Hildene Capital Mgmt v. Bank of NY Mellon, Index No. 650980/2010, 03/16/2014 (Sherwood J.)

Tortious Interference with a Contract; breach.

By Michael Ferri | Senior Staff Writer

Defendant REIT sold trust-preferred securities (TruPS) to a collateralized debt organization (CDO). CDO then sold notes under an Indenture Agreement (Indenture) to plaintiff’s noteholders, among others. Four years later, defendant, under financial pressure, sought to repurchase the TruPS through a tender offer. Indenture Trustee (Trustee) prohibited the offer unless defendant provided an opinion of counsel that the offer complied with the Indenture. Defendant’s counsel (Counsel) examined the Indenture and reckoned (erroneously) that the tender offer would be permissible if defendant’s default was imminent. Then, Counsel issued an opinion letter, which stated that defendant was about to default because of defendant’s need to repurchase the TruPS “in order to survive.” After, trustee allowed defendant to make multiple tender offers and eventually gained enough votes from CDO noteholders to proceed. Later, defendant conceded, based on findings of a separate case, that Trustee’s actions breached the Indenture. Plaintiffs asserted claims against defendant for tortious interference with a contract, among others, and moved for summary judgment. Plaintiffs argued that defendant intentionally procured the Trustee’s breach without justification by overstating its financial distress to Counsel. Plaintiffs referred to defendant’s balance sheets and board communications to demonstrate that defendant had the flexibility to avoid imminent default. Defendant denied and moved for summary judgment to dismiss the action by providing expert financial analyst reports, including one report which classified then defendant as “likely to fall into bankruptcy.” The court found the existence of disputed issues of material fact as to whether defendant intentionally procured breach. The court denied summary judgment to determine the credibility of defendant’s representations, and whether the repurchase of TruPS was necessary for defendant to avoid default.

Hildene Capital Mgmt v. Bank of NY Mellon, Index No. 650980/2010, 03/16/2014 (Sherwood J.).

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