D.E. Shaw Laminar Portfolios, L.L.C. et al v. Archon Corporation, No. 2:2007cv01146 - Document 145 (D. Nev. 2010)

Court Description: ORDER that Plaintiffs Motion for Summary Judgment, Entry of Final Judgment, and to Strike 126 is hereby GRANTED. Defendants Motion for Leave to File Supplement to Opposition to Plaintiffs Second Motion for Summary Judgment and Entry of Final Judgm ent 130 is hereby GRANTED. Judgment is hereby entered in favor of Plaintiff and against Defendant in the amount of $7,240,523.64 for damages, $2,275,055.86 for pre-Judgment interest, for a total Judgment of $9,515,579.50. Signed by Judge Philip M. Pro on 12/22/10. (Copies have been distributed pursuant to the NEF - ECS)

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D.E. Shaw Laminar Portfolios, L.L.C. et al v. Archon Corporation Doc. 145 1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 7 8 9 10 11 12 *** ) D.E. SHAW LAMINAR PORTFOLIOS, ) LLC, et al., ) ) Plaintiffs, ) ) v. ) ) ) ARCHON CORP., ) ) Defendant. ) ) 2:07-CV-01146-PMP-LRL ORDER 13 14 Presently before the Court is Plaintiffs’ Motion for Summary Judgment, Entry of 15 Final Judgment, and to Strike Defendant’s Mitigation Defense (Doc. #126), filed on March 16 12, 2010. Defendant filed an Opposition (Doc. #127) on April 5, 2010. Plaintiffs filed a 17 Reply (Doc. #137) on June 8, 2010. Also before the Court is Defendant’s Motion for Leave 18 to File Supplement to Opposition to Plaintiffs’ Second Motion for Summary Judgment and 19 Entry of Final Judgment (Doc. #139), filed on August 6, 2010. Plaintiffs filed a Response 20 (Doc. #141) on August 12, 2010. Defendant filed a Reply (Doc. #142) on August 18, 2010. 21 This Court held a hearing on this matter on August 3, 2010. (Tr. of Mot. Hr’g (Doc. #72).) 22 I. BACKGROUND In 1993, Defendant Archon Corp. (“Archon”),1 a Nevada corporation, issued a 23 24 class of equity securities designated as Exchangeable Redeemable Preferred Stock 25 (“Exchangeable Preferred Stock” or “EPS”). (Am. Compl. (Doc. #27) ¶¶ 18-19; Ans. (Doc. 26 1 Archon previously was named Sahara Gaming Corporation. Dockets.Justia.com 1 #44) ¶¶ 18-19.) Plaintiffs are primarily a variety of hedge funds and money managers who 2 hold EPS. (Am. Compl. ¶¶ 7-16.) From the period of July 1, 2004 to December 31, 2004, 3 Plaintiffs purchased 391,058 EPS shares. (Pls.’ Second Mot. for Summ. J. (Doc. #126), 4 Exs. 4, 7.) From the period of January 1, 2005 to June 30, 2005, Plaintiffs purchased 5 297,487 EPS shares. (Id., Exs. 7, 13.) From the period of July 1, 2005 to December 31, 6 2005, Plaintiffs purchased 199,641 EPS shares. (Id., Exs. 7-9, 13.) From the period of 7 January 1, 2006 to June 30, 2006, Plaintiffs purchased 794,103 EPS shares. (Id., Exs. 4, 8 7-9, 13.) From the period of July 1, 2006 to December 31, 2006, Plaintiffs purchased 9 151,126 EPS shares. (Id., Exs. 5, 7-13.) From the period of January 1, 2007 to June 30, 10 2007, Plaintiffs purchased 53,700 EPS shares. (Id., Exs. 5-12.) From the period of July 1, 11 2007 to December 31, 2007, Plaintiffs purchased 212,201 EPS shares. (Id., Exs. 5-7, 10- 12 12.) 13 The Certificate of Designation of the Exchangeable Redeemable Preferred Stock 14 of Sahara Gaming Corporation (“Certificate”) is the contract between Archon and the EPS 15 holders, and details the rights of EPS holders. (Pls.’ Second Mot. for Summ. J., Ex. 1.) The 16 Certificate provides, in relevant part: 17 18 1. Designation and Rank . . . Shares of the Exchangeable Preferred Stock shall have a liquidation preference of $2.14 per share plus accrued and unpaid dividends, thereon, subject to Section 7(a). ... 19 20 21 22 23 24 25 26 2. Cumulative Dividends Priority. (a) Payment of Dividends. The holders of record of shares of Exchangeable Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefore, cumulative case dividends at a rate per annum per share (the “Dividend Rate”) initially set at 8% of (i) $2.14 plus (ii) accrued but unpaid dividends as to which a Dividend Payment Date (as defined below) has occurred. Dividends shall accrue from the date of issuance and be payable semi-annually in arrears on the 31st day of March and the 30th day of September in each year . . . commencing on March 31, 1994 (each of such dates a “Dividend Payment Date”); provided, however, that on any or all of the first six Dividend Payment Dates the Company may, at its option, pay dividends on the Exchangeable Preferred Stock, in the form of additional shares of Exchangeable 2 Preferred Stock at the rate per annum of 0.08 shares of additional Exchangeable Preferred Stock for every share of Exchangeable Preferred Stock entitled to received [sic] a dividend. If all Exchangeable Preferred Stock has not been redeemed prior to the tenth Dividend Payment Date, the Dividend Rate will increase on the tenth Dividend Payment Date to the rate per annum per share of 11% and will thereafter increase by an additional 0.50% per annum per share on each Dividend Payment Date until either the Dividend Rate reaches a rate per annum per share of 16% or the Exchangeable Preferred Stock is redeemed or exchanged by the Company as set forth herein. In no circumstances will the Dividend Rate exceed 16% per annum per share. . . . Dividends on the Exchangeable Preferred Stock shall be fully cumulative and shall accrue (whether or not declared), on a daily basis, from the first day of each Dividend Period; provided, however, that the initial semi-annual dividend payable on March 31, 1994 and the amount of any dividend payable for any other Dividend Period shorter than a full Dividend Period shall be computed on the basis of a 360-day year composed of twelve 30-day months and the actual number of days elapsed in the relevant Dividend Period. ... 1 2 3 4 5 6 7 8 9 10 11 3. Optional Redemption. (a) General (i) . . . [T]he shares of Exchangeable Preferred Stock may be redeemed, in whole or in part, at the election of the Company, upon notice as provided in Section 3(b), by resolution of the Board of Directors, . . . at a redemption price equal to the Liquidation Preference. ... 12 13 14 15 7. Liquidation Rights; Priority . . . [The Liquidation Preference is an amount] per share equal to the sum of (i) $2.14, plus (ii) an amount equal to all accrued but unpaid dividends for the then current Dividend Period, through the date of liquidation, dissolution, or winding up, plus all prior Dividend Periods, whether or not declared . . . . 16 17 18 19 20 (Id.) Archon elected to make payment in kind dividend payments in lieu of cash on the 21 first six dividend payment dates. (Compl. ¶ 24; Am. Ans. ¶ 24.) After the first six 22 payments, Archon accrued cumulative dividends rather than pay cash. (Compl. ¶ 25; Am. 23 Ans. ¶ 25.) Archon has not, prior to this lawsuit, paid a cash dividend on the EPS. (Compl. 24 ¶ 25; Am. Ans. ¶ 25.) The Certificate provides that dividends accrue to the extent not 25 declared. (Pls.’ Second Mot. for Summ. J., Ex. 1.) The EPS dividends were fully 26 cumulative, meaning there is no time limit as to how long they can accrue. (Id.) Dividends 3 1 2 were to accrue on the EPS at an increasing dividend rate if not paid. (Id.) Shares of the EPS could be redeemed at any time, at Archon’s election, upon 3 notice and by resolution of Archon’s Board of Directors and upon payment of a redemption 4 price equal to the Liquidation Preference for such shares. (Mot. for Summ. J., Ex. 1.) On 5 July 31, 2007, Archon issued a Notice of Redemption of Preferred Stock (“Notice”), 6 indicating it would redeem each outstanding share of EPS for $5.241 per share, which 7 Archon claimed included all accrued but unpaid dividends. (Mot. for Summ. J., Ex. 2.) 8 Archon redeemed the EPS on August 31, 2007 for $5.241 per share. (Am. Ans. ¶ 25.) 9 Plaintiffs brought suit in this Court on August 27, 2007 for breach of contract, anticipatory 10 breach, and declaratory relief, alleging Archon did not properly calculate the EPS dividends 11 and liquidation preference according to the Certificate’s terms. 12 On August 6, 2008, this Court granted partial summary judgment to Plaintiffs, 13 holding that the Certificate was unambiguous and Plaintiffs’ interpretation of the Certificate 14 which results in compound dividends is correct. (Order (Doc. #80).) This Court also struck 15 four of Defendant’s five affirmative defenses, leaving only the defense of failure to mitigate 16 which was not challenged by Plaintiffs’ Motion. (Id.) On August 22, 2008, Defendant 17 moved for certification of the August 6, 2008 Order for interlocutory appeal. (Doc. #82.) 18 On July 16, 2009, Plaintiffs moved for summary judgment on Defendant’s remaining 19 defense and for Entry of Final Judgment. (Doc. #109.) On October 20, 2009, this Court 20 granted Defendant’s Motion for Certification and simultaneously denied Plaintiffs’ Motion 21 for Final Judgment without prejudice. (Doc. #123.) On January 20, 2010, the Ninth Circuit 22 denied Defendant’s Petition for Interlocutory Appeal. (Def.’s Opp’n Mot. for Summ. J. 23 (Doc. #127), Ex. 4.) 24 Plaintiffs now move for final summary judgment, entry of final judgment, and 25 prejudgment interest. Plaintiffs also move to strike Defendant’s affirmative defense of 26 failure to mitigate. Defendant contends that this Court’s prior order interpreting the 4 1 Certificate was in error, and in any event, the Certificate does not support Plaintiffs’ 2 calculation of damages. 3 II. LEGAL STANDARD 4 Summary judgment is appropriate if the pleadings, depositions, answers to 5 interrogatories and admissions, and affidavits demonstrate “there is no genuine dispute as to 6 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 7 56(a). A fact is “material” if it “might affect the outcome of the suit under the governing 8 law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is genuine if 9 “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” 10 Id. Where a party fails to offer evidence sufficient to establish an element essential to its 11 case, no genuine issue of material fact can exist, because “a complete failure of proof 12 concerning an essential element of the nonmoving party’s case necessarily renders all other 13 facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). 14 The party “seeking summary judgment bears the initial responsibility of 15 informing the district court of the basis for its motion, and identifying those portions of ‘the 16 pleadings . . .’ which it believes demonstrate the absence of a genuine issue of material 17 fact.” Id. at 323. The burden then shifts to the non-moving party to go beyond the 18 pleadings and set forth specific facts demonstrating there is a genuine issue of material fact 19 for trial. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 531 (9th Cir. 2000). The 20 Court views all evidence in the light most favorable to the non-moving party. County of 21 Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001). 22 III. DISCUSSION 23 A. Mitigation of Damages 24 In Nevada, “a party cannot recover damages for loss that he could have avoided 25 by reasonable efforts.” Conner v. S. Nev. Paving, Inc., 741 P.2d 800, 801 (Nev. 1987). 26 However, “[i]f a course of action chosen by a plaintiff in responding to the damage caused 5 1 him by the defendant was reasonable, the plaintiff can recover despite the existence of 2 another reasonable course of action that would have avoided further damages.” A.I. Credit 3 Corp. v. Gohres, 299 F. Supp. 2d 1156, 1162 (D. Nev. 2004). 4 Here, Defendant sets forth the affirmative defense of mitigation, claiming that 5 Plaintiffs were damaged by their own conduct of acquiring shares after they learned that 6 Archon was not compounding dividends. This Court previously held that the Certificate 7 governing the rights of EPS holders was unambiguous and that Plaintiffs’ interpretation of 8 the formula for calculating dividends was correct. Therefore, it was reasonable for Plaintiffs 9 to rely on the Certificate when purchasing EPS shares. Additionally, it is unreasonable to 10 expect Plaintiffs to refrain from relying on an interpretation of the Certificate which this 11 Court has deemed unambiguous and correct merely because it had notice that Defendant 12 was interpreting the Certificate incorrectly. Defendant does not raise a genuine issue of 13 material fact regarding mitigation. Defendant’s mitigation defense is an attempt to re- 14 litigate this Court’s prior ruling on the calculation of dividend amounts. The Court will 15 decline to revisit this issue. Therefore, the mitigation defense is unavailable to Defendant. 16 B. Entry of Final Judgment 17 In its prior order, this Court held that the Certificate that governs the preferred 18 stock is unambiguous. This Court also found that Plaintiffs’ interpretation of the formula 19 for calculating dividends is correct. The dividend amount is calculated by taking the 20 dividend rate (initially set at 8%) and applying it to the sum of (i) $2.14 plus (ii) accrued but 21 unpaid dividends as to which a Dividend Payment Date has occurred. There is no genuine 22 issue of material fact regarding damages, all that is left is for the Court to determine 23 damages by: calculating the dividend amounts as set forth above; using this to calculate the 24 Liquidation Preference ((i) $2.14, plus (ii) an amount equal to all accrued and unpaid 25 dividends); calculating the difference between the Liquidation Preference and the amount 26 tendered by Archon; and multiplying this difference by the number of shares owned by 6 1 Plaintiffs. Archon elected to make dividend in kind payments for the first six dividend 2 3 payments. Beginning with the seventh dividend payment, dividends accrued at a rate of 8% 4 per annum per share of the sum of (i) $2.14 plus (ii) accrued but unpaid dividends. On the 5 tenth Dividend Payment Date the Dividend Rate increased to 11% per annum per share and 6 increased 0.50% per annum per share every Dividend Payment Date until the Dividend Rate 7 reached a rate per annum per share of 16%. The table below summarizes the calculations 8 determining each Dividend Payment amount, the total amount of accrued but unpaid 9 dividends, and the Liquidation Preference.2 10 11 Table 1. Dividend Calculations Dividend Payment Dividend Date Rate Accrued but Unpaid Dividends Dividend Rate multiplied by ($2.14 plus Accrued but Unpaid Dividends) 12 13 14 March 31, 1997 0.08 0 0.0856 September 30, 1997 0.08 0.0856 0.0890 March 31, 1998 0.08 0.1746 0.0926 15 September 30, 1998 0.08 0.2672 0.0963 16 March 31, 1999 0.11 0.3635 0.1377 17 September 30, 1999 0.115 0.5012 0.1519 18 March 31, 2000 0.12 0.6531 0.1676 19 September 30, 2000 0.125 0.8206 0.1850 20 March 31, 2001 0.13 1.0057 0.2045 September 30, 2001 0.135 1.2102 0.2261 March 31, 2002 0.14 1.4363 0.2503 21 22 23 2 24 25 26 The August 31, 2007 Dividend calculation was prorated in accordance with section 2(a) of the Certificate, which states, “the amount of any dividend payable for any other Dividend Period shorter than a full Dividend Period shall be computed on the basis of a 360-day year composed of twelve 30-day months and the actual number of days elapsed in the relevant Dividend Period.” (Mot. for Summ. J., Ex. 1.) 7 1 September 30, 2002 0.145 1.6866 0.2774 2 March 31, 2003 0.15 1.9641 0.3078 3 September 30, 2003 0.155 2.2719 0.3419 4 March 31, 2004 0.16 2.6138 0.3803 5 September 30, 2004 0.16 2.9941 0.4107 March 31, 2005 0.16 3.4048 0.4436 September 30, 2005 0.16 3.8484 0.4791 7 March 31, 2006 0.16 4.3275 0.5174 8 September 30, 2006 0.16 4.8449 0.5588 9 March 31, 2007 0.16 5.4037 0.6035 10 August 31, 2007 0.16 6.0071 0.5431 11 Total Accrued but Unpaid Dividends on August 31, 2007 12 Liquidation Preference = $2.14 + $6.55 = $8.69 6 $6.55 13 14 The total amount of accrued but unpaid dividends from the relevant period was 15 $6.55. The Liquidation Preference is calculated by finding the sum of (i) $2.14, plus (ii) an 16 amount equal to all accrued but unpaid dividends, yielding a Liquidation Preference of 17 $8.69. 18 Archon redeemed all EPS at the price of $5.241 per share on August 31, 2007. 19 The difference between the correct Liquidation Preference and the amount paid by Archon 20 is $3.449 per share. As of August 31, 2007, (the date of Archon’s redemption), Plaintiffs 21 collectively held 2,099,311 shares of EPS, giving rise to damages of $7,240,523.64. 22 C. Prejudgment Interest 23 In diversity actions, the award of prejudgment interest is governed by state law. 24 In re Cardelucci, 285 F.3d 1231, 1235 (9th Cir. 2002). In Nevada, “[t]hree items must be 25 determined to enable the trial court to make an appropriate award of interest: (1) the rate of 26 interest; (2) the time when it commences to run; and (3) the amount of money to which the 8 1 rate of interest must be applied.” Kerala Props., Inc. v. Familian, 137 P.3d 1146, 1149 (Nev. 2 2006) (quotation omitted). In regards to the rate of interest, Nevada Revised Statutes 3 § 99.040(1) provides: 6 [w]hen there is no express contract in writing fixing a different rate of interest, interest must be allowed at a rate equal to the prime rate at the largest bank in Nevada, as ascertained by the Commissioner of Financial Institutions, on January or July 1, as the case may be, immediately preceding the date of the transaction, plus 2 percent, upon all money from the time it becomes due . . . . 7 Here, the Certificate does not expressly provide the rate of interest, and therefore 4 5 8 § 99.040(1) determines the rate of interest. The table below summarizes the rates of 9 interest3 from the relevant periods as well as the number of shares purchased in those 10 periods. 11 Table 2. Interest Rate Calculations Period Prime Interest Rate 12 13 Prime Interest Rate Number of plus two percent Shares Purchased July 1, 2004 to December 31, 2004 4.25% 6.25% 391,058 January 1, 2005 to June 30, 2005 5.25% 6.25% 297,487 6.25% 8.25% 199,641 16 July 1, 2005 to December 31, 2005 17 January 1, 2006 to June 30, 2006 7.25% 9.25% 794,103 July 1, 2006 to December 31, 2006 8.25% 10.25% 151,126 18 19 January 1, 2007 to June 30, 2007 8.25% 10.25% 53,700 14 15 20 21 July 1, 2007 to December 31, 8.25% 10.25% 212,201 2007 Interest commences to run from August 31, 2007, the date Archon 22 breached the certificate by redeeming the EPS shares for the incorrect amount. The amount 23 of money to which the relevant rates must be applied is determined by multiplying the 24 3 25 26 This Court takes judicial notice of the prime interest rate as ascertained by the Commissioner of Financial Institutions. Fed. R. Evid. 201 (Court may take judicial notice of facts that are “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.”) 9 1 difference between the amount of the correct Liquidation Preference and what Archon paid 2 ($8.69 - $5.241 = $3.449) by the number of shares from the relevant interest period. The 3 table below summarizes the relevant interest rates, number of shares purchased during these 4 periods, and the amount of money to which the relevant rates must be applied. 5 Table 3. Amount of Damages to Apply Interest to. Period Prime Interest Rate plus two percent 6 Number of Shares Damages 7 July 1, 2004 to December 31, 2004 6.25% 391,058 $1,348,741.78 8 January 1, 2005 to June 30, 2005 7.25% 297,487 $1,026,032.66 9 July 1, 2005 to December 31, 2005 8.25% 199,641 $688,561.81 January 1, 2006 to June 30, 2006 9.25% 794,103 $2,738,861.25 July 1, 2006 to December 31, 2006 10.25% 151,126 $521,233.57 January 1, 2007 to June 30, 2007 10.25% 53,700 $185,211.20 July 1, 2007 to December 30, 2007 10.25% 212,201 $731,881.25 10 11 12 13 For the 391,058 EPS shares purchased in the period of July 1, 2004 to December 14 15 31, 2004, interest of 6.25% per annum will be calculated from August 31, 2007 on 16 $1,348,7441.78. For the 297,487 EPS share purchased in the period of January 1, 2005 to 17 June 30, 2005, interest of 7.25% per annum will be calculated from August 31, 2007 on 18 $1,026,032.66. For the 199,641 EPS shares purchased in the period of July 1, 2005 to 19 December 31, 2005, interest of 8.25% per annum will be calculated from August 31, 2007 20 on $688,561.81. For the 794,103 EPS shares purchased in the period of January 1, 2006 to 21 June 30, 2006, interest of 9.25% per annum will be calculated from August 31, 2007 on 22 $2,738,861.25. For the 417,027 EPS shares purchased in the period from July 1, 2006 to 23 August 31, 2007, interest of 10.25% per annum will be calculated from August 31, 2007 on 24 $1,438,326.12. 25 IV. 26 CONCLUSION IT IS THEREFORE ORDERED that Plaintiffs’ Motion for Summary Judgment, 10 1 Entry of Final Judgment, and to Strike (Doc. #126) is hereby GRANTED. 2 IT IS FURTHER ORDERED that Defendant’s Motion for Leave to File 3 Supplement to Opposition to Plaintiffs’ Second Motion for Summary Judgment and Entry of 4 Final Judgment (Doc. #130) is hereby GRANTED. 5 IT IS FURTHER ORDERED that Judgment is hereby entered in favor of Plaintiff 6 and against Defendant in the amount of $7,240,523.64 for damages, $2,275,055.86 for pre- 7 Judgment interest, for a total Judgment of $9,515,579.50. 8 9 DATED: December 22, 2010. 10 11 _______________________________ PHILIP M. PRO United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 11

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