Weisfelner v. Blavatnik (In re Lyondell Chem. Co.)

543 B.R. 428

In re: Lyondell Chemical Company et al., Debtors.

Edward S. Weisfelner, as Litigation Trustee of the LB Litigation Trust, Plaintiff,

v.Leonard Blavatnik, et al., Defendants.

Case No. 09–10023 (REG) (Jointly Administered)

Adversary Proceeding No. 09–1375 (REG)

United States Bankruptcy Court, S.D. New York.

Signed January 4, 2016

BROWN RUDNICK, LLP, Attorneys for Plaintiff Edward S. Weisfelner, Litigation Trustee of the LB Litigation Trust Seven Times Square, New York, New York 10036 By: Sigmund S. Wissner–Gross, Esq. (argued), May Orenstein, Esq. (argued), One Financial Center, Boston, Massachusetts 02111 By: Steven D. Pohl, Esq.

PAUL, HASTINGS, JANOFSKY & WALKER, LLP, Attorneys for Defendant Alan S. Bigman, 75 East 55th Street, New York, New York 10022 By: William A. Novomisle, Esq. (argued), Douglas Koff, Esq.

PORTER & HEDGES, LLP, Attorneys for Defendant Alan S. Bigman Reliant Energy Plaza, 1000 Main Street, 36th Floor, Houston, Texas 77002 By: John Higgins, Esq. (argued), Eric D. Wade, Esq.

DLA PIPER, LLP, Attorneys for Defendant Alan S. Bigman, 500 Eighth Street NW, Washington, D.C. 20004 By: James D. Wareham, Esq.

QUINN, EMANUEL, URQUHART & SULLIVAN, LLP, Attorneys for Defendants Access Industries, Inc.; Access Industries Holdings LLC; AI International, S.a.r.l.; Nell Limited; BI S.a.r.l; Len Blavatnik; Lincoln Benet; Philip Kassin; Peter Thoren; and Alex Blavatnik, 51 Madison Avenue, 22nd Floor, New York, New York 10010 By: Richard I. Werder, Jr., Esq. (argued), Susheel Kirpalani, Esq., Benjamin I. Finestone, Esq.

DECISION AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS COUNTS 2, 6, 7, 14, AND 18

ROBERT E. GERBER, UNITED STATES BANKRUPTCY JUDGE

In late December 2007, Basell AF S.C.A. ("Basell "), a Luxembourg entity controlled by Leonard Blavatnik ("Blavatnik "), acquired Lyondell Chemical Company ("Lyondell "), a Delaware corporation headquartered in Houston—forming a new company after a merger (the "Merger "), LyondellBasell Industries AF S.C.A. (as used by the parties, "LBI," or here, the "Resulting Company "),¹ Lyondell's parent—by means of a leveraged buyout ("LBO"). The LBO was 100% financed by debt, which, as is typical in LBOs, was secured not by the acquiring company's assets, but rather by the assets of the company to be acquired. Lyondell took on approximately $21 billion of secured indebtedness in the LBO, of which $12.5 billion was paid out to Lyondell stockholders.

In the first week of January 2009, less than 13 months later, a financially strapped Lyondell filed a petition for chapter 11 relief in this Court.² Lyondell's unsecured creditors then found themselves behind that $21 billion in secured debt, with Lyondell's assets effectively having been depleted by payments of $12.5 billion in loan proceeds to stockholders. Lyondell's assets were allegedly also depleted by payments incident to the LBO and the Merger—of approximately $575 million in transaction fees and expenses, and another $337 million in payments to Lyondell officers and employees in change of control payments and other management benefits.

Those events led to the filing of what are now five adversary proceedings—three against shareholder recipients of that $12.5 billion, one dealing with unrelated issues,³ and one other—this action, which was originally the first of the five—against Blavatnik and companies he controlled; Lyondell's officers and directors; and certain others.⁴

In his Amended Complaint (the "Complaint "⁵ ) in this adversary proceeding (brought, like the others, under the umbrella of the jointly administered chapter 11 cases of Lyondell, the Resulting Company and their affiliates (the "Debtors ")), Edward S. Weisfelner (the "Trustee "), the trustee of the LB Litigation Trust (one of two trusts formed to prosecute the Debtors' claims), asserts a total of 21 claims against the defendants in this action. The 21 claims variously charge breaches of fiduciary duty; the aiding and abetting of those alleged breaches; intentional and constructive fraudulent conveyances, unlawful dividends, and a host of additional bases for recovery under state law, the Bankruptcy Code, and the laws of Luxembourg, under which several of the Basell entities were organized.⁶ The Complaint also seeks to equitably subordinate defendants' claims that might otherwise be allowed.

The Trustee's Complaint, in turn, engendered a large number of motions to dismiss. This is one of several opinions ruling on those motions⁷ —here relating to Counts 2, 6, 7, 14 and 18:

— Count 2 seeks the avoidance and recovery from Nell Limited ("Nell "), AI Chemical Investments LLC ("AI Chemical ") and Blavatnik of certain "ToeHold" payments made by Basell Funding S.a.r.l. ("Basell Funding") and LyondellBasell Finance Company ("LB Finance ")⁸ as intentional fraudulent conveyances under applicable state law and sections 544, 548(a)(1)(A) and 550 of the Bankruptcy Code ;

— Count 6 is a claim for mismanagement and breach of duty under Luxembourg law against Blavatnik;⁹

— Count 7 is a tort claim under Luxembourg law against Blavatnik, Alan Bigman ("Bigman "¹⁰ ), Philip Kassin ("Kassin "), Lincoln Benet ("Benet ") and the legal representative of the estate of Richard Floor Floor "¹¹ );

— Count 14 is a claim for unlawful distribution and extra-contractual tort under Luxembourg law against Blavatnik, Bigman, Kassin, Floor, BI S.a.r.l., Alex Blavatnik¹² and Peter Thoren ("Thoren "); and

— Count 18 is a claim for aiding and abetting breach of fiduciary duty under Luxembourg law and applicable state law against Nell, Access Industries Holdings LLC ("Access Holdings "), Access Industries, Inc. ("Access Industries "), AI International S.a.r.l. ("AI International ") and AI Chemical.

Defendants move to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim on which relief can be granted as to Counts 2, 7, 14 and 18, as well as for forum non conveniens as to Counts 6, 7, 14 and 18 (which are based in large part on Luxembourg law).¹³ Alternatively, select defendants also move for a more definite re-statement of Count 18 pursuant to Fed. R. Civ.P. 12(e).¹⁴

For the reasons set forth below, the Court:

(1) Grants the motions to dismiss Count 2 for intentional fraudulent conveyance under applicable state law and the Bankruptcy Code;

(2) Grants the motions to dismiss Count 7, but with leave for the Trustee to replead;

(3) Denies the motions to dismiss Counts 14, with leave to renew such motions following the submission of supplemental analysis by experts on Luxembourg law;

(4) Grants the defendants' motion for a more definite statement under Rule 12(e), and grants the motions to dismiss Count 18 to the extent any claims for aiding and abetting breach of fiduciary duty rest under (i) Luxembourg law, and (ii) Texas law against Nell, Access Industries and AI International; and

(5) Denies the motion to dismiss Counts 6, 7, 14, and 18 under the doctrine of forum non conveniens.

Facts¹⁵

A. The Access/Basell Parties

As alleged in the Complaint,¹⁶ Blavatnik, a self-described strategic investor known for his role in Soviet privatization auctions of the 1990s, is the founder and Chairman of Access Holdings, a Delaware limited liability company. Over the years, Blavatnik accumulated a portfolio of investments in oil, coal, aluminum, petrochemicals, plastics, telecommunications, media, and real estate, including, in May 2005, a stake in Basell, an international chemicals company based in the Netherlands.¹⁷

Blavatnik sought to avoid tax liabilities by arranging whenever possible to have payments to him made on his behalf to Nell, which is organized under the laws of Gibraltar, and an indirect subsidiary of Access Holdings and AI International (a Luxembourg entity). Nell, in turn, owned BI S.a.r.l., another Luxembourg entity that allegedly operated as a "mere department" of both Nell and Nell's shareholders."¹⁸ Following Basell's acquisition (and until the Lyondell Merger), BI S.á.r.l. held 99.99% of Basell's stock.¹⁹

B. The Merger

1. Early Negotiations

Before the Merger, Lyondell was a publicly traded chemicals company based in the United States led by CEO Dan Smith, who was also a director on Lyondell's Board, along with 10 outside directors.²⁰ In April 2006, Blavatnik and Kassin, head of M & A and Financing for Access Holdings, held talks with representatives of Lyondell, including Smith, regarding a potential acquisition, at a price of $24 to $27 per share, which was about 10% above the range at which Lyondell's stock was then trading. Smith told Kassin that any offer would have to start with at least a 20% premium above Lyondell's most recent closing share price.²¹ When Access Holdings made its formal offer to purchase Lyondell for $26.50 to $28.50 on August 10, 2006, the offer was rejected by Lyondell's Board.²²

Notwithstanding the rejection, Blavatnik continued to be interested in a possible acquisition of Lyondell. When Lyondell's shares rose past $30 per share in February 2007 (following Lyondell's acquisition of CITGO's joint venture interest in a Houston refinery that Lyondell and CITGO had jointly owned), Blavatnik had Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch "), which had been retained back in 2006 to advise Access Holdings on a potential acquisition of Lyondell, revise its models based on an acquisition price of $35 to $38 per Lyondell share.²³

2. The Toe–Hold Position and "Refreshed" Projections

In early 2007, Merrill Lynch suggested that Access Holdings should proceed with acquiring Lyondell by first establishing a so-called "toe-hold" position in Lyondell of up to 14.9%. Blavatnik then formed AI Chemical, a Delaware entity wholly-owned by Blavatnik, for the purpose of acquiring this toe-hold position.²⁴

On May 4, 2007, AI Chemical entered into a forward contract with Merrill Lynch (the "Forward Contract ") to purchase 20,990,070 shares of Lyondell stock at $32.11 per share, which was described in AI Chemical's Williams Act Schedule 13D filing on May 20, 2007....