The Bankr. Estate of Norske Skogindustrier ASA v. Cyrus Capital Partners, L.P. (In The Bankr. Estate of Norske Skogindustrier ASA)

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In re: THE BANKRUPTCY ESTATE OF NORSKE SKOGINDUSTRIER ASA Debtor in a Foreign Proceeding.

THE BANKRUPTCY ESTATE OF NORSKE SKOGINDUSTRIER ASA, Plaintiff, v. CYRUS CAPITAL PARTNERS, L.P., et al., Defendants.

No. 18-13571 (MG)

Adv. Pro. No. 18-01846 (MG)

United States Bankruptcy Court, S.D. New York

May 8, 2023

NOT FOR PUBLICATION

Chapter 15

HOLLAND AND KNIGHT LLP Attorneys for Plaintiff The Bankruptcy Estate of Norske Skogindustrier Warren E, Gluck, Esq. Richard A. Bixter, Jr., Esq. Robert J. Burns, Esq. Phillip W. Nelson Esq.

CRAVATH, SWAINE & MOORE LLP Attorneys for GSO Defendants Paul H. Zumbro, Esq. Lauren A. Moskowitz, Esq. Omid H. Nasab Esq.

PALLAS PARTNERS LLP Attorneys for Cyrus Defendants Duane L. Loft, Esq. Anastasia Cembrovska, Esq. Mark C. Davies, Esq.

MEMORANDUM OPINION GRANTING PLAINTIFF'S MOTION FOR LEAVE TO FILE THE THIRD AMENDED COMPLAINT

Martin Glenn, Chief United States Bankruptcy Judge

Pending before the Court is a motion (the "Motion," ECF Doc. # 182) by Tom Hugo Ottesen, the duly appointed trustee and foreign representative ("Petitioner" or "Trustee") of Plaintiff, the Bankruptcy Estate of Norske Skogindustrier ASA ("Norske Estate" or "Plaintiff"), a bankruptcy estate currently being administered under the supervision of the Oslo County Court (the "Norway Bankruptcy"). The Plaintiff seeks to file its third amended complaint in the adversary proceeding against the Defendants.^[1] A proposed third amended complaint is attached to the Motion (the "Third Amended Complaint," ECF Doc. # 182-1).

The Defendants filed an objection to the Motion (the "Objection," EFC Doc. # 183) as well as the declaration Margrethe Buskerud Christoffersen (the "Christoffersen Decl.," ECF Doc. # 185) and the declaration of Omid H Nasab (the "Nasab Decl.," ECF Doc. # 184), which both attach exhibits. The Plaintiff filed a reply in further support of its Motion (the "Reply," ECF Doc. # 187) and a supporting declaration of Richard A. Bixter (the "Bixter Decl.," ECF Doc. # 188) which attaches exhibits. Defendants filed a motion (ECF Doc. # 189) for leave to file a sur-reply, which the Court granted. (See ECF Doc. # 190.) The sur-reply (the "Sur-Reply") was filed at ECF Doc. ## 189-01 and 189-02. The Court held a hearing on the Motion on April 27, 2023, at which it GRANTED the Motion and OVERRULED Defendants' Objection. An order granting the requested relief was entered at ECF Doc. # 191. The Court writes separately here to explain the reasoning for its decision.

I. BACKGROUND

A. Procedural Background

Familiarity with the Court's other opinions in this matter is assumed as the Court will not recite the complicated facts that led to this dispute. See In re Bankr. Est. of Norske Skogindustrier ASA, 633 B.R. 640 (Bankr. S.D.N.Y. 2021) (ECF Doc. No. 131); In re Bankr. Est. of Norske Skogindustrier ASA, 629 B.R. 717 (Bankr. S.D.N.Y. 2021) (ECF Doc. # 97). This Opinion sets forth a limited procedural background relevant to ruling.

On May 20, 2021, the Plaintiff filed its Second Amended Complaint (ECF Doc. # 108), which is currently the operative complaint in this proceeding. (Motion ¶ 8.) The Second Amended Complaint set out allegations against Defendants regarding a 2015 refinancing named Carra II (the "Second Restructuring"), (Second Amended Complaint ¶ 93), and a related bond repurchase scheme (the "Bond Repurchase Scheme"). (Id. ¶ 162.)

On April 29, 2021 and October 4, 2021, the Court issued two opinions (ECF Doc. ## 97 and 131) that resulted in a denial of the Defendants' motions to dismiss the following claims: (i) claims under Section 5-9 of the Norwegian Recovery Act against all Defendants; (ii) a claim under Section 5-5 of the Norwegian Recovery Act against the GSO Defendants; and (iii) claims against all Defendants seeking recovery of economic loss under Section 17-1 of the Public Limited Liability Companies Act and Norwegian common law. (Id. ¶ 9.) The Second Case Management Plan and Scheduling Order (the "Case Management Order," ECF Doc. # 125 (Sept. 8, 2021)), authorized the parties to conduct discovery, including discovery governed by the Hague Evidence Convention, and required further leave of Court before any further amendment of the pleadings. (Id. ¶ 10.) At a status conference on March 9, 2023, counsel confirmed that fact discovery is complete following document production and depositions of witnesses located in the United States, the United Kingdom and Norway. (Id. ¶ 11.)

B. The Proposed Amendments

The proposed Third Amended Complaint seeks to make several amendments, most not objected to by Defendants. The specific portions of the amendments to which Defendants object (the "Challenged Amendments") are highlighted in Exhibit 19 to the Nasab Declaration. The Defendants object to three categories of amendments: 1) "§ 17-6 Allegation" (Third Amended Complaint ¶ 371); 2) the "Highly Confident Letter Allegations" (Third Amended Complaint ¶¶ 12-13, 94, 201-02, 331, 348, 363, 378, 379, 382-83); and 3) the "Project 25 Allegations" (Third Amended Complaint ¶¶ 15-17, 94, 154, 156, 200, 303-11, 331, 348, 363, 378-81, 383-86). (Objection at 8.)

The § 17-6 Allegation states that "§ 17-6 of the Public Limited Liability Companies Act permits a company such as Norske Skogindustrier to bring claims under § 17-1 for the economic loss suffered by its subsidiary companies due to the intentional and/or negligent acts of third parties." (Id. at 16 (citing Third Amended Complaint ¶ 371).) The Defendants argue that the added § 17-6 Allegation is futile and thus should not be permitted. Defendants argue the § 17-6 Allegation "clearly misstates Norwegian law, which does not permit the [Norske] Estate to claim losses for other companies." (Id. at 16 (citing Christoffersen Decl. ¶¶ 6, 26-28).) Plaintiff responds that it is not using § 17-6 to assert an independent cause of action and includes it because it supplies a priority rule. (Reply at 10.)

Plaintiff summarized the Highly Confident Letter Allegations and Project 25 Allegations as follows:

The Third Amended Complaint maintains the Plaintiff's position that the Defendants' intent in purchasing increased equity in Norske and seeking replacement of all independent Norske Board members was to obtain increased influence and "control" of Norske. (Id. ¶¶ 162-168). However, the Plaintiff alleges that it has learned that the Defendants ensured implementation of the Second Restructuring through a series of misrepresentations to Norske Management and the Norske Board, both through oral statements and two Highly Confident Letters, falsely promising that the Defendants would be willing to provide more than $400 million in M&A financing following the Second Restructuring, a promise that never could have been fulfilled due to the nature of the Defendants' "steepener CDS trade" and the GSO Defendants' liquidity issues. (Id. ¶¶ 153-156). According to the Plaintiff, testimony from Norske's former management and Board members confirmed that: (i) the Second Restructuring was not a comprehensive solution to Norske's financial issues, but only a stopgap to provide a runway to effectuate a merger, or industry consolidation, of the European paper and pulp market; and (ii) the proposals made by the Defendants were favored over the proposals of Norske's secured lenders due to the Defendants' support of "industry consolidation" and the Highly Confident Letters. (Id. ¶¶ 190-207). The Plaintiff claims that these misrepresentations were only revealed to Norske in January 2017, when the GSO Defendants refused to provide the very M&A financing promised in the Highly Confident Letters in the absence of an engineered "hard default" on Norske's bond obligations, due to the Defendants' "steepener CDS trade." (Id. ¶¶ 303-311).

(Motion ¶ 5.)

The Defendants argue that the Court should reject the allegations related to the Highly Confident Letter and Project 25 as unduly prejudicial. They assert that fact discovery has closed and that most of the relevant witnesses are unavailable at trial and have already provided their trial testimony through the depositions that took place last year, including all of the Norway-based witnesses. (Objection at 14.) The Defendants maintain that the Highly Confident Letter Allegation and Project 25 Allegation present new theories that were not fully addressed in discovery and would result in "new problems of proof." (Id.) Plaintiff disagrees and argues that the new allegations are merely intended to conform the pleadings to the evidence obtained in discovery. (Motion ¶ 4.) Plaintiff argues that the deposition witnesses in Norway were examined and cross examined extensively about the Highly Confident Letter and Project 25. (See Reply at 6-9.)

II. LEGAL STANDARD

Courts within the Second Circuit routinely grant plaintiffs leave to amend complaints to conform to the evidence obtained through discovery. Rule 15 of the Federal Rules of Civil Procedure, which governs motions for leave to amend pleadings both pretrial and during trial, provides in pertinent part:

(a) Amendments Before Trial.

(2) Other Amendments. In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.

(b) Amendments During and After Trial.

(1) Based on an Objection at Trial. If, at trial, a party objects that evidence is not within the issues raised in the pleadings, the court may permit the pleadings to be amended. The court should freely permit an amendment when doing so will aid in presenting the merits and the objecting party fails to satisfy the court that the evidence would prejudice that party's action or defense on the merits. The court may grant a continuance to enable the

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