The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al.

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COURT OF CHANCERY OF THE STATE OF DELAWARE JOHN W. NOBLE VICE CHANCELLOR 417 SOUTH STATE STREET DOVER, DELAWARE 19901 TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179 May 31, 2012 Revised May 31, 2012 Neal J. Levitsky, Esquire Fox Rothschild LLP 919 N. Market Street, Suite 1300 Wilmington, DE 19801 Re: Thomas W. Briggs, Esquire Morris, Nichols, Arsht & Tunnell LLP 1201 N. Market Street Wilmington, DE 19801 The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al. C.A. No. 5580-VCN Date Submitted: February 22, 2012 Dear Counsel: T motion for summary judgment,1 but along with the Memorandum Opinion, the Court issued a letter, explaining that one issue remained to be addressed. Specifically, the Court stated that it had yet to address the 1 quasi-estoppel, the The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, 2011 WL 3360024, at * presumes familiarity with the Memorandum Opinion and will generally employ the nomenclature that is used in that decision. The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al. C.A. No. 5580-VCN May 31, 2012 Page 2 Bank should be estopped from arguing that the DresCap Trust Certificates were not Parity Securities because investors in the Commerzbank Trust Instruments, who were told that the Dresdner 2 Trust Ins argument -E That particular quasi-estoppel was not squarely raised until the any record evidence in support of that argument. Thus, the Court asked the parties to submit answers to a series of questions about the Quasi-Estoppel Argument in order to aid the Court in determining what effect, if any, that argument should The Plaintiff has failed to show that there is any support for the Quasi-Estoppel Argument in the evidentiary record, and therefore, that argument has no effect on the Cou 2 decision. The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, 2011 WL 3423358, at * ) Supp. of its Mot. for Summary Judgment ( 13). The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al. C.A. No. 5580-VCN May 31, 2012 Page 3 *** -estoppel acts to prevent that person from changing his position.3 In Personnel Decisions, this Court determined that quasi-estoppel prevented a defendant from arguing that the Delaware Uniform Arbitration Act did not apply to an arbitration agreement. The defendant had initially maintained that the DUAA did apply to the arbitration agreement and sought to exploit certain provisions of the DUAA to its benefit. Therefore, the Court held that the defendant could not deviate from its initial position that the DUAA was applicable. Moreover, the Court explained that [the defendant] received from its offensive use of ยง 5703(c) of the DUAA, its invocation of that statute caused material detriment to . . 4 Thus, Personnel Decisions makes clear that quasi-estoppel prior 3 Pers. Decisions, Inc. v. Bus. Planning Sys., Inc., 2008 WL 1932404, at *6 (Del. Ch. May 5, 2008) (quoting KTVB, Inc. v. Boise City, 486 P.2d 992, 994 (Idaho 1971)). 4 Id. at *7. The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al. C.A. No. 5580-VCN May 31, 2012 Page 4 prior position has given him some advantage or produced some disadvantage for someone else.5 The Plaintiff contends that the facts relevant to the Quasi-Estoppel Argument are that: (1) the Bank initially adopted the position that the DresCap Trust Certificates were Parity Securities; (2) that position benefitted the Bank (3) the Bank then adopted a new position, namely, that the DresCap Trust Certificates were not Parity Securities; and (4) that new position both benefitted the Bank and harmed the holders of the Trust Preferred Securities.6 The Plaintiff 5 The Plaintiff appears to agree with this interpretation of quasi-estoppel. See Letter from Neal J. 910 inconsistent with one to which he [previously] acquiesced, or from which he accepted a 6 See ner Trust Instruments were Parity Securities; (ii) made numerous representations to this effect, including to BaFin, SoFFin, and investors, upon which they relied; (iii) obtained a benefit from these representations . . . by attracting and maintaining investors in the Commerzbank Trust Instruments, who were told that the Dresdner Trust Instruments were Parity Securities; (iv) response to the threat of litigation; and (v) never informed anyone outside the context of this makes several arguments about facts (3) and (4), and seems to suggest that the benefit the Bank received from its change in position, as well as the harm the holders of the Trust Preferred Securities incurred as a result of that change, each independently supports an application of quasi-estoppel.7 As explained above, however, quasi-estoppel is concerned wit prior position. Quasi- estoppel would only prevent the Bank from changing its position, initial position, that the DresCap Trust Certificates were Parity Securities, either benefitted it or disadvantaged someone else. The position disadvantaged anyone. The Plaintiff does argue that the Bank benefitted from adopting its initial position because that position helped the Bank attract and maintain investors in the ies. That is the argument that the Court specifically referenced in the August 4 Letter, and asked the parties to discuss. In its response to the August 4 Letter, the Plaintiff offers several contentions in support of the QuasiEstoppel Argument.8 None of those contentions, however, references the 7 See that it otherwise would have made on the Trust II Securities, and . . . imposed significant financial detriments on the Trust II holders, both by failing to make significant capital payments and by improving the liquidation preference (and payment terms) of what it had previously represented to investors were Parity Securities, thus impairing the relative position of the Trust II estment in the Bank. For . . . these reasons, the issue of quasi-estoppel has been 8 See consistently and specifically represented to investors that the Dresdner Trust Instruments were Parity Securities . . . benefitting the Bank in numerous ways, including enhancing investor The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al. C.A. No. 5580-VCN May 31, 2012 Page 6 evidentiary record. The Plaintiff has failed to point to any evidence supporting the argument that the Bank benefitted from its initial position that the DresCap Trust Certificates were Parity Securities.9 un Mot. for Summary Judgment); id. the record reflects, that issuers such as the Bank with instruments containing pari passu provisions benefit from maintaining investor confidence by id. at 14 assuring investors that the Bank will stand behind and honor its pari pasu (Representations that the Dresdner Trust Instruments were Parity Securities benefitted the Bank nterests of the Bank were that the DresTrust securities were Parity Securities, and by extension, that the Bank would honor the rights and protections the Commerzbank Trust securities were designed to provide to market 9 The Plaintiffs may be correct that reliance is not a required element of a quasi-estoppel claim under Delaware law. See Mem. Op., 2011 WL 3360024, at *8 n.71. But if a plaintiff argues that a benefit was actually received, and what that requires will vary based on the alleged benefit. For example, if a defendant receives $100 from adopting position A, and then subsequently adopts position B, a plaintiff can show that the defendant received a benefit for purposes of quasi-estoppel by pointing to the $100 he received. The issue of whether the plaintiff relied on the fact that the defendant received $100 would be irrelevant. t that simple. The Plaintiff has not pointed to a discrete item that the Defendants received through their representations that the DresCap Trust Certificates were Parity Securities. Rather, the Plaintiff argues that by making certain representations, the Bank was able to attract and maintain investors. Therefore, while reliance is not an element of quasi-estoppel, if a plaintiff claims that a defendant should be quasi-estopped from changing its position from A to B on the basis that people invested in the defendant because it adopted position A, the plaintiff must show that that is what actually happened; the plaintiff must show that people actually invested in the defendant because it adopted position A. Thus, Page 7 revised on May 31, 2012 The Bank of New York Mellon v. Commerzbank Capital Funding Trust II, et al. C.A. No. 5580-VCN May 31, 2012 Page 7 *** Therefore, the Quasi-Estoppel Argument Very truly yours, /s/ John W. Noble JWN/cap cc: Register in Chancery-K here, on summary judgment, the Plaintiff must raise a material fact issue as to whether people invested in (or continued to hold) the DresCap Trust Certificates because they were held out as Parity Securities that is the benefit that the Plaintiff alleges was received. There is nothing in DresCap Trust Certificates were Parity Securities, and the Plaintiff appears to share at least some of the responsibility for this fact. See Documents, and whether the Defendants satisfied those obligations, not the identity and holding of any beneficial holder. Who they are and what their holdings are has no bearing on any cause of action, allegation, or defense in this case, making their identities and holdings patently Moreover, even if the Plaintiff would not be required to show individualized reliance by each investor, the Plaintiff would at least need to show that the fact that the DresCap Trust Certificates were classified as Parity Securities was material to investors. The Plaintiff has not brought forth any evidence on this point either. The closest it comes is its tion would maintain investor confidence. See Although that representation by the defendant does not, without more, support a reasonable inference that investors actually relied or that the defendant obtained a benefit. Conclusory statements, even when given in absolute terms, do not raise triable fact issues. Therefore, the Plaintiff has failed to raise an issue of material fact as to whether the Bank actually received a benefit, and its QuasiEstoppel Argument fails as a matter of law.