Avenue Capital Management II, v. Schaden, No. 15-1389 (10th Cir. 2016)Annotate this Case
The complaint and referenced documents show that Quiznos fast-food franchise had borrowed heavily before its business sharply declined. From 2007 to 2011, Quiznos lost roughly 3,000 franchise restaurants and profitability plunged. With this plunge, Quiznos could no longer satisfy its loan covenants. As a result, Avenue Capital Management II, L.P., “Fortress” (a collective of investment entities) and others could foreclose on collateral, call in debt, or accelerate payments. To avoid a calamity, Quiznos restructured its debt. This securities-fraud matter arose out of the attempt to restructure that debt. Multiple investment funds purchased equity in Quiznos, and despite efforts, Avenue and Fortress sued former Quiznos managers and officers, claiming they had fraudulently misrepresented Quiznos’ financial condition. The district court dismissed the causes of action based on securities fraud based on a failure to state a valid claim. Finding no reversible error in that dismissal, the Tenth Circuit affirmed the district court’s decision.