Merhav Ampal Grp., Ltd. v. Merhav (M.N.F.) Ltd. (In re Ampal-American Israel Corp.)

In re: AMPAL-AMERICAN ISRAEL CORP., Debtor.

MERHAV AMPAL GROUP, LTD. f/k/a MERHAV-AMPAL ENERGY, LTD., Plaintiff, v. MERHAV (M.N.F.) LIMITED and YOSEF A. MAIMAN, Defendants.

Case No.: 12-13689 (SMB)

Adv. Proc. No. 14-02385 (SMB)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

September 2, 2015

Chapter 7

OPINION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

APPEARANCES:

TROUTMAN SANDERS, LLP

Counsel for Merhav Ampal Group, Ltd.

The Chrysler Building

405 Lexington Avenue

New York, NY 10174

John P. Campo, Esq.

J. David Dantzler, Jr., Esq.

Brett D. Goodman, Esq.

Of Counsel

KASOWITZ, BENSON, TORRES & FRIEDMAN LLP

Counsel for Yosef A. Maiman and Merhav (M.N.F.) Limited

1633 Broadway

New York, NY 10019

David M. Friedman, Esq.

Daniel A. Fliman, Esq.

Nii-Amar Amamoo, Esq.

Andrew R. Kurland, Esq.

Of CounselSTUART M. BERNSTEIN United States Bankruptcy Judge:

Merhav Ampal Group, Ltd. ("MAG"), an indirect wholly-owned subsidiary the debtor, Ampal-American Israel Corporation ("Ampal"), commenced this action against Yosef A. Maiman, the Chairman and former Chief Executive Officer and President of Ampal, and Merhav (M.N.F.) Limited ("MNF") (collectively with Maiman, the "Defendants"), an entity controlled by Maiman, to collect on a $20 million note executed in favor of Ampal by MNF, personally guaranteed by Maiman, and later assigned to MAG. MAG moved for summary judgment against the defendants based on MNF's default. Maiman and MNF opposed the motion on grounds that the tortious conduct of certain of Ampal's bondholders frustrated the performance of the Note and that Ampal failed to stop the bondholders. In addition, the Court raised the issue, sua sponte, of its subject matter jurisdiction over an action commenced by a non-debtor subsidiary to collect a debt from other non-debtors. For the following reasons, the Court concludes that it has subject matter jurisdiction over MAG's claims against MNF and Maiman, and grants the motion for summary judgment.

BACKGROUND

The background to this case is discussed at length in previous decisions issued by the Court. See In re Ampal-American Israel Corp., No. 12-13689 (SMB), 2013 WL 1400346 (Bankr. S.D.N.Y. Apr. 5, 2013) (Ampal I); In re Ampal-American Israel Corp., 502 B.R. 361 (Bankr. S.D.N.Y. 2013) (Ampal II); In re Ampal-American Israel Corp., No. 12-13689 (SMB), 2015 WL 4510723 (Bankr. S.D.N.Y. 2015) (Ampal III). I assume familiarity with these opinions and repeat only what is necessary to this decision.

A. The Transactions

At all relevant times, Ampal, a New York corporation, was primarily engaged in the acquisition of interests in businesses located in Israel. MAG, an Israeli corporation, is a wholly-owned subsidiary of Ampal Energy, Ltd., which, in turn, is a wholly-owned subsidiary of Ampal. (Affidavit of Shlomi Kelsi in Support of Motion for Summary Judgment in Lieu of Complaint, sworn to Aug. 21, 2014 ("Kelsi Affidavit"),¹ at ¶ 5 (ECF Doc. # 24-1.)² Until the appointment of the chapter 11 trustee in this case, Maiman controlled Ampal, serving as its President, Chief Executive Officer and Chairman of the Board of Directors. He also controlled and directed the business operations of MNF, an Israeli corporation. (Id. at ¶ 7.)

1. The 2007 Note and Option Agreement

On December 25, 2007, Ampal agreed to partially finance MNF's development of an ethanol production project in Colombia (the "Project"). Ampal loaned MNF $20 million to purchase 11,000 hectares of land in Colombia, and MNF issued a note (the "2007 Note") in that amount in favor of Ampal on December 25, 2007. (Ex. A, at ¶¶ 1, 3.)³ The 2007 Note was governed by New York law. (Id. at ¶ 9(d).) It matured on the earlier of December 25, 2008 or the "Financing Date," defined as the date on which MNF obtained third party debt financing. The maturity provision also required the third party lender to hold a 25% equity interest in theProject. (Id. at ¶ 8(e).) On the same date, the parties also executed an agreement granting Ampal an option to convert the 2007 Note into a 35% equity interest in the Project (the "Option Agreement"). (Ex. B; Kelsi Affidavit at ¶ 8.) The Option Agreement was also governed by New York law, (Ex. B at Art. 6.1.), and was set to terminate on the earlier of December 25, 2007 or the "Qualified Financing Date," which shared the same definition as the "Financing Date" in the 2007 Note. (Id. at Art. 2.1(a); Art. 1 (definitions of "Option Termination Date" and "Qualified Financing Date").)

In addition, the Option Agreement included a covenant (the "Further Assurances Provision") which stated that the parties would take reasonable commercial efforts to cause to be taken "all Necessary Actions" and all things "necessary, proper or advisable" under the applicable "Legal Requirements" to consummate and make effective the transaction contemplated by the "Transaction Documents," which included the Option Agreement, the 2007 Note and an agreement pledging MNF's shares in Ampal (the "Pledge Agreement"). (Id. at Art. 4.2.) "Necessary Action" was defined as all actions reasonably necessary to cause a result that was required to be caused in the agreement. "Legal Requirements" was defined as (1) all laws, ordinances and regulations, (2) all codes, standards, rules, requirements and other criteria issued under any laws or regulations, and (3) judgments, orders, and other similarly authoritative documents. (Id. at Art. 1 (definitions of "Necessary Action" and "Legal Requirements").)

Finally, MNF and Ampal executed the Pledge Agreement as security for payment of the 2007 Note. (Ex. C at § 2; Kelsi Affidavit at ¶ 10.) MNF owned 4,4767,389 shares of Ampal stock at the time of the agreement. (Ex. C at § 4(a)(i).)

2. The 2008 Note and Guaranty

MAG did not obtain third party financing or pay the balance of the 2007 Note by the maturity date. (Kelsi Affidavit at ¶ 11.) Instead, the parties executed an amended and restated promissory note on December 25, 2008 (the "2008 Note"), which extended the maturity date of the 2007 Note and provided a higher interest rate. The 2008 Note matured on the earlier of December 31, 2009 or the Financing Date, which was defined in the same manner as it was in the 2007 Note. (Ex. D at 1, ¶ 8(e); Kelsi Affidavit at ¶ 11.) Like the 2007 Note, the 2008 Note was governed by New York law, (Ex. D at ¶ 9(d)), and secured by the Pledge Agreement. (Id. at ¶ 6.) The parties also agreed, by letter dated December 25, 2008 (the "2008 Letter Agreement"), to extend the termination date of the Option Agreement to the earlier of June 30, 2009 or the Qualified Financing Date. (Ex. F at ¶ 2(a).)

As additional security, Maiman executed a personal guaranty in favor of Ampal (the "Guaranty"). (Ex. E; Kelsi Affidavit at ¶ 13.) The Guaranty was "an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection." (Ex. E at Art. 1.3.) In the event that MNF failed to pay the balance of the 2008 Note when due, the Guaranty obligated Maiman to pay the amount upon demand, without "presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever." (Id. at Art. 1.4.) Maiman agreed to be liable for the 2008 Note as a "primary obligor," (id. at Art. 1.1), and Ampal had no duty to exhaust its remedies against MNF or any collateral before pursuing payment from Maiman. (Id. at Art. 1.5.)

Article II of the Guaranty provided a list of acts or omissions that would not reduce or discharge Maiman's obligation. Maiman waived any common law, equitable or statutory rightarising from, among other things, any modifications to the 2008 Note or other loan documents, Maiman's financial condition, any release of MNF's obligation or collateral, or Ampal's lack of diligence in collecting the 2008 Note or enforcing its rights against the collateral. Lastly, it included a catch-all provision that covered "any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations...." (Id. at Art. 2.10.) The provision further provided that it was Maiman's "unambiguous and unequivocal intention" to be obligated "notwithstanding any occurrence, circumstance, event, action or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein...." (Id.)

3. Option Exercise Agreement

MNF did not obtain third party financing prior to December 31, 2009 or pay the 2008 Note by that date. Instead, Ampal exercised its option to purchase equity in the Project by agreement with MNF (the "Option Exercise Agreement").⁴ (Ex. G; Kelsi Affidavit at ¶15.) Ampal agreed to purchase a 25% equity interest in the Project⁵ for the balance of the 2008 Note, which was then $22,249,000. (Kelsi Affidavit at ¶ 15; Ex. G at Art. 2.1(a).) Closing on the purchase was expressly conditioned on the occurrence of the Qualified Financing Date, defined as the date on which MNF obtained long term debt financing for the Project from either the Banco do Brasil (the "BDB") or any other third party lender for no less than $185 million and thefirst disbursement or some other proof of commitment had been made under the facility. (Ex. G at Art. 2.3(b)(i); Art. 1 (definition of "Qualified Financing Date").) Closing was to occur on the Qualified Financing Date or as soon as practicable thereafter (the "Closing Date"), but the agreement also provided for a "drop dead" date of December 31, 2010. (Id. at Art. 2.3(a); Art. 1 (definition of "Termination Date").) On the Closing Date, Ampal was to deliver to MNF documentation evidencing the cancellation of the 2008 Note and release of the pledge of shares under the Pledge Agreement. (Id. at Art. 2.1(d)(viii).) The Option...