a) necessitates the dismissal of Counts IV and V, which UMB pleads in the alternative. See Def.’s Mem. 19. The Court agrees as to Count V, which “requests a declaratory judgment that any condition precedent of the CVR Agreement that would require a beneficial holder to obtain a proxy from the Registered Holder to act under the CVR Agreement is excused,” Compl. ¶ 164, based on allegations that BMS “caus[ed] the DTC to delete its participant electronic trading system,” which “thwarted and frustrated the ability of CVR beneficial holders to satisfy this condition precedent after January 2021.” ¶ 161. UMB essentially concedes that the claim it asserts in Count V hinges on its Count III argument that Section 3.5(a) is necessary for Article 8’s enforcement provisions; it states in its opposition that “BMS’s position that the ‘Holder requirement’ is necessary for action under the CVR Agreement is precisely why either Section 3.5(a) must survive or compliance with the ‘Holder requirement,’ whose satisfaction BMS has precluded, must be excused.” Pl.’s Opp’n 21 (citation omitted). In dismissing Count III, however, the Court concluded that BMS has not precluded compliance with the “Holder requirement” because post-termination litigation can be overseen by Majority Holders as of the termination date — the precise reason why UMB now has standing to bring this action. BMS’s motion to dismiss Count V of the Complaint is therefore granted as well.
That leaves Count IV of the Complaint, which asserts breach of the implied covenant of
good faith and fair dealing based on BMS’s delisting of the CVRs. Here too, BMS argues that
dismissal of Count IV follows directly from the dismissal of Count III because “[n]o duty can be
implied under . . . terminated provisions.” Def.’s Mem. 19. The Court disagrees. In addition to
the express terms of a contract, New York law implies in every contract a covenant of good faith
and fair dealing “pursuant to which neither party to a contract shall do anything which has the
effect of destroying or injuring the right of the other party to receive the fruits of the contract.”
Thyroff v. Nationwide Mut. Ins. Co.
,
In this case, UMB alleges that, “[b]y delisting the CVRs from the NYSE and directing
the DTC to delete its participant electronic trading system, [BMS] frustrated the ability of
individual CVR holders to obtain proxies from the DTC.” Compl. ¶ 152. It alleges further that
these actions were “taken in bad faith to thwart the CVR holders’ rights in the face of imminent
litigation and breached the duty of good faith and fair dealing.”
Id.
¶ 153. Unlike Count III,
Count IV does not hinge on the survival of Section 3.5(a) of the CVR Agreement because the
implied covenant survives with the remainder of the Agreement.
See Dorset Indus. Inc. v.
United Grocers, Inc.
,
Accordingly, BMS’s motion to dismiss for failure to state a claim is granted as to Counts III and V of the Complaint, but denied as to all other counts.
CONCLUSION
In sum, the Court denies BMS’s motion to dismiss for lack of subject-matter jurisdiction and grants in part and denies in part BMS’s motion to dismiss for failure to state a claim. Specifically, Counts III and V are dismissed, but the other claims survive. Unless and until the Court orders otherwise, BMS shall file its Answer to UMB’s surviving claims within three weeks of the date of this Opinion and Order. See Fed. R. Civ. P. 12(a)(4)(A). By separate Order to be entered today, the Court will schedule an initial pretrial conference.
The Clerk of Court is directed to terminate ECF No. 51.
SO ORDERED. Dated: December 1, 2025 __________________________________
New York, New York JESSE M. FURMAN United States District Judge
Notes
[1] The Court’s ruling is the subject of a pending appeal. See UMB Bank, N.A. v. Bristol Myers Squibb Co. , No. 24-2928 (2d Cir. appeal docketed Nov. 8, 2024).