Opinion
Case No. 19-56885 Adv. Pro. No. 19-2143
05-04-2020
IN RE: MURRAY ENERGY HOLDINGS CO., et al., Debtors. Black Diamond Commercial Finance, L.L.C., as Administrative Agent, Plaintiff, v. Murray Energy Corp., et al., Defendants.
John C Cannizzaro, Tyson A Crist, Ice Miller LLP, Columbus, OH, Jack Herman, Ariel Lavinbuk, Lawrence Robbins, William Trunk, Kathryn Zecca, Robbins Russell Englert Orseck, Washington, DC, for Plaintiff Black Diamond Commercial Finance, L.L.C. Robert C Folland, Kyle Robert Gerlach, Barnes & Thornburg LLP, Columbus, OH, Alessandra Glorioso, Dorsey & Whitney LLP, New York, NY, Eric Lopez Schnabel, Dorsey & Whitney LLP, Wilmington, DE, for Defendant US Bank, NA. Salvatore M Daniele, Craig Goldblatt, Andrew N. Goldman, Wilmer Cutler Pickering Hale & Dorr LLP, New York, NY, Chris D Hampson, Benjamin Loveland, Wilmer Cutler Pickering Hale & Dorr LLP, Boston, MA, Douglas L Lutz, Cincinnati, OH, for Defendant GLAS Trust Company LLC. Kim Martin Lewis, Dinsmore & Shohl LLP, Cincinnati, OH, for Defendant Murray Energy Corporation.
John C Cannizzaro, Tyson A Crist, Ice Miller LLP, Columbus, OH, Jack Herman, Ariel Lavinbuk, Lawrence Robbins, William Trunk, Kathryn Zecca, Robbins Russell Englert Orseck, Washington, DC, for Plaintiff Black Diamond Commercial Finance, L.L.C.
Robert C Folland, Kyle Robert Gerlach, Barnes & Thornburg LLP, Columbus, OH, Alessandra Glorioso, Dorsey & Whitney LLP, New York, NY, Eric Lopez Schnabel, Dorsey & Whitney LLP, Wilmington, DE, for Defendant US Bank, NA.
Salvatore M Daniele, Craig Goldblatt, Andrew N. Goldman, Wilmer Cutler Pickering Hale & Dorr LLP, New York, NY, Chris D Hampson, Benjamin Loveland, Wilmer Cutler Pickering Hale & Dorr LLP, Boston, MA, Douglas L Lutz, Cincinnati, OH, for Defendant GLAS Trust Company LLC.
Kim Martin Lewis, Dinsmore & Shohl LLP, Cincinnati, OH, for Defendant Murray Energy Corporation.
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS AMENDED COMPLAINT (DOCS. 55 & 58)
John E. Hoffman, Jr., United States Bankruptcy Judge.
I. Introduction
Black Diamond Commercial Finance, L.L.C. has commenced an adversary proceeding asserting claims for relief bearing on the validity and priority of liens on property of the bankruptcy estates of Murray Energy Holdings Co. ("Murray Holdings") and its affiliated debtors and debtors in possession (collectively, the "Debtors"). The defendants have filed motions seeking dismissal of the adversary proceeding under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. Deciding whether this complex commercial dispute should be dismissed requires a close analysis of several provisions contained in a credit agreement and an amendment to that agreement. For the reasons explained below, the required analysis demonstrates that the defendants' Rule 12(b)(6) motions should be granted in part and denied in part.
II. Jurisdiction and Constitutional Authority
The Court has jurisdiction to hear and determine this matter under 28 U.S.C. § 1334(b) and the general order of reference entered in this district in accordance with 28 U.S.C. § 157(a). This is a core proceeding. 28 U.S.C. § 157(b)(2)(K). The Court also has the constitutional authority to enter this opinion and order for three reasons. First, because orders dismissing fewer than all claims are interlocutory, bankruptcy courts have the constitutional authority to enter such orders. O'Toole v. McTaggart (In re Trinsum Grp., Inc.) , 467 B.R. 734, 739–41 (Bankr. S.D.N.Y. 2012). Second, even if this order were final, bankruptcy courts have the constitutional authority to enter final orders adjudicating the validity and priority of liens on property of the estate. BMO Harris Bank, N.A. v. Vista Mktg. Grp., Ltd. (In re Vista Mktg. Grp., Ltd.) , 548 B.R. 502, 512 (Bankr. N.D. Ill. 2016). Third, the parties may consent to the Court's entry of a final order adjudicating this matter, Wellness Int'l Network, Ltd. v. Sharif , 575 U.S. 665, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015), and the parties have done so here in their joint preliminary pretrial statement, Doc. 75 at 3.
III. Procedural History
The Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on October 29, 2019, and Black Diamond commenced this adversary proceeding a few weeks later against defendants Murray Holdings, Murray Energy Corp. ("Murray Energy"), GLAS Trust Company LLC, and U.S. Bank, N.A. After Black Diamond's initial complaint was met by motions to dismiss, it filed an amended complaint (the "Amended Complaint") (Doc. 46). In response, the defendants filed a joint motion for a protective order staying discovery pending resolution of their imminent motions to dismiss the Amended Complaint (Doc. 48). Following an expedited hearing, the Court issued an oral ruling on the request to stay discovery, the transcript of which is located at Doc. 77, and an order denying the request (Doc. 67).
Murray Holdings, Murray Energy and GLAS filed a joint motion to dismiss the Amended Complaint (Doc. 55), and U.S. Bank filed a joinder to that motion as well as its own motion to dismiss (Doc. 58). In response to both of the dismissal motions (collectively, the "Motions to Dismiss"), Black Diamond filed a joint memorandum in opposition (the "Response") (Doc. 65). Murray Energy, Murray Holdings and GLAS filed a reply in support of their motion to dismiss (the "Reply") (Doc. 69), and U.S. Bank filed a joinder to the Reply (Doc. 74). After filing their joint preliminary pretrial statement (the "Pretrial Statement") (Doc. 75), the parties entered into an agreed order establishing discovery and related deadlines and setting a trial date. At the request of the parties, the Court entered an amended agreed order (Doc. 84) that revised the discovery schedule while providing that the trial would commence on May 21, 2020.
IV. Background
In 2015, coal producer Murray Energy agreed to acquire an interest in the group of coal companies owned by Foresight Energy. Am. Compl. ¶ 20. To fund the acquisition, Murray Energy entered into a credit agreement dated April 16, 2015 governing term loans in the aggregate amount of $2 billion (the "Credit Agreement") (Am. Compl. Ex. 1) with Murray Energy and Murray Holdings (collectively, "Murray") as the borrowers. Id. ¶ 21. In 2018, Murray sought to extend the term loans' 2020 maturity date by two and a half years. Id. ¶ 1. And it was willing to provide inducements—including superpriority status and additional collateral—to the term loan lenders that agreed to the extension. But there was a problem: Various provisions of the Credit Agreement prohibited Murray from providing those benefits to the consenting term loan lenders unless it also did so for the lenders that did not agree to the extension. Id. ¶¶ 1–2. Further, under Section 2.17 of the Credit Agreement, "any [l]ender that received a ‘payment’ in respect of its [t]erm [l]oans—whether in cash or otherwise—was required (with limited exception) to share that payment on a pro rata basis with the remaining [l]enders." Resp. at 4 (citing Am. Compl. ¶ 25). The question was how to accomplish Murray's goals without breaching the Credit Agreement.
The answer, Murray decided, was threefold. First, enter into a "Third Amendment" (Am. Compl. Ex. 4) to the Credit Agreement in order to remove any provisions that prohibited Murray from favoring extending lenders over non-extending lenders. Second, use the process contemplated by the provision of the Credit Agreement governing "modified Dutch auctions" to repurchase term loans on a non-pro rata basis from any lenders that agreed to provide new loans with a 2022 maturity date. And third, enter into a "Superpriority Credit Agreement" governing new loans provided by the extending lenders (the "Superpriority Lenders"), leaving the non-extending lenders (the "Term Loan Lenders") with their existing—but now subordinated—term loans. Id. ¶¶ 45–58. The entry into the Third Amendment, the repurchase of the term loans of the Superpriority Lenders, and the entry into the Superpriority Credit Agreement will be referred to collectively as the "2018 Transaction."
Black Diamond, which is the administrative agent for the Term Loan Lenders, alleges that Murray failed at all three steps. According to Black Diamond, the Third Amendment never became effective, and, even if it did, it failed to remove certain provisions, including the provision governing "Extended Loans," that Murray allegedly breached in executing its strategy. Black Diamond also contends that the process Murray used to repurchase the terms loans—the parties call it the "Specified Auction"—was not a "modified Dutch auction" and that Murray therefore violated the provision of the Credit Agreement governing the manner in which such auctions were to be conducted. Finally, Black Diamond posits that the Term Loan Lenders' interests in the term loan collateral will have priority over the interests of the Superpriority Lenders once the 2018 Transaction is unwound. Pretrial Stmt. at 3–4.
Based on these allegations and others set forth in the Amended Complaint, Black Diamond asserts three claims for relief. In its First Claim for Relief, Black Diamond contends that Murray violated the modified-Dutch-auction provision and that this violation triggered a default under the Credit Agreement, thereby rendering the Third Amendment ineffective. Am. Compl. ¶¶ 106–09. In its Second Claim for Relief, Black Diamond seeks a declaratory judgment that the 2018 Transaction was invalid because Murray and the Superpriority Lenders attempted to amend the Credit Agreement and the related collateral trust agreement without the required consents. The Second Claim for Relief seeks a three-part determination: (1) that the Superpriority Lenders' consents to the Third Amendment should not be counted because they had already committed to sell their loans back to Murray at the time they executed the Third Amendment; (2) that the Credit Agreement required the Term Loan Lenders' consent due to the subordination of their liens; and (3) that the Credit Agreement also required their consent because the principal amount of the loans outstanding under the Credit Agreement was reduced by the 2018 Transaction. Id. ¶¶ 113–21. In its Third Claim for Relief, Black Diamond seeks a declaratory judgment that the 2018 Transaction was invalid because Murray allegedly violated the Credit Agreement by issuing "Extended Loans" secured by additional collateral. Id. ¶¶ 126–29. In each of its claims for relief, Black Diamond asserts that success on the claim would mean that the interests of the Term Loan Lenders in the term loan collateral would have priority over the interests of the Superpriority Lenders. Am. Compl. ¶¶ 111, 124, 130.
Murray, GLAS (the administrative agent for the Superpriority Lenders), and U.S. Bank (the collateral trustee) argue that the pertinent provisions of the Credit Agreement and the Third Amendment unambiguously support dismissal. According to Murray, the Court can decide as a matter of law that the Specified Auction was conducted in accordance with the modified-Dutch-auction provision of the Credit Agreement. By the same token, Murray contends that the Court can determine as a matter of law that the consents required for the Third Amendment to become effective were obtained and that the Specified Auction did not implicate the Credit Agreement's provisions governing Extended Loans. Finally, it maintains that there would be no basis for the Term Loan Lenders to obtain priority over the Superpriority Lenders even if Black Diamond were correct on all of its other points. Id. at 4.
For the sake of readability, the Court will refer only to "Murray" when discussing arguments made by all of the defendants.
V. Legal Analysis
A. Standards Governing Motions to Dismiss
When deciding a motion to dismiss for failure to state a claim upon which relief can be granted under Civil Rule 12(b)(6), "[c]ourts must accept as true the factual allegations pleaded in the complaint." DBI Invs., LLC v. Blavin , 617 F. App'x 374, 380 (6th Cir. 2015). That said, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions," and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Rather, "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Id. (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).
B. The First Claim for Relief
1. The Credit Agreement's Provision Governing Modified Dutch Auctions
The first issue is whether the Court can determine as a matter of law that the Specified Auction complied with the provision of the Credit Agreement governing modified Dutch auctions. Murray argues in its memorandum in support of its motion to dismiss (the "Memorandum in Support") (Doc. 55) that the Court can do so. Mem. in Supp. ¶¶ 24–30. For the reasons explained below, however, this determination cannot be made as a matter of law.
Under the law of New York that governs the Credit Agreement, "[e]xtrinsic evidence of the parties' intent may be considered only if the agreement is ambiguous, which is an issue of law for the courts to decide." Greenfield v. Philles Records, Inc. , 98 N.Y.2d 562, 750 N.Y.S.2d 565, 780 N.E.2d 166, 170–71 (2002). New York law further provides that "[a]mbiguity is determined by looking within the four corners of the document, not to outside sources" and that "in deciding whether an agreement is ambiguous courts ‘should examine the entire contract and consider the relation of the parties and the circumstances under which it was executed.’ " Kass v. Kass , 91 N.Y.2d 554, 673 N.Y.S.2d 350, 696 N.E.2d 174, 180 (1998) (quoting William C. Atwater & Co. v. Panama R. Co. , 246 N.Y. 519, 159 N.E. 418, 419 (1927) ). "An agreement is unambiguous ‘if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion.’ " Ellington v. EMI Music, Inc. , 24 N.Y.3d 239, 997 N.Y.S.2d 339, 21 N.E.3d 1000, 1003 (2014) (quoting Greenfield , 750 N.Y.S.2d 565, 780 N.E.2d at 170–71 ). By contrast, an agreement is ambiguous if, "read as a whole, [the agreement] fails to disclose its purpose and the parties' intent, or when specific language is ‘susceptible of two reasonable interpretations.’ " Id. (citations omitted) (quoting State of N.Y. v. Home Indem. Co. , 66 N.Y.2d 669, 495 N.Y.S.2d 969, 486 N.E.2d 827, 829 (1985) ).
In support of its argument that the Court can decide as a matter of law that the Specified Auction complied with the Credit Agreement's requirements, Murray relies on Section 10.6(i) of the agreement. This section permits the lenders under the Credit Agreement to sell, and Murray to repurchase, term loans on a non-pro rata basis either through open market purchases or through
one or more modified Dutch auctions conducted by [Murray] ..., provided that, (i) notice of the Auction shall be made to all Term Loan Lenders and (ii) the Auction shall be conducted pursuant to such procedures as the Auction Manager may establish which are consistent with this Section 10.6(i) and the Auction Procedures set forth on Exhibit M and are otherwise reasonably acceptable to [Murray], the Auction Manager, and Administrative Agent or such other procedures as are acceptable to [Murray] and Administrative Agent ... subject to [certain limitations].
Credit Agreement § 10.6(i).
The "Exhibit M" referenced in Section 10.6(i) provides that Murray "may conduct one or more modified Dutch auctions in order to purchase Term Loans ... pursuant to the procedures described herein." Ex. M, Summ. The exhibit also states that it "is not intended to be a definitive statement of all the terms and conditions of a modified Dutch auction, the definitive terms and conditions for which shall be set forth in the applicable auction procedures set for each Auction." Id. , Preface. Under Exhibit M, the notification of an auction is to be made by means of a notice containing, among other things, "the range of discounts to par (the "Discount Range"), expressed as a range of prices per $1,000 (in increments of $5), at which [Murray] would be willing to purchase Term Loans." Id. , Notice Procs. The form of auction notice attached to Exhibit M provides that any auction will be conducted with a "Discount Range: Not less than $[______] nor greater than $[______] per $1,000 principal amount of Term Loans." Annex A to Ex. M. Exhibit M then requires term loan lenders wishing to participate in the auction to specify "a discount to par expressed as a price per $1,000 (in increments of $5) of Term Loans ... within the Discount Range." Ex. M, Reply Procs. And the procedures set forth in Exhibit M for accepting bids provide that Murray will purchase term loans from each lender whose return bid is "within the Discount Range" and whose reply price is equal to or less than the "Acceptable Threshold Price," which is the "lowest purchase price ... within the Discount Range" that would allow Murray to complete the auction. Id. , Acceptance Procs.
A copy of Exhibit M is attached to the Credit Agreement beginning on page 409 of Exhibit 1 to the Amended Complaint.
Returning to the Credit Agreement itself, Section 10.6(i) permits Murray to repurchase term loans through, as noted above, a "modified Dutch auction[ ] ... provided that ... the Auction shall be conducted pursuant to such procedures as the Auction Manager may establish which are consistent with this Section 10.6(i) and the Auction Procedures set forth on Exhibit M ... or such other procedures as are acceptable to Murray and Administrative Agent." Credit Agreement § 10.6(i). The Court will refer to the "Auction Procedures set forth on Exhibit M" as the "Exhibit M Procedures," and it will designate "such other procedures as are acceptable to Murray and Administrative Agent" as the "Other Acceptable Procedures."
Black Diamond contends that the Credit Agreement required the Specified Auction to be a modified Dutch auction while also complying with the Exhibit M Procedures or the Other Acceptable Procedures. And it alleges that the Specified Auction failed in this regard because Murray "did not specify a ‘range’ of discounts to par at which it would be willing to purchase" the term loans. Am. Compl. ¶ 62. In particular, Black Diamond points out that Murray's auction notice stated that it was offering to purchase term loans for "[n]ot less than $1,000 nor greater than $1,000 per $1,000 principal amount of" the term loans. Am. Compl. Ex. 5 at 1; Am. Compl. ¶ 62. According to Black Diamond, Murray "offered a so-called ‘Discount Range’ that was neither a ‘discount’ nor a ‘range,’ " and the Specified Auction therefore was not a modified Dutch auction as commonly understood in the finance industry. Am. Compl. ¶¶ 61–62; see also Resp. at 10–13. In seeking dismissal, Murray contends that Section 10.6(i) unambiguously required only that the Specified Auction comply with either the Exhibit M Procedures or the Other Acceptable Procedures. And if the Specified Auction satisfied either set of procedures, then according to Murray it was by definition a "modified Dutch auction" within the meaning of the Credit Agreement. Mem. in Supp. ¶¶ 26–29; Reply ¶¶ 12–18. But that cannot be right, as a careful reading of Section 10.6(i) shows.
Black Diamond also challenges the validity of the Specified Auction on the grounds that it was a "debt-for-debt exchange." Am. Compl. ¶ 63. If Murray has evidence that the Specified Auction otherwise met the definition of a modified Dutch auction as it is commonly understood, then the Specified Auction's debt-for-debt nature alone might not undermine that evidence. And even if, as Black Diamond argues, the purpose of a modified Dutch auction is to de-lever the company, it is far from clear that a debt-for-debt exchange—at least one that uses a discount to par—could not result in the de-levering of the company. See Steven C. Friend, Steven R. Loeshelle & Michael F. Fitzpatrick, Jr., High-Cost Debt Refinance—Is Everybody Going Dutch ?, LAW 360 (Feb. 7, 2013) (discussing a debt-for-debt modified Dutch auction in which "the total exchange consideration offered for each old note equaled the discounted value of the remaining payments of principal and interest (excluding accrued interest) using a yield of (i) a reference yield plus (ii) the clearing spread, as such clearing spread was determined by the Dutch auction"), available at https://www.huntonak.com/images/content/3/1/v3/3120/High-Cost-Debt-Refinance.pdf.
Black Diamond, though, argues that the debt-for-debt nature of the Specified Auction violated the Credit Agreement. One part of the Credit Agreement on which Black Diamond relies as support for this argument is Exhibit M. As discussed below, while Section 10.6(i) required the Specified Auction to be a modified Dutch auction, it also required it to comply with either the Exhibit M Procedures or the Other Acceptable Procedures. And Black Diamond points out that Exhibit M could be read to suggest that the parties to the Credit Agreement contemplated cash-for-debt transactions. Resp. at 13. For example, Exhibit M states that the "purchase price for each purchase of Term Loans shall be paid by [Murray] directly to the respective assigning Lender on [the] settlement date[.]" Ex. M, Add'l Procs. Similarly, an annex to Exhibit M states that the purchase price would be paid in "same day funds." Annex 1 to Annex C to Ex. M, § 1.2. Even if this and similar language is indicative of a cash-for-debt transaction, what Black Diamond ignores is the fact that Section 10.6(i) requires compliance with the Exhibit M Procedures or the Other Acceptable Procedures. The Other Acceptable Procedures are "such other procedures as are acceptable to Murray and Administrative Agent," and there is nothing in the Credit Agreement restricting those procedures from effectuating a debt-for-debt exchange if such an exchange would otherwise constitute a modified Dutch auction. Thus, Black Diamond's reliance on Exhibit M falls short of the mark.
Also misplaced is Black Diamond's reliance on two provisions of the Credit Agreement itself. The Credit Agreement provides that Murray "shall not use the proceeds of any loans under the Revolving Credit Agreement" to acquire term loans through a repurchase made pursuant to Section 10.6(i). Credit Agreement § 10.6(i)(i)(B). From this Black Diamond surmises that cash must be used in connection with repurchases of term loans under Section 10.6(i). Resp. at 14. But that is not what Section 10.6(i)(i)(B) means. A prohibition against the use of proceeds to repurchase term loans in no way equates to a requirement that repurchases must be made using cash. Black Diamond also relies on a provision of the Credit Agreement governing Murray's obligations if the company had "Consolidated Excess Cash Flow." Under those circumstances, Murray was required to prepay the loans using excess cash flow minus certain amounts, including "amounts actually paid to repurchase Loans pursuant to Section 10.6(i)." Id. (quoting Credit Agreement § 2.14(d)(ii)(x)). But, again, a provision contemplating that Murray might pay cash to repurchase loans certainly does not require Murray to use cash to effectuate the repurchases.
As an initial matter, the best that can be said for Murray's position is that it raises several questions. For one thing, why did the parties to the Credit Agreement bother to use the term "modified Dutch auction" if they intended that the auction need only comply with the Exhibit M Procedures or the Other Acceptable Procedures? If that was what the parties intended, then the Credit Agreement might simply have allowed Murray to repurchase term loans through a "process conducted pursuant to the procedures set forth on Exhibit M or such other procedures as are acceptable to Murray and Administrative Agent." For another thing, why did the parties to the Credit Agreement combine the reference to a "modified Dutch auction" with the carefully crafted Exhibit M Procedures if they intended that non-pro rata repurchases of term loans could be made using any procedures acceptable to Murray and the Administrative Agent? Under the approach endorsed by Murray, the Specified Auction could have been conducted by means of procedures that did not implement any type of auction at all so long as Murray and the Administrative Agent blessed the procedures—even though Section 10.6(i) repeatedly refers to an auction. And what did the requirement that the Specified Auction be "consistent with" Section 10.6(i) add to the requirement that it be conducted pursuant to the Exhibit M Procedures or the Other Acceptable Procedures if in fact the Exhibit M Procedures or the Other Acceptable Procedures were enough? At a minimum, the requirement that the Specified Auction "be consistent with" Section 10.6(i) appears to refer back to the requirement that an auction be, in the first instance, a "modified Dutch auction." As this analysis demonstrates, examining each question raised by Murray's position strongly suggests that Section 10.6(i) does not mean what Murray says it does.
Further analysis definitively establishes that Murray's reading of the section cannot be right. Section 10.6(i) begins by requiring Murray to effectuate non-pro rata repurchases of term loans by means of either an open market process or through "one or more modified Dutch auctions." That requirement is followed by the phrase "provided that ... the Auction shall be conducted pursuant to such procedures as the Auction Manager may establish which are consistent with this Section 10.6(i) and the Auction Procedures set forth on Exhibit M ... or such other procedures as are acceptable to Murray and Administrative Agent" (the "Proviso"). The New York Court of Appeals has held that the function of such provisos is to "restrain the enacting clause, to except something which would otherwise have been within it, or in some measure to modify it." Friedman v. Conn. Gen. Life Ins. Co. , 9 N.Y.3d 105, 846 N.Y.S.2d 64, 877 N.E.2d 281, 286 (2007) (quoting McKinney's Cons. Laws of N.Y., Book 1, Stats. § 212). It so held in the context of the interpretation of a statute, but provisos such as this have the same effect in contracts. See In re MPM Silicones, LLC , 531 B.R. 321, 328–29 (S.D.N.Y. 2015) (citing Friedman in support of the holding that "provisos can only clarify or augment the Base Definition; they are not a substitute for the Base Definition"), aff'd in part, rev'd in part , 874 F.3d 787 (2d Cir. 2017). Here, the Proviso relates to the part of Section 10.6(i) that required non-open market repurchases to be made using one or more modified Dutch auctions (the "Modified Dutch Auction Clause"). The Modified Dutch Auction Clause makes the entire universe of modified Dutch auctions available to Murray. The Proviso then operates to except from the Modified Dutch Auction Clause those modified Dutch auctions that do not comply with either the Exhibit M Procedures or the Other Acceptable Procedures. The Proviso, however, cannot be used to turn something that is not a modified Dutch auction into one.
Murray relies on the proposition that parties to a contract may define a contractual term in such a way that their agreed-upon meaning "overrides the technical ... meaning of the word." N.Y. Overnight Partners, L.P. v. Gordon , 217 A.D.2d 20, 633 N.Y.S.2d 288, 293 (1995), aff'd , 88 N.Y.2d 716, 649 N.Y.S.2d 928, 673 N.E.2d 123 (1996). Applying this proposition, Murray attempts to read into the Credit Agreement a definition under which the term "modified Dutch auction" would mean a repurchase process conducted in accordance with the Exhibit M Procedures or the Other Acceptable Procedures. But because there is no such definition in the Credit Agreement, Murray argues that the Proviso itself constitutes "a specific and detailed definition" of the term "modified Dutch auction." Reply ¶¶ 12–14. As explained above, however, that is not how the Proviso works. To the extent the Proviso helps to define the term "modified Dutch auction," it does so by restricting, not expanding, the term. Applying the Proviso to the Dutch Auction Clause in the manner endorsed by Murray would not restrict the Dutch Auction Clause, but instead would expand it to include processes that are not modified Dutch auctions at all. Murray's argument regarding the Other Acceptable Procedures makes this abundantly clear. Murray insists that it could have used the Other Acceptable Procedures, even if those procedures would have allowed a process that would not otherwise have been considered a modified Dutch auction. Reply ¶ 18. In other words, according to Murray, a modified Dutch auction is whatever Murray and the Administrative Agent say it is. This is not a reasonable interpretation of the Credit Agreement. In fact, it is reminiscent of the "confrontation between Alice and Humpty Dumpty as to the extent of language's elasticity":
"I don't know what you mean by ‘glory,’ " Alice said.
Humpty Dumpty smiled contemptuously. "Of course you don't—till I tell you. ... When I use a word," Humpty Dumpty said in a rather scornful tone, "it means just what I choose it to mean—neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
Scribner v. Worldcom, Inc. , 249 F.3d 902, 905 (9th Cir. 2001) (quoting Lewis Carroll, Through the Looking Glass , in The Complete Works of Lewis Carroll 154, 196 (1994)). As the Ninth Circuit said, "[l]ike Alice, [the Court is] of the opinion that language is not [so] infinitely elastic." Id.
To be sure, the Exhibit M Procedures are, as Murray points out, quite detailed. But the detailed nature of the Exhibit M Procedures in no way suggests that those procedures were intended by the parties to the Credit Agreement to be used to expand the term "modified Dutch auction" to include something that would not otherwise be one. And there is nothing in Section 10.6(i) indicating that the parties to the Credit Agreement intended the Exhibit M Procedures to play a different role than the Other Acceptable Procedures. The two sets of procedures appear in exactly the same part of the Proviso and have the same function: Like the Other Acceptable Procedures, the Exhibit M Procedures restrict the universe of modified Dutch auctions available to Murray but do not definitively establish all of the parameters of a modified Dutch auction. In fact, Exhibit M itself states that it "is not intended to be a definitive statement of all the terms and conditions of a modified Dutch auction[.]" Ex. M, Preface.
All that said, the Court could still determine as a matter of law that the Specified Auction complied with Section 10.6(i) if it were clear based on a review of the documents that the Specified Auction was a modified Dutch auction as the term is understood in the finance industry. Murray, however, does not even attempt to argue that the Specified Auction was a modified Dutch auction as that term is commonly understood. That is, Murray has not "informed [the Court] of the meaning of the [term "modified Dutch auction"] as generally understood in [the finance] business, in the light of the customs and practices of the business." Fox Film Corp. v. Springer , 273 N.Y. 434, 8 N.E.2d 23, 24 (1937). It would be error for this Court to dismiss the adversary proceeding based on a finding that the Specified Auction was a modified Dutch auction when Murray has presented no basis for concluding that the Specified Auction would have been considered a modified Dutch auction in the finance industry. See id. (reversing trial court's dismissal of complaint under a contract based on the court's interpretation of a term used in the contract, because the trial court had not been "informed of the meaning of the language as generally understood in that business, in the light of the customs and practices of the business").
The term "modified Dutch auction" is a technical term, and New York law holds that "[e]vidence to ... show the meaning of technical terms" is permitted because such evidence "does not contradict or vary the written instrument, but simply places the court in the position of the parties when they made the contract, and enables it to appreciate the force of the words they used in reducing it to writing." Murdock v. Gould , 193 N.Y. 369, 86 N.E. 12, 14 (1908) (quoting Thomas v. Scutt , 127 N.Y. 133, 27 N.E. 961, 993–94 (1891) ); see also Empire State Bldg. Co. v. N.Y. Skyline, Inc. (In re N.Y. Skyline, Inc.) , No. 09-1107 (SMB), 2013 WL 655991, at *6 (Bankr. S.D.N.Y. Feb. 22, 2013) (citing Murdock for the proposition that "[p]arol evidence is admissible to show the meaning of technical terms and allow the court to understand words the parties used in reducing their agreement to writing"). "[T]echnical words are to be given their generally accepted technical meaning and interpreted as usually understood by the persons in the profession or business to which they relate." Landmark Ventures, Inc. v. H5 Techs., Inc. , 152 A.D.3d 657, 58 N.Y.S.3d 591, 593 (2017) (citations and internal quotations marks omitted). The parties therefore will be given an opportunity to present evidence regarding whether the Specified Auction would have been considered a "modified Dutch auction" as that term is understood in the finance industry. See In re UNR Indus., Inc. , No. 82B9841, 1997 WL 759587, at *11 n.3 (Bankr. N.D. Ill. Dec. 10, 1997) (determining the meaning of the term "Dutch auction" based on the evidence presented). For all these reasons, Murray's arguments that it complied with Section 10.6(i) when it conducted the Specified Auction provide no basis for dismissing the First Claim for Relief.
Several sources suggest that Murray might have a difficult time presenting evidence showing that the Specified Auction, with its zero "range" and no discount to par, was a modified Dutch auction. See Charles T. Haag & Zachary A. Keller, Honored in the Breach: Issues in the Regulation of Tender Offers for Debt Securities , 9 N.Y.U. J.L. & Bus. 199, 244–45 (2012) ("Because pure Dutch auctions involve setting a price at the end of the offering period, issuers began structuring tender offers as ‘modified’ Dutch auctions. This structure has also become common for debt tender offers. In a modified Dutch auction, the issuer gives securities holders the opportunity to either (i) tender securities at a price specified by the holders within a range of prices specified by the issuer or (ii) tender their securities without any specified price (known as a ‘non-competitive’ tender)." (footnotes omitted)); Namrata Savoor, Companies Repurchasing Debt Through Modified Dutch Auction Tenders Offers , SEC Filings Insight 35588018 ("Under a modified [D]utch auction tender offer, the company will accept validly tendered notes in the order of the lowest to the highest tender prices specified by the tendering holders within the price range for the notes set in the offer."); Friend et al ., supra note 3 at 1 ("In the modified Dutch auction, the issuer sets a range of acceptable prices within which a holder may tender its debt securities.").
2. Amendment of Section 2.17
According to Murray, "[t]he heart of Black Diamond's argument is that Murray improperly invoked [Section 10.6(i) ] in order to conduct an end run around the ‘ratable sharing’ provisions in Section 2.17 of the ... Credit Agreement." Reply ¶ 5. Murray argues that this "makes no sense" because "Section 2.17 could have been amended by a majority, and the extending lenders could have addressed this concern by amending Section 2.17 if it had been necessary." Id. But there are at least three problems with Murray's position. First, even if Section 2.17 could have been amended in the way Murray suggests, it was not so amended. Second, an amendment of Section 2.17 would not have amended Section 10.6(i) or otherwise transformed non-compliance with Section 10.6(i) into compliance with that section. And third, it is not even clear that Section 2.17 could have been amended in the manner suggested by Murray. The Credit Agreement appears to prohibit Murray and a subset of lenders from entering into amendments that alter the ratable treatment of other lenders without those lenders' consent:
No amendment, modification, termination or waiver of any provision of the Credit Documents, [including the Credit Agreement,] or consent to any departure by [Murray] therefrom, shall ... amend, modify or waive this Agreement or the Pledge and Security Agreement so as to alter the ratable treatment of Obligations arising under the Credit Documents ... in a manner adverse to any Lender Counterparty ... with Obligations then outstanding without the written consent of any such Lender Counterparty[.]
Credit Agreement § 10.5(c)(v). Murray accordingly appears to be wrong when it suggests that the parties to the Third Amendment could have amended Section 2.17 of the Credit Agreement to alter the requirement of the ratable treatment of the Term Loan Lenders.
3. The Ramifications of a Failure to Comply with Section 10.6(i) on the Effectiveness of the Third Amendment
Black Diamond alleges in its First Claim for Relief that Murray's violation of Section 10.6(i) rendered the Third Amendment ineffective. The reasons for this, according to Black Diamond, are that (1) the violation of Section 10.6(i) was a "Default" within the meaning of the Credit Agreement and (2) a condition to the effectiveness of the Third Amendment was that the Specified Auction would not give rise to a Default. Am. Compl. ¶¶ 105–08. Indeed, one of the conditions to the effectiveness of the Third Amendment was that "no Default or Event of Default shall have occurred and be continuing or would result from the consummation of the Specified Auction." Third Am. § 4(b).
Murray does not deny that a violation of Section 10.6(i) would have been a Default within the meaning of the Credit Agreement. Instead, the only reason Murray gives for dismissal of the Amended Complaint to the extent it is based on the violation of Section 10.6(i) is that the Specified Auction complied with that section. Mem. in Supp. at 15 n.16. And, as explained above, the Court cannot decide as a matter of law whether the Specified Auction complied with Section 10.6(i). The Court therefore is in no position to dismiss the First Claim for Relief to the extent it relies on the alleged violation of Section 10.6(i). C. The Second Claim for Relief
Black Diamond alleges in the Amended Complaint that the 2018 Transaction gave rise to other Defaults. In particular, it alleges that Murray violated negative covenants prohibiting (except under certain circumstances) Murray's incurrence of additional indebtedness and prohibiting the provision of additional guarantees and liens to some but not all of the lenders. Am. Compl. ¶¶ 65, 67 (citing §§ 6.1 and 6.2 of the Credit Agreement). Setting aside whether the Specified Auction was a modified Dutch auction as contemplated by Section 10.6(i), Black Diamond also asserts in the Amended Complaint that Murray was permitted to use Section 10.6(i) at all only if "no Default or Event of Default has occurred and is continuing or would result therefrom." Id. ¶ 64. And Black Diamond contends that a Default resulted from the Specified Auction "because, in conducting this auction, [Murray] incurred indebtedness ... and Liens in breach of the negative covenants of Sections 6.1 and 6.2." Id.
Murray addresses these purported Defaults in its memorandum of law in support of the Motion. It argues that the condition to the effectiveness of the Third Amendment discussed above—that the Specified Auction would not give rise to a Default within the meaning of the Credit Agreement—applied to "other defaults," not the Defaults that would have arisen from violations of Sections 6.1 and 6.2 that were specifically addressed by the Third Amendment. Mem. in Supp. ¶¶ 36–41. Black Diamond essentially concedes the point, clarifying in the Response that its position is that the "2018 Transaction violated [Sections 6.1 and 6.2] because the Third Amendment was otherwise ineffective (including by breaching the "modified Dutch auction" provision in Section 10.6(i)), and so failed to repeal Section 6.1 and 6.2." Resp. at 9 n.9. There accordingly is no reason for the Court to address whether the Specified Auction violated Sections 6.1 and 6.2.
In its Second Claim for Relief, Black Diamond seeks a declaratory judgment that the Third Amendment and the 2018 Transaction were ineffective because Murray and the Superpriority Lenders attempted to amend the Credit Agreement without the required consents. In response, Murray argues, as an initial matter, that Black Diamond cannot bring this claim at all because it "is precluded from challenging the validity of the 2018 Transaction under the express terms of agreements that formed part of that transaction," including collateral trust and intercreditor agreements entered into in 2018. Mem. in Supp. ¶ 34. It was the Third Amendment that authorized the other agreements that Murray and the Superpriority Lender entered into in 2018. As explained above, the inability to decide as a matter of law whether the Specified Auction complied with Section 10.6(i) means that the Court cannot decide as a matter of law whether the Third Amendment was effective. Because the Court cannot decide that issue as a matter of law, it also cannot decide whether the agreements that the Third Amendment authorized were effective. And if the agreements comprising the 2018 Transaction were not effective, then those agreements could not possibly preclude Black Diamond from bringing its claims. Murray's preclusion argument accordingly provides no basis for granting the Motions to Dismiss.
In support of its contention that the Third Amendment lacked the required consents, Black Diamond first argues that the Superpriority Lenders' consents should not be counted toward the majority needed to amend the Credit Agreement because they had already committed to sell their loans back to Murray at the time they executed the Third Amendment. Resp. at 15–16. Black Diamond then argues that the Third Amendment was ineffective because Murray failed to obtain the Term Loan Lenders' consent to the subordination of their liens or their consent to the reduction in the principal amount of the loans outstanding under the Credit Agreement that resulted from the 2018 Transaction. Id. at 17–20.
1. The Superpriority Lenders' Commitment to Sell Their Loans
The first basis that Black Diamond asserts for the Court's finding that Murray failed to obtain the required consents to the Third Amendment is that the Superpriority Lenders' consents to the Third Amendment should not be counted because they had already committed to sell their loans back to Murray at the time they executed the Third Amendment. Murray is right to characterize this argument as the "Zombified Votes" argument. Mem. in Supp. ¶ 45; Reply at 9. The argument indeed must be rejected as fiction and sophistry.
In support of its position, Black Diamond points out that "the Credit Agreement provided that the ‘Term Loans so repurchased [in a modified Dutch auction] shall, without further action by any Person, be deemed cancelled for all purposes and no longer outstanding’ for ‘all purposes of this Agreement and all other Credit Documents.’ " Am. Compl. ¶ 113 (quoting Credit Agreement § 10.6(i)(ii)). And, of course, Black Diamond is correct that once a loan is repurchased and cancelled, its holder would have no right to enter into an amendment to the Credit Agreement. That much is true. But then Black Diamond makes an unwarranted logical leap. Contrary to the plain language of the Credit Agreement, Black Diamond contends that the loans of the Superpriority Lenders were "repurchased" when, no later than June 14, 2018, they delivered to Murray " ‘Lender Consent[s]’ that irrevocably committed the Lender to selling its loans via the Specified Auction." Resp. at 15.
Committing to do something is not, of course, the same thing as doing it. Section 10.6(i) provides that lenders may sell their loans to Murray "through one or more modified Dutch auctions conducted by [Murray]." The Third Amendment is dated June 29, 2018, and the Specified Auction was conducted that same day. The Third Amendment recites that Murray "desires to conduct an Auction pursuant to Section 10.6(i) of the Credit Agreement," and the auction notice states that the Specified Auction "shall be consummated on the Effective Date," which is the Effective Date of (and as defined in) the Third Amendment. Am. Compl. Ex. 5 at 4. All this strongly suggests that the Third Amendment was entered into before the Specified Auction was conducted, and Black Diamond does not allege otherwise. Furthermore, if Black Diamond were correct that a commitment to sell notes through a lender consent itself effectuated a sale of the notes, then it must also be the case that the same lender consent effectuated an amendment of the Credit Agreement. Indeed, the lender consent states that each lender "hereby elects to ... consent and agree to the [Third] Amendment." Id. at 19; see also Annex 1 to Third Am. at 1. In either case, whether it happened on June 14 or June 29, 2018, the amendment of the Credit Agreement occurred before the Superpriority Lenders' former notes were repurchased and cancelled. There is accordingly no merit to Black Diamond's argument that the Superpriority Lenders lacked authority to enter in the Third Amendment because they had committed to sell their loans back to Murray.
2. The Release of Collateral
The Credit Agreement provides that "[w]ithout the written consent of each Lender ... that would be directly adversely affected thereby ... no amendment ... shall be effective if the effect thereof would ... release all or substantially all of the Collateral[.]" Credit Agreement § 10.5(b)(ix). Black Diamond relies on this provision to argue that the Third Amendment was ineffective. The Third Amendment, however, resulted in a subordination of the Term Loan Lenders' interest in collateral, not a release of its collateral. And subordination and release are different concepts. See, e.g. , Cronkite v. F.D.I.C. , No. 92-2467, 1993 WL 372750, at *1 (1st Cir. 1993) (noting that subordination and release are "different legal arrangement[s]"). To be sure, "in many cases ... subordination of a lien is functionally equivalent to a full release." Silva v. Wells Fargo Bank, N.A. (In re GVF Cannery, Inc.) , 202 B.R. 140 (N.D. Cal. 1996) (emphasis added). But it is nonetheless still true that "release discharges a lien and removes it from the collateral" while subordination "reorders the priority of liens upon collateral without removing the subordinated lien, which continues to encumber the collateral." Silva v. GVF Cannery, Inc. (In re GVF Cannery, Inc.) , 188 B.R. 651, 658 (Bankr. N.D. Cal. 1995), aff'd in part, rev'd in part sub nom. Silva v. Wells Fargo Bank, N.A. (In re GVF Cannery, Inc.) , 202 B.R. 140 (N.D. Cal. 1996). Indeed, Black Diamond concedes that the Third Amendment subordinated the Term Loan Lenders' interests in the collateral but did not release the collateral. Resp. at 19.
No matter, Black Diamond contends, because the fact that the Third Amendment did not actually effect a release of collateral is "beside the point." Id. But in advancing this argument, Black Diamond relies on a faulty interpretation of the Third Amendment. According to Black Diamond, no amendment can be effective under Section 10.5(b)(ix) if the amendment has " ‘the effect’ of releasing ‘all or substantially all of the Collateral’ (whether by actual release, subordination, or otherwise)." Id. at 20. In other words, according to Black Diamond, the Credit Agreement requires consent to a subordination of collateral if the subordination would have the same actual economic impact that a release of collateral would have had on the affected creditor. This interpretation contorts Section 10.5(b)(ix) to say that no amendment "shall be effective if the amendment would have the same impact on a creditor as a release of collateral."
But that is not what the Credit Agreement actually says. Again, the Credit Agreement provides that no amendment "shall be effective if the effect thereof would .... release all or substantially all of the Collateral[.]" Credit Agreement § 10.5(b)(ix). The word "thereof" clearly refers to the amendment. And the phrase "the effect thereof" signals a causal relationship in which the amendment is the cause and the release the effect. That is, what Section 10.5(b)(ix) means is that no amendment will be effective if it causes a release of collateral. The section does not, however, require consent merely because the actual impact of a subordination on a particular creditor is the same as a release of collateral. If the parties to the Credit Agreement had intended to require the consent of the affected creditor to any amendment that subordinated a parties' interest in collateral, then the Credit Agreement would have referenced subordination in Section 10.5(b) just as it did in other sections of the Credit Agreement. Because Section 10.5(b)(ix) does not apply to the subordination of collateral, there is no merit to Black Diamond's contention that the subordination required its consent to the Third Amendment.
3. The Reduction of Principal Amount of Any Loans
The Court also will dismiss Black Diamond's Second Claim for Relief based on the argument that the Third Amendment resulted in the reduction of the principal amount of the Superpriority Lenders' loans. The Credit Agreement provides that "[w]ithout the written consent of each Lender ... that would be directly adversely affected thereby ... no amendment ... shall be effective if the effect thereof would ... reduce the principal amount of any Loan." Credit Agreement § 10.5(b)(vi). According to Black Diamond, Section 10.5(b)(vi) "requires the consent of all adversely affected Lenders, not simply those Lenders whose principal amounts are reduced." Resp. at 18. This is clear, Black Diamond argues, because "the protections of Section 10.5(b)(vi)—contrary to the other portions of Section 10.5—are triggered where an amendment ‘reduce[s] the principal amount of any Loan .’ " Id. Black Diamond hangs its hat on Section 10.5(b)(vi)'s reference to "any Loan." Based on this language, Black Diamond argues that the Term Loan Lenders had the right to object to the reduction of the principal amount of other lenders' loans. But this argument ignores the part of Section 10.5(b)(vi) that requires the consent of lenders that "would be directly adversely affected" by the reduction. The Term Loan Lenders were not directly adversely affected by the reduction of the principal amount of loans of the Superpriority Lenders.
It would be surprising if Section 10.5(b)(vi) or any other provision of the Credit Agreement required lenders to consent to an amendment that reduced the principal amount of other lenders' loans. For one thing, the Modified Dutch Auction Clause itself, if used in the manner that Black Diamond argues it was intended to be used, would result in the reduction of the principal amount of the loans of any lenders that agreed to sell their loans back to the Debtors without the consent of other lenders. For that matter, why should a lender have the right to say anything at all about whether or not the principal amount of another lender's loan is reduced? After all, using the language of Section 10.5(b)(vi), a lender is not "directly adversely affected" by the reduction of the principal amount of another lender's loan. The final clause of Section 10.5(b) provides that "for the avoidance of doubt, all Lenders shall be deemed directly affected thereby with respect to any amendment described in clauses (vii), (viii), (ix) and (x)." Conspicuously absent from the list is Section 10.5(b)(vi).
For all these reasons, the Court rejects Black Diamond's argument that the Term Loan Lenders had the right to object to the reduction of the principal amount of the Superpriority Lenders' loans. Because this is the last argument Black Diamond musters in support of the Second Claim for Relief, the claim will be dismissed for failure to state a claim upon which relief can be granted.
D. The Third Claim for Relief
The next issue is whether the Specified Auction was subject to the Credit Agreement's provision governing "Extended Loans." Black Diamond seeks a declaratory judgment that the 2018 Transaction was invalid because Murray allegedly violated the Credit Agreement by issuing Extended Loans secured by additional collateral. According to Black Diamond:
Under Section 2.25 of the Credit Agreement, "[t]he consummation and effectiveness" of Extended Loans was conditioned on the requirement that such loans may not "be secured by any Collateral or other assets of any Credit Party that does not also secure the Existing Loans." Ex. 1, Credit Agreement, § 2.25(c), (c)(ii).
The Superpriority Loans were, in substance, Extended Loans subject to Section 2.25's requirements.
The Superpriority Loans purported to be secured by Collateral that does not also secure the Existing Loans.
Am. Compl. ¶¶ 126–28. Murray contends that the Court can determine as a matter of law that the loans issued by the Superpriority Lenders (the "Superpriority Loans") were not Extended Loans within the meaning of the Credit Agreement. Mem. in Supp. ¶¶ 31–32. Murray is right on this point. Section 2.25 provides that Murray "may from time to time, pursuant to the provisions of this Section 2.25, agree with one or more Lenders holding Loans of any Class ... to extend the Maturity Date and to provide for other terms consistent with this Section 2.25 (each such modification, an "Extension")[.]" Credit Agreement § 2.25(a). The section then defines "Extended Loans" to mean "Loans of any Lender extended pursuant to any Extension." Id. § 2.25(c)(ii). That is, the term "Extended Loans" is defined by reference to the term "Extension," which involves an extension of the "Maturity Date." Under the Credit Agreement, the term "Maturity Date" means the maturity date of loans issued under the Credit Agreement. See Credit Agreement at 37. The 2018 Transaction, however, did not extend the maturity date of any loans issued under the Credit Agreement. Instead, the 2018 Transaction cancelled certain loans that had been issued under the Credit Agreement and provided for Superpriority Loans to be issued under the Superpriority Credit Agreement. The maturity dates of the Superpriority Loans were later than the maturity dates of the loans that had been issued under the Credit Agreement. But because the 2018 Transaction did not result in the extension of any Maturity Date of loans actually issued under the Credit Agreement, the 2018 Transaction did not involve the issuance of Extended Loans as defined in the Credit Agreement. Section 2.25 accordingly did not apply.
Black Diamond would have a point if there was anything in Section 2.25 suggesting that it was the only mechanism by which Murray could have obtained new loans with maturity dates later than the maturity dates of its existing loans. But there is nothing in Section 2.25 that prohibits Murray from obtaining an extension of loan maturities by cancelling existing loans and entering into a new loan agreement governing loans with longer maturities. Murray purported to use Section 10.6(i) to do just that, and nothing in Section 10.6(i) states that it is subject to the requirements of Section 2.25(a). As discussed above, there is a question whether Murray properly adhered to the modified Dutch auction procedure authorized by Section 10.6(i). But even if Murray's use of Section 10.6(i) was improper, this would not turn the Superpriority Loans into something they were not (Extended Loans) under the plain language of the Credit Agreement. There is no ambiguity here; the only reasonable interpretation of the Credit Agreement is that the Superpriority Loans were not Extended Loans and that Section 2.25(a) therefore did not apply to the 2018 Transaction.
Black Diamond makes much of the marketing materials that Murray disseminated before the 2018 Transaction was effectuated, arguing that Murray's use of the word "extension" and its variants in those materials means that the 2018 Transaction was subject to the Credit Agreement's provisions governing Extended Loans. Resp. at 22. There are two problems with this argument. First, the 2018 Transaction of course resulted in extended maturity dates in the sense that the Superpriority Loans had a later maturity date than the old term loans. To that extent, the marketing materials as described by Black Diamond appear to have been accurate. But to the extent that the marketing materials could be read to suggest that the Superpriority Loans were Extended Loans, the materials would be inconsistent with the plain language of the Credit Agreement and thus would be inadmissible as evidence. "[E]xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face." S. Rd. Assocs., LLC v. Int'l Bus. Machines Corp. , 4 N.Y.3d 272, 793 N.Y.S.2d 835, 826 N.E.2d 806, 809 (2005) (quoting W.W.W. Assocs., Inc. v. Giancontieri , 77 N.Y.2d 157, 565 N.Y.S.2d 440, 566 N.E.2d 639, 642 (1990) ). The unambiguous provisions of the Credit Agreement make clear that the Superpriority Loans were not Extended Loans, and New York law prohibits the Court from considering extrinsic evidence, including the "conduct of the parties," that may be inconsistent with those unambiguous provisions. Id. The Third Claim for Relief therefore is dismissed for failure to state a claim upon which relief can be granted.
E. Black Diamond's Claim that the Term Loan Lenders Would Have Priority over the Superpriority Lenders
Black Diamond asks in its prayer for relief for a declaratory judgment that "the Term Loan [L]enders are the true senior and first lien lenders with respect to the Term Loan Collateral." Am. Compl. at 31. Although Rule 12(b)(6) applies only to claims for relief and not demands for judgment, Moratorium Now! v. Detroit 300 Conservancy , No. 15-CV-10373, 2015 WL 11005026, at *2 (E.D. Mich. July 22, 2015), Black Diamond states in each of its actual claims for relief (not merely in its demand for judgment) that the ultimate consequence of success on each of its claims would be that
Murray contends that Black Diamond essentially seeks to rescind the 2018 Transaction and that equitable estoppel should be applied to make the remedy of rescission unavailable to it. Mem. in Supp. ¶¶ 59–62. Black Diamond, however, has not requested that the Court grant it relief based on the remedy of rescission. The Court therefore will not address whether it would be entitled to that remedy.
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the Term Loan [Lenders] retain the rights they had prior to the [2018 Transaction], including that they are the true senior and first lien lenders with respect to the Term Loan Collateral. This means, among other things, the liens granted to the [Superpriority Lenders] are actually subordinate to the liens of the Term Loan [L]enders, notwithstanding the "superpriority" status they were purportedly granted.
Am. Compl. ¶¶ 111, 124, 130.
Black Diamond offers only the weakest of arguments in support of this extraordinary claim. Contending that "it is not clear" that the Superpriority Lenders' original loans "can simply be resurrected," Black Diamond suggests that the Superpriority Lenders would be left with nothing at all if the 2018 Transaction was ineffective. Resp. at 25. In support of this argument, Black Diamond points to the provision of the Credit Agreement providing that "[f]ollowing repurchase by [Murray] pursuant to this Section 10.6(i), the Term Loans so repurchased shall, without further action by any Person, be deemed cancelled for all purposes and no longer outstanding[.]" Credit Agreement § 10.6(i)(ii). But this section results in the cancellation of loans only if they are repurchased "pursuant to this Section 10.6(i)." Id. The plain meaning of "pursuant to" is "under and in accordance with," Dean v. Bell , 230 N.Y. 1, 128 N.E. 897, 898 (1920). And Black Diamond argues strenuously that the former term loans of the Superpriority Lenders were decidedly not repurchased in accordance with or in conformity with Section 10.6(i). In other words, using the language of Dean , the phrase a "repurchase by [Murray] pursuant to this Section 10.6(i)" plainly means a repurchase conducted "in accordance with the provisions of" Section 10.6(i). Id. Black Diamond, however, argues that the Specified Auction was not conducted in accordance with the provisions of Section 10.6(i). If this is correct, then the repurchase of the terms loans of the Superpriority Lenders cannot be described as a repurchase conducted pursuant to Section 10.6(i), "but rather as one [undertaken] in disregard and defiance of its provisions." Id.
Black Diamond cannot have it both ways: Either the Specified Auction complied with Section 10.6(i) or it failed in that regard. And if it failed, then the cancellation of the Superpriority Lender' loans was no more effective than the rest of the 2018 Transaction that Black Diamond seeks to have declared a nullity. In sum, there would be no basis for the Court to find that the cancellation of loans was effective if it were to find that the Specified Auction was ineffective. For this reason, to the extent that the Amended Complaint asserts claims for relief that the Term Loan Lenders have priority over the Superpriority Lenders, those claims must be dismissed.
VI. Conclusion
For all these reasons, the Court DENIES the Motions to Dismiss in part and GRANTS them in part. The Motions to Dismiss are GRANTED as to the Second Claim for Relief and the Third Claim for Relief and DENIED as to the First Claim for Relief (except to the extent that Black Diamond makes a claim for relief that the Term Loan Lenders are the true senior and first lien lenders). The Second Claim for Relief and the Third Claim for Relief are DISMISSED in their entirety for failure to state a claim upon which relief can be granted.