BT Triple Crown Merger Co., Inc. v Citigroup Global Mkts. Inc.
Annotate this CaseDecided on April 25, 2008
Supreme Court, New York County
BT Triple Crown Merger Co., Inc., B TRIPLE CROWN FINCO, LLC, and TRIPLE CROWN FINCO, LLC, Plaintiffs and Counterclaim, Defendants,
against
Citigroup Global Markets Inc., CITIBANK, N.A., CITICORP USA, INC., CITICORP NORTH AMERICA, INC., MORGAN STANLEY SENIOR FUNDING, INC., CREDIT SUISSE, CAYMAN ISLANDS BRANCH, CREDIT SUISSE SECURITIES (USA) LLC, THE ROYAL BANK OF SCOTLAND PLC, RBS SECURITIES CORPORATION, WACHOVIA BANK, NATIONAL ASSOCIATION, WACHOVIA INVESTMENT HOLDINGS, LLC, WACHOVIA CAPITAL MARKETS, LLC, DEUTSCHE BANK AG NEW YORK BRANCH, DEUTSCHE BANK AG CAYMAN ISLANDS BRANCH, and DEUTSCHE BANK SECURITIES INC., Defendants and Counterclaim Plaintiffs, -and- CLEAR CHANNEL COMMUNICATIONS, INC. and CC MEDIA HOLDINGS, INC., Counterclaim Defendants.
600899/08
Appearances for BT Triple Crown (Clear Channel)
Attorneys for Plaintiffs BT Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC and T Triple Crown Finco, LLC
Friedman Kaplan Seiler & Adelman LLP
1633 Broadway
New York, New York 10019-6708
Att: Bruce S. Kaplan, Esq., Robert J. Lack, Esq., Emily A. Stubbs, Esq., Chad M. Leicht, Esq. and Amy Luria, Esq.
(212) 833-1100
Kellogg Huber Hansen Todd Evans & Figel, PLLC
Sumner Square, 1615 M Street, N.W.
Washington, D.C. 20036
Att: Mark C. Hansen, Esq., K. Chris Todd, Esq., Sean A. Lev, Esq., Colin S. Stretch, Esq., Rebecca A. Beynon, Esq. and Kevin J. Miller, Esq.
(202) 326-7934
Attorneys for Defendants Citigroup Global Markets Inc., Citibank, , N.A., Citicorp USA, Inc., Citicorp North America, Inc., Morgan Stanley Senior Funding, Inc., Credit Suisse, Cayman Islands Branch, Credit Suisse Securities , (USA) LLC, the Royal Bank of Scotland PLC, RBS Securities Corporation, Wachovia Bank, National Association, Wachovia , Investment Holdings, LLC and Wachovia , Capital Markets, LLC, Deutsche Bank AG New York Branch, Deutsche Bank AG , Cayman Islands Branch, and Deutsche Bank Securities Inc.,
Cahill Gordon & Reindel LLP
80 Pine Street - 17th Floor
New York, New York 10005
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Att: Guy Miller Struve, Esq., Michael P. Carroll, Esq., Lawrence Portnoy, Esq., James I. McClammy, Esq. and Brian S. Weinstein, Esq.
(212) 450-4192
Attorneys for Counterclaim Defendants Clear Channel
Dreier, LLP
499 Park Avenue
New York, New York 10022 Att: Marc S. Dreier, Esq., Amianna Stovall, Esq. and Alan S. Gruber, Esq.
(212) 328-6111
Counterclaim Defendants CC Media Holdings
Gibbs & Bruns, LLP
1100 Louisiana, Suite 5300
Houston, Texas 77001
Att: Kathy D. Patrick, Esq., Robin C. Gibbs, Esq., Jeremy L. Doyle, Esq., Laura J. Kissel, Esq. and Tammy Myers, Esq.
(713) 650-8805
Helen E. Freedman, J.
The motions numbered 002, 003, and 004 are consolidated for joint disposition.
Introduction This lawsuit arises from a contemplated "leveraged buyout" by the plaintiffs and their affiliates [FN1] (collectively, the "Purchasers") of the controlling public stock of [*2]Clear Channel Communications, Inc. ("Clear Channel"), a media company based in San Antonio, Texas, which through subsidiaries owns more than 900 radio stations and 800,000 advertising displays. Defendants [FN2] are financial institutions which agreed to lend the Purchasers approximately $ 22 billion to finance the Clear Channel acquisition (the "Acquisition") pursuant to the terms of a Second Amended and Restated Commitment Letter, which was addressed to plaintiffs and dated May 17, 2007 (the "Commitment Letter"). The Acquisition is governed by an Agreement and Plan of Merger among plaintiffs, a holding company that the plaintiffs control named CC Media Holdings, Inc. ("CC Media"), and Clear Channel dated May 17, 2007 (the "Merger Agreement"), under which CC Media would merge into Clear Channel on or before June 12, 2008.
Plaintiffs claim that defendants are reneging on their promise to lend the Purchasers funds for the Acquisition, in breach of their obligations under the Commitment Letter, and have brought suit in this Court for, among other things, specific performance of those obligations. In response, defendants have joined Clear Channel and CC Media in this action and asserted four counterclaims against plaintiffs, Clear Channel, and CC Media (collectively, the "Counterclaim Defendants"). The counterclaims seek declaratory judgments as to the rights and obligations of the parties to the Commitment Letter and the Merger Agreement.
In three separate motions, the Counterclaim Defendants now move for orders dismissing the counterclaims as against them on the grounds, among others, that the counterclaims are barred by another lawsuit that Clear Channel and CC Media have filed in the Texas state court against defendants and/or their affiliates. For the reasons set forth below, the motions by Clear Channel and CC Media are granted and the motion by plaintiffs is denied.
Background Plaintiffs commenced this action on March 26, 2008. In their Verified Complaint, they allege the following: In November 2006, the defendants in this action (which henceforth will be referred to as the "NY Defendants") issued an initial commitment letter, under which they agreed to finance the Acquisition in order to obtain "a high-profile engagement and more than $400 million in fees." According to plaintiffs, Clear Channel's board of directors, which received competing buyout offers, "considered the Purchasers' offer to be superior to other bids in large part based on the strength of the Purchasers' commitments and recommended [their] bid to Clear Channel's shareholders on that basis." Soon after the NY Defendants issued the final amended and restated Commitment Letter in May 2007, the credit markets worsened, and the NY Defendants allegedly determined that the financing exposed them to potential losses that exceeded their fees. As a result, plaintiffs claim, the NY Defendants "plotted to shift [about [*3]$ 2.65 billion of] losses to the Purchasers or to escape their commitment." Purchasers allege that the NY Defendants attempted to wrest concessions from the Purchasers or prevent them from completing the Acquisition by (1) threatening to back out of another, unrelated loan to the Purchasers, (2) asking the Purchasers with "hat in hand" to change the terms of their commitment, (3) "stalling to buy time to delay the transaction," and (4) failing to negotiate the final transaction agreements in good faith and instead asking for unreasonable terms. The Verified Complaint asserts claims against the NY Defendants for breach of contract, fraud, violation of Massachusetts statutory laws against unfair and deceptive trade practices, and civil conspiracy under Massachusetts common law.[FN3]
Later that same day (March 26, 2008), Clear Channel and CC Media (hereinafter, the "Texas Plaintiffs") commenced a lawsuit in Texas state court (the "Texas Court") against certain defendants in this action or their affiliates (collectively, the "Texas Defendants").[FN4] Clear Channel v. Citigroup Global Markets, Inc., No. 2008-CI-4864 (D. Ct. Bexar Co. Tex., Mar. 26, 2008) (the "Texas Action"). The Texas Plaintiffs commenced their lawsuit by filing a Verified Petition (the "Petition"), whose central claim is that the Texas Defendants have tortiously interfered with the Merger Agreement among Clear Channel, CC Media and the Purchasers by using "any means possible . . . to destroy the [Acquisition] and thus avoid their obligation to fund [it] as they are required to do." Along with their Verified Petition, the Texas Plaintiffs applied for an ex parte temporary restraining order ("TRO") and a temporary injunction, and requested expedited discovery and an expedited trial.
The Texas Court granted the TRO application that evening, finding that "there is evidence" that (1) the Texas Plaintiffs will recover from the Texas Defendants and (2) the Texas Plaintiffs would be irrevocably and immediately harmed without a TRO. The Texas Court restrained the Texas Defendants from, among other things, "taking any action that would interfere with or thwart consummation of the Merger Agreement," including "refusing to fund the [Acquisition] as agreed in the Commitment Letter." The Texas Court also scheduled a hearing on the application for a temporary injunction and an expedited trial and directed that the Texas Defendants receive notice.
On March 27, 2008, the Texas Defendants removed the Texas Action to the United States District Court for the Western District of Texas, San Antonio Division (the "Federal Court"). On March 28, 2008, the Texas Plaintiffs filed an "Emergency Motion for Remand and Request for Expedited Ruling," and on April 2, 2008, the Federal Court granted the motion and remanded the Texas Action back to the state Texas Court.
On April 4, 2008, the NY Defendants filed their answer to the Verified Complaint in this action and brought the counterclaims, which seek declaratory judgments that the NY Defendants [*4]have not breached the Commitment Letter (first counterclaim); that certain final transaction agreements that they had proposed in March 2008 were consistent with the terms of the Commitment Letter (second); that, as a matter of law, specific performance of the Commitment Letter was unavailable as a remedy for plaintiffs (third); and that the Commitment Letter and Merger Agreement limit their potential liability to plaintiffs or the Counterclaim Defendants to at most $ 600 million (fourth).
On April 10, 2008, the NY Defendants filed a motion for summary judgment in this action, which was submitted on April 24, 2008. The parties asked the Court to schedule a trial for May 5, 2008.
On April 11, 2008, the Texas Court held a hearing in connection with (1) Clear Channel's and CC Media's motion for a temporary injunction and an expedited trial, and (2) a motion by the Texas Defendants to dismiss the Texas Action based on the forum selection clause of the Commitment Letter. The Texas Court took the temporary injunction motion under consideration, scheduled a trial for June 2, 2008, and denied the dismissal motion. By agreement of the parties, the TRO in place was replaced with a more limited temporary restraining order.
On April 15, 2008, this Court hear oral argument on these three motions.
Motion to Dismiss counterclaims: Contentions In motion number 004, Clear Channel seeks dismissal of all four counterclaims. CC Media seeks the same relief in motion number 003. Plaintiff separately move in motion number 002 for dismissal of only the fourth counterclaim.
Clear Channel and CC Media advance similar arguments:they contend that the counterclaims seek declaratory relief on issues that are before the Texas Court, and therefore are not properly before this Court for two reasons. First, they claim that it well settled that a New York court abuses its discretion by entertaining a declaratory judgment action when the underlying issues can all be determined in a pending proceeding between the same parties. Second, they argue that even if this Court had the discretion to entertain the counterclaims, it should still dismiss them under the "prior action pending" doctrine codified by CPLR 3211(a)(4). Clear Channel and CC Media further contend that the counterclaims fail to state claims against them insofar as the counterclaims concern the Commitment Letter, because neither Clear Channel nor CC Media is a party to that agreement.
The NY Plaintiffs advance a different argument. They contend that the fourth counterclaim fails to state a claim against plaintiffs because it only concerns whether the Commitment Letter and the Merger Agreement limit Clear Channel's and CC Media's recovery against the Texas Defendants in the Texas Action.
In opposition, the NY Defendants first contend that the "prior action pending" doctrine should not apply because this action was commenced before the Texas Action.[FN5] They further contend that under the forum non conveniens doctrine, this action should proceed because "[t]his Court is the only court in which [all of the] parties can be joined, so that all parties can be bound by the issues that will be determined by this Court." If this Court were to dismiss the counterclaims against Clear Channel and CC Media, defendants argue, "they would be free to [*5]argue that all the issues determined by this Court could be relitigated in Texas." That result would be "highly unjust and unfair" to the NY Defendants, and affront the "sound administration of justice."
Finally, the NY Defendants argue that "[i]t makes no difference under CPLR 3211(a)(4) whether the relief sought is declaratory or direct relief", because "[t]he sound administration of justice is key."
Discussion At the outset, the scope of the issues in this action and the Texas Action needs to be clarified. A central question before this Court is whether, as plaintiffs claim, the NY Defendants breached their obligations to plaintiffs under the Commitment Letter. Clear Channel and CC Media acknowledge that, since they are neither parties to nor third-party beneficiaries of the Commitment Letter, they lack standing to sue the NY Defendants for breach of that agreement.
The Texas Action centers upon whether, under Texas law, the Texas Defendants tortiously interfered with the Merger Agreement. According to the factual allegations in the Petition, the Texas Defendants interfered by taking steps to avoid funding the Acquisition. The question of whether the complained-of actions constitute a breach of the Commitment Letter is not directly before the Texas Court. Rather, the question before the Texas Court is whether those actions constitute tortious interference with the Merger Agreement.
Motions by Clear Channel and CC Media The first and second counterclaims seek declarations that the NY Defendants did not breach the Commitment Letter by taking or failing to take specific actions. The third seeks a declaration that the remedy of specific performance of the NY Defendants' loan obligations under the Commitment Letter is unavailable. Since the NY Plaintiffs are not parties to or third party beneficiaries of the Commitment Letter, the NY Defendants cannot have any contractual obligations to the Texas Plaintiffs under that agreement and vice versa. Moreover, the Texas Plaintiffs have never claimed that the NY Defendants had any direct obligations to them. Accordingly, there is no real dispute between the Texas Plaintiffs and the NY Defendants in connection with the Commitment Letter, and since no actual controversy exists between them, the Texas Plaintiffs are not proper parties to the first three counterclaims. See Siegel, Prac. Commentaries, McKinney's Cons. Laws of NY, Book 7B, CPLR C3001:3 (quoted in LILCO v. Allianz Underwriters Ins. Co., 35 AD3d 253, 253 [1st Dept. 2006]).
The fourth counterclaim alleges that both the Commitment Letter and the Merger Agreement contain provisions that limit the NY Defendants' potential liability to the Counterclaim Defendants to $ 600 million or less. As discussed above, Clear Channel and CC Media are strangers to the Commitment Letter who are not bound by any of its terms. As for the Merger Agreement, the issue of whether that contract limits the Texas Defendants' potential liability to the Texas Plaintiffs is within the purview of the Texas Court to determine in the Texas Action.
The Texas Court's jurisdiction over the tort claims of Clear Channel and CC Media raises the question as to whether, as they argue, the Texas Action is a "prior action pending" which mandates dismissal of the fourth counterclaim as against them. See Morgenthau v. Erlbaum, 59 NY2d 143, 148 (1983) (holding that a court "must dismiss [a declaratory judgment claim] if there is already pending between the parties another action in which all the issues can be [*6]determined"); see also CPLR 3211(a)(4) (authorizing dismissal of any action if another action is pending involving the same parties and issues).
The NY Defendants contend that the Texas Action does not bar the fourth counterclaim because the NY Plaintiffs commenced this action about an hour before the Texas Plaintiffs began theirs. However, the NY Defendants brought the counterclaims and joined the Texas Plaintiffs as Counterclaim Defendants well after the Texas Action had commenced. The NY Defendants cannot gain priority for this action over the Texas Action by adding new claims and parties to the former. See Two Clinton Square Corp. v. Gorin Stores, Inc., 51 AD3d 643, 644-45 (4th Dept. 1976) (dismissing counterclaim that was "based on same ground" as a pending lawsuit between the parties).
The NY Defendants' contention that the counterclaims should proceed pursuant to the forum non conveniens doctrine is also unavailing. As discussed above, the Texas Defendants' liability for tortious interference is properly before the Texas Court. Moreover, the Texas Court has already found that it has jurisdiction over the dispute between the Texas Plaintiffs and Defendants by denying the dismissal motion.
Accordingly, the Texas Action qualifies as a prior action pending which bars the fourth counterclaim (for a declaratory judgment) as against Clear Channel and CC Media.
Motion by NY Plaintiffs The motion to dismiss the fourth counterclaim is denied. The NY Plaintiffs contend that the fourth counterclaim only addresses whether the Commitment Letter and the Merger Agreement limit the Texas Plaintiffs' recovery in the Texas Action. That position is unpersuasive, since the fourth counterclaim states that the NY Defendants seek "a declaration that the Commitment Letter and the Merger Agreement limit the potential liability of the [NY Defendants] to [the NY] Plaintiffs . . . ." Moreover, since the NY Plaintiffs are not parties to the Texas Action, the lawsuit could not qualify as a "prior action pending" that barred the counterclaims as against them. However, the fourth counterclaim is in essence a partial defense for the NY Plaintiffs in this action and should be litigated as such.
For the reasons set forth above, it is
ORDERED that the motions by Clear Channel Communications, Inc. and CC Media Holdings, Inc. for an order dismissing the counterclaims as against them is granted, and it is further
ORDERED that the motion by BT Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC, and T Triple Crown Finco, LLC for an order dismissing the counterclaims as against them is denied, and it is further
ORDERED that the first through fourth counterclaims as against Clear Channel Communications, Inc. and CC Media Holdings, Inc. are severed and dismissed, and it is further
ORDERED that the counterclaims as against BT Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC, and T Triple Crown Finco, LLC shall continue, and it is further
ORDERED that BT Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC, and T
Triple Crown Finco, LLC are directed to serve answers to the counterclaims within ten days after
service of a copy of this order with notice of entry.
Dated:April 25, 2008
Enter:
[*7]
Helen E. Freedman J.S.C.
Appearances for BT Triple Crown (Clear Channel)
Attorneys for Plaintiffs BT Triple Crown Merger Co., Inc., B Triple Crown Finco,
LLC and T Triple Crown Finco, LLC
Friedman Kaplan Seiler & Adelman LLP
1633 Broadway
New York, New York 10019-6708
Att: Bruce S. Kaplan, Esq., Robert J. Lack, Esq., Emily A. Stubbs, Esq., Chad M.
Leicht, Esq. and Amy Luria, Esq.
(212) 833-1100
Kellogg Huber Hansen Todd Evans & Figel, PLLC
Sumner Square, 1615 M Street, N.W.
Washington, D.C. 20036
Att: Mark C. Hansen, Esq., K. Chris Todd, Esq., Sean A. Lev, Esq., Colin S. Stretch,
Esq., Rebecca A. Beynon, Esq. and Kevin J. Miller, Esq.
(202) 326-7934
Attorneys for Defendants Citigroup Global Markets Inc., Citibank, , N.A., Citicorp
USA, Inc., Citicorp North America, Inc., Morgan Stanley Senior Funding, Inc., Credit Suisse,
Cayman Islands Branch, Credit Suisse Securities , (USA) LLC, the Royal Bank of Scotland PLC,
RBS Securities Corporation, Wachovia Bank, National Association, Wachovia , Investment
Holdings, LLC and Wachovia , Capital Markets, LLC, Deutsche Bank AG New York Branch,
Deutsche Bank AG , Cayman Islands Branch, and Deutsche Bank Securities Inc.,
Cahill Gordon & Reindel LLP
80 Pine Street - 17th Floor
New York, New York 10005
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Att: Guy Miller Struve, Esq., Michael P. Carroll, Esq., Lawrence Portnoy, Esq.,
James I. McClammy, Esq. and Brian S. Weinstein, Esq.
(212) 450-4192
Attorneys for Counterclaim Defendants Clear Channel
Dreier, LLP
[*8]
499 Park Avenue
New York, New York 10022
Att: Marc S. Dreier, Esq., Amianna Stovall, Esq. and Alan S. Gruber, Esq.
(212) 328-6111
Counterclaim Defendants CC Media Holdings
Gibbs & Bruns, LLP
1100 Louisiana, Suite 5300
Houston, Texas 77001
Att: Kathy D. Patrick, Esq., Robin C. Gibbs, Esq., Jeremy L. Doyle, Esq., Laura J.
Kissel, Esq. and Tammy Myers, Esq.
(713) 650-8805
Footnotes
Footnote 1:Plaintiffs are controlled by two
private equity firms named Bain Capital Partners LLC and Thomas H. Lee Partners (the
"Sponsors"). The Sponsors organized plaintiffs in connection with "Project Triple Crown," the
nickname that the participants used for the contemplated buyout transaction.
Footnote 2:Defendants in this action include
Citigroup Global Markets Inc., Citibank, N.A., Citicorp North America, Inc., Morgan Stanley
Senior Funding, Inc., Credit Suisse, Cayman Islands Branch, Credit Suisse Securities(USA) LLC,
The Royal Bank of Scotland PLC, RBS Securities Corporation, Wachovia Bank, National
Association, Wachovia Investment Holdings, LLC, Wachovia Capital Markets, LLC, Deutsche
Bank AG Cayman Islands Branch, and Deutsche Bank Securities Inc.
Footnote 3:Apparently the Purchasers
believe that Massachusetts law applies because their principal offices are located in Boston and
because defendants transact business in that State.
Footnote 4:The Texas Defendants include
Citigroup Global Markets, Inc., Citigroup USA, Inc., Citicorp North America, Inc., Morgan
Stanley Senior Funding, Inc., Credit Suisse Securities (USA) LLC, RBS Securities Corporation,
Wachovia Investment Holdings, LLC, Wachovia Capital Markets, LLC, and Deutsche Bank
Securities, Inc.
Footnote 5:The Counterclaim Defendants
acknowledge that plaintiffs filed the Verified Complaint about an hour before Clear Channel and
CC Media commenced the Texas Action.
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