Opinion
Case No. 19-56885 (Jointly Administered) Adv. Pro. No. 19-2143
2021-11-08
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, Robbins, Russell, Englert, Orseck, Washington, DC, for Plaintiff. Salvatore M. Daniele, Craig Goldblatt, Andrew N. Goldman, Chris D. Hampson, Benjamin Loveland, Wilmer Cutler Pickering Hale & Dorr LLP, New York, NY, Douglas L. Lutz, Cincinnati, OH, for Defendant GLAS Trust Company LLC. Robert C. Folland, Kyle Robert Gerlach, Barnes & Thornburg LLP, Columbus, OH, Alessandra Glorioso, Eric Lopez Schnabel, Dorsey & Whitney LLP, New York, NY, for Defendant US Bank, NA. 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, Robbins, Russell, Englert, Orseck, Washington, DC, for Plaintiff.
Salvatore M. Daniele, Craig Goldblatt, Andrew N. Goldman, Chris D. Hampson, Benjamin Loveland, Wilmer Cutler Pickering Hale & Dorr LLP, New York, NY, Douglas L. Lutz, Cincinnati, OH, for Defendant GLAS Trust Company LLC.
Robert C. Folland, Kyle Robert Gerlach, Barnes & Thornburg LLP, Columbus, OH, Alessandra Glorioso, Eric Lopez Schnabel, Dorsey & Whitney LLP, New York, NY, for Defendant US Bank, NA.
Kim Martin Lewis, Dinsmore & Shohl LLP, Cincinnati, OH, for Defendant Murray Energy Corporation.
OPINION AND ORDER ON MOTION FOR SUMMARY JUDGMENT (DOC. 143) AND CROSS-MOTIONS FOR SUMMARY JUDGMENT (DOCS. 146 & 149)
John E. Hoffman, Jr., United States Bankruptcy Judge
I. Introduction
This is the second opinion the Court has issued in the adversary proceeding commenced by Black Diamond Commercial Finance, L.L.C. in the Chapter 11 cases of Murray Energy Holdings Co. ("Murray Holdings") and its affiliated debtors and debtors in possession (collectively, the "Debtors"). In the first opinion, the Court granted in part and denied in part the motions to dismiss Black Diamond's amended complaint filed by defendants Murray Holdings, Murray Energy Corporation ("Murray Energy"), GLAS Trust Co. LLC, and U.S. Bank, N.A. (collectively, the "Defendants"). Both sides now seek summary judgment on Black Diamond's remaining claim for relief. The Court concludes that neither Black Diamond nor the Defendants are entitled to summary judgment.
The Court's prior opinion is reported at Black Diamond Commercial Finance, L.L.C. v. Murray Energy Corp. (In re Murray Energy Holdings Co.) , 616 B.R. 84 (Bankr. S.D. Ohio 2020). Capitalized terms not otherwise defined herein have the meanings given to them in the prior opinion.
In its prior opinion, the Court dismissed the second and third claims for relief asserted in Black Diamond's three-count amended complaint. See Murray Energy , 616 B.R. at 103. Dismissal was made under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. See id . The Court also dismissed the amended complaint to the extent that Black Diamond sought a declaration that the Term Loan Lenders are the true senior and first lien lenders under the Credit Agreement. See id . That left Black Diamond's request for a declaratory judgment in its First Claim for Relief, which is now the subject of the parties’ competing motions for summary judgment. Black Diamond seeks a judgment declaring that:
(i) the Specified Auction was not a modified Dutch auction; (ii) the Specified Auction violated Section 10.6 of the Credit Agreement; (iii) the Default precipitated by that violation prevented Section 2 of the Third Amendment from becoming effective by its terms; and therefore (iv) the 2018 Transaction was void ab initio .
Plaintiffs’ Motion for Summary Judgment (Doc. 143 at 1–2) (footnote omitted).
Unless otherwise indicated, ECF citations throughout this Opinion refer to the docket in the Adversary Proceeding, Adv. Pro. No. 19-2143.
Murray Holdings, Murray Energy and GLAS (collectively, "Murray and GLAS") ask for summary judgment to be declared in their favor on the basis that the Specified Auction was a modified Dutch auction. Doc. 146 at 40. Because there is conflicting expert testimony on the question of whether the Specified Auction was a modified Dutch auction as that term is commonly understood in the finance industry, Black Diamond's First Claim for Relief is not ripe for summary judgment.
U.S. Bank (solely in its capacity as collateral trustee) joins in this request, but does not add anything independent to aid the Court's analysis, stating only that it is "entitled ... to rely conclusively ... on the officers’ certificate and opinions of counsel provided to [it] in connection with the 2018 Transaction." Doc. 149 at 3. According to U.S. Bank, the officers’ certificate and opinions of counsel stated that the documents entered into in connection with the 2018 Transaction "were valid and binding obligations enforceable in accordance with their terms," that those documents "did not result in a violation or breach of existing financing arrangements," and that the execution of the documents was "authorized or permitted." Id . The Court, of course, is not bound by the officers’ certificate or the opinions of counsel.
Murray and GLAS also contend that, even if the Specified Auction was not a modified Dutch auction, they still are entitled to summary judgment because Black Diamond and the Term Loan Lenders engaged in inequitable conduct that bars Black Diamond's claim for a declaratory judgment. For the reasons explained below, the Court concludes—based on the undisputed evidence in the summary judgment record—that neither Black Diamond nor the Term Loan Lenders are guilty of inequitable conduct. The equitable defenses asserted by Murray and GLAS thus fail as a matter of law.
II. Jurisdiction and Constitutional Authority
Jurisdiction is determined at the time of filing of the Amended Complaint. See Bavelis v. Doukas , 835 F. App'x 798, 805 (6th Cir. 2020) (holding that jurisdiction over adversary proceeding was determined as of the time it was commenced). And the Court clearly had subject matter jurisdiction at the time of the filing of the Amended Complaint. The Court's prior opinion adjudicated a core matter in that it made a "determination[ ] of the validity, extent, or priority of liens." 28 U.S.C. § 157(b)(2)(K). See Murray Energy , 616 B.R. at 103 ("[T]o 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."). And the First Claim for Relief was a matter related to the Debtors’ bankruptcy cases at the time the Amended Complaint was filed. Related-to jurisdiction over a claim exists if adjudication of the claim "would have a conceivable effect on the administration of the Debtors’ bankruptcy estate." Mich. Emp't Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.) , 930 F.2d 1132, 1142 (6th Cir. 1991) (quoting In re Pacor, Inc. v. Higgins , 743 F.2d 984, 994 (3rd Cir. 1984) ) ("The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."). The First Claim for Relief would have had a conceivable effect on the Debtors’ bankruptcy estates at the time the Amended Complaint was filed because a determination that the 2018 Transaction was void ab initio would have caused the prepetition claims of the Term Loan Lenders to be entitled to pari passu treatment with the prepetition claims of the Superpriority Lenders under the Debtors’ Chapter 11 plan.
After the Court issued its prior opinion, the Debtors amended their Chapter 11 plan in an effort to provide the prepetition claim of the Term Loan Lenders with what the Debtors viewed as pari passu treatment with the prepetition claim of the Superpriority Lenders. Black Diamond disagreed that the plan amendments provided the Term Loan Lenders with pari passu treatment. May 11, 2020 transcript (Doc. 112) at 31. The Court agreed with the Debtors on this point and accordingly overruled Black Diamond's objection to plan confirmation. See Transcript of August 31, 2020 Confirmation Hearing (Case No. 19-56885, Doc. 2331) at 11.
Because this matter was a "related to" proceeding at the time the Amended Complaint was filed, the Court has jurisdiction over it and has the authority to finally adjudicate the matter by virtue of the parties’ consent and the District Court's general order of reference. See United States District Court for the Southern District of Ohio, General Order No. 05-02 ("[A]ll cases under ... Title 11 of the United States Code and all actions, matters or proceedings arising under Title 11 of the United States Code or arising in or related to a case under ... Title 11 of the United States Code shall be referred to the Bankruptcy Judges for this Judicial District ...."), available at https://www.ohsd.uscourts.gov/sites/ohsd/files//05-02% 20Gen% 20Ord% 20Re% 20Bankruptcy% 20Cases.pdf; Highway Equip. Co. v. Alexander Howden Ltd. (In re Highway Equip. Co.) , No. 94-3372, 1995 WL 490125, at *4 & n.6 (6th Cir. Aug. 15, 1995) ("The bankruptcy court noted that ‘[t]his case and proceeding have been referred to this court by the general order of reference of the District Court. This is a non-core proceeding. The parties have, pursuant to 28 U.S.C. § 157(c)(2), consented that the bankruptcy judge hear and determine and enter appropriate orders and judgments, subject to review by appeal."); 28 U.S.C. § 157(c)(2) ("[T]he district court, with the consent of all the parties to the proceeding, may refer a proceeding related to a case under title 11 to a bankruptcy judge to hear and determine and to enter appropriate orders and judgments, subject to review under section 158 of this title.").
Some courts hold that "[i]f a proceeding contains a mixture of core and non-core matters, the court should divide the matters into their core and non-core components" for purposes of determining the Court's jurisdiction and authority to enter a final order. VSP Labs, Inc. v. Hillair Cap. Invs. LP , 619 B.R. 883, 896 (N.D. Tex. 2020) ; see also Dunmore v. U.S. , 358 F.3d 1107, 1114 (9th Cir. 2004) ("When presented with a mixture of core and non-core claims, we must employ a claim-by-claim analysis to determine whether the bankruptcy court could enter a final order for that claim."). Others have adopted an approach under which a bankruptcy court "may determine that the entire proceeding is core if the core aspect heavily predominates and the non-core aspect is insignificant." Blackman v. Seton (In re Blackman) , 55 B.R. 437, 443 (Bankr. D.C. 1985) ; see also Sibarium v. NCNB Tex. Nat'l Bank , 107 B.R. 108, 115 (N.D. Tex. 1989). Still others decide "when faced with mixed core/non-core proceedings, whether the core and non-core claims are ‘inextricably intertwined.’ If they are so enmeshed, then, rather than attempt to unravel the distinct claims, the court will treat the entire proceeding as a core proceeding and enter a final judgment on all matter[s] so intertwined." Elec. Mach. Enterprises v. Hunt Construction Grp., Inc. (In re Elec. Mach. Enterprises, Inc .), 416 B.R. 801, 866 (Bankr. M.D. Fla. 2009), aff'd in part , 474 B.R. 778 (M.D. Fla. 2012). The Court need not decide on an approach here, because the First Claim for Relief was related to the Debtors’ bankruptcy cases at the time the Amended Complaint was filed, the District Court has referred the matter to this Court, and the parties have consented to the Court's determination of the entire adversary proceeding.
Parties may consent to the Court's entry of a final order in a matter related to the bankruptcy case, 28 U.S.C. § 157(c)(2), and the parties have done so here in their joint preliminary pretrial statement. Doc. 75 at 3. In sum, the Court concludes that it has subject matter jurisdiction to hear and determine Black Diamond's First Claim for Relief under 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district.
The Court also has the constitutional authority to enter this opinion and order. 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 they did so here in their joint preliminary pretrial statement.
III. Procedural History
After the Court issued its prior opinion, the Debtors filed a motion to both stay the adversary proceeding and dismiss the Amended Complaint as moot (Doc. 90), and Black Diamond filed a response in opposition to that motion (Doc. 95). Following a hearing, the Court entered an order staying the adversary proceeding "until the earliest of such time as the Court enters an order terminating the stay or the substantial consummation of a chapter 11 plan containing terms consistent with the terms set forth in paragraph 2 of this Order." Doc. 101 at 3. On June 1, 2020, Black Diamond filed a motion to lift the temporary stay (Doc. 107). The Defendants filed an objection to the motion to lift the temporary stay in which they also asked the Court to abstain from hearing the remainder of the adversary proceeding (Doc. 120). The Court determined that it would not abstain, Tr. of August 28, 2020 Hearing (Doc. 133) at 56–57, and it entered an order to that effect (Doc. 122 at 3). The Court entered an agreed order establishing a pre-trial schedule and providing that the "Defendants shall be deemed to have denied the material factual allegations of the Amended Complaint" and that the "Defendants shall not be required to file an answer to the Amended Complaint and shall not be deemed to have admitted any of the allegations of the Amended Complaint by not doing so." Doc. 139 at 2. The parties then filed an agreed motion to file documents under seal (Doc. 141), and the Court entered an order granting that motion (Doc. 142). The summary judgment motions followed, with Black Diamond filing its motion for summary judgment (Doc. 143) (the "Black Diamond Motion"), and Murray and GLAS responding by filing their cross-motion for summary judgment (the "Murray and GLAS Motion") (Doc. 146) and a memorandum of law in support of the Murray and GLAS Motion and in response to the Black Diamond Motion (the "Murray and GLAS Memorandum of Law") (Doc. 146). U.S. Bank also filed a cross-motion for summary judgment (the "U.S. Bank Motion") (Doc. 149). Black Diamond filed a reply in support of the Black Diamond Motion and in opposition to the Defendants’ cross-motions for summary judgment (the "Black Diamond Reply") (Doc. 150). In support of its summary judgment motion, Black Diamond submitted the declaration of William J. Trunk—as Exhibit 1 to the Black Diamond Motion—along with documents marked as Exhibits 2–30 (Doc. 143). For their part, Murray and GLAS submitted the declaration of Christopher D. Hampson (the "Hampson Declaration") along with Exhibits 1–26 (Doc. 147) in support of their request for summary judgment.
IV. Background
A. The Prior Opinion
The Court's prior opinion set forth the history that gave rise to this dispute:
In 2015, coal producer Murray Energy agreed to acquire an interest in the group of coal companies owned by Foresight Energy. 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") with Murray Energy and Murray Holdings (collectively, "Murray") as the borrowers.[ ] In 2018, Murray sought to extend the term loans’ 2020 maturity date by two and a half years. 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. 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." 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" 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
A copy of the Credit Agreement is attached as Exhibit 1 to the Hampson Declaration.
A copy of the Third Amendment is attached as Exhibit 3 to the Hampson Declaration.
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.[ ] 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 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.
A copy of the Superpriority Credit Agreement is attached as Exhibit 4 to the Hampson Declaration.
Murray Energy , 616 B.R. at 87–88 (citations omitted).
Black Diamond, which is the administrative agent for the Term Loan Lenders, asserted three claims for relief in the Amended Complaint. In its First Claim for Relief, Black Diamond contended 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. In its Second Claim for Relief, Black Diamond sought 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. And in its Third Claim for Relief Black Diamond sought a declaratory judgment that the 2018 Transaction was invalid because Murray allegedly violated the Credit Agreement by issuing "Extended Loans" secured by additional collateral. The Court dismissed the Second and Third Claims for Relief for failure to state a claim upon which relief can be granted. Id. at 103. The Court also dismissed Black Diamond's First Claim for Relief to the extent it sought a declaration that the interests of the Term Loan Lenders in the term loan collateral would have priority over the interests of the Superpriority Lenders. Id . The Court, however, declined to dismiss the First Claim for Relief to the extent that it sought a declaratory judgment that the Specified Auction was not conducted in accordance with the modified-Dutch-auction provision of the Credit Agreement.
See id . at 88. GLAS is the administrative agent for the Superpriority Lenders, and U.S. Bank is the collateral trustee. See id . at 89.
Murray contends that the Specified Auction complied with Section 10.6(i) of the Credit Agreement. Id . at 90. This section permitted 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).
As explained in the Court's prior opinion:
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."
...
Under Exhibit M, the notification of an auction was 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." The form of auction notice attached to Exhibit M provided that any auction would 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 required 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 provided that Murray would purchase term loans from each lender whose return bid was "within the Discount Range" and whose reply price was 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.
Murray Energy , 616 B.R. at 90–91 (citations omitted).
In its prior opinion, the Court referred to the "Auction Procedures set forth on Exhibit M" as the "Exhibit M Procedures" and "such other procedures as are acceptable to Murray and Administrative Agent" as the "Other Acceptable Procedures." In seeking dismissal, Murray argued 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. But the Court concluded in its prior opinion that Murray's reading of the Credit Agreement could not be right. Id . at 92–93. Among other things, Murray contended 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. The Court found, however, that this was not a reasonable interpretation of the Credit Agreement. See id . at 94. In its prior opinion, the Court stated that the parties would be given an opportunity to present evidence regarding whether the Specified Auction was a modified Dutch auction as that term is understood in the finance industry. See id . at 95. The parties opted to submit that evidence by filing their respective motions for summary judgment, which are supported by their experts’ reports and other documents.
B. Competing Expert Testimony on the Question of Whether the Specified Auction Was a Modified Dutch Auction
In support of its contention that the Specified Auction was not a modified Dutch auction, Black Diamond submitted the expert report of Bilge Yilmaz as Exhibit 3 (the "Yilmaz Report") and his rebuttal report as Exhibit 2 (the "Yilmaz Rebuttal Report"). Professor Yilmaz is a Professor of Finance at the Wharton School of the University of Pennsylvania who has "taught about the use of several different types of auctions in financial markets," including "the use of Dutch Auctions in the context of buybacks and IPOs." Yilmaz Rebuttal Report ¶ 9. Professor Yilmaz also is a "researcher in this area and several of [his] papers, published in peer-reviewed journals, deal with auction environments." Id . Based on this experience, he "unequivocally state[s] that the Specified Auction was not an auction, let alone a Dutch Auction." Id .
The Defendants responded by submitting the expert report of F. John Stark, III as Exhibit 18 (the "Stark Report") and Stark's rebuttal report as Exhibit 24 (the "Stark Rebuttal Report"). Stark is the Managing Principal of Water Tower Capital, LLC and has more than 30 years of experience in the financial services industry, including as a turnaround and workout professional, outside director, and court-appointed chief restructuring officer and receiver. Stark Report at 2. He has "observed Dutch auctions occur hundreds of times." Id . at 16–17. And based on his experience, Mr. Stark strongly disagrees with Professor Yilmaz's conclusion, opining that the Specified Auction "falls within the meaning of ‘modified Dutch Auction’ as industry professionals would have understood that term." Stark Report at 4. As described below, Professor Yilmaz and Mr. Stark disagree on almost everything, including the effect of the Specified Auction's "range" of zero, the lack of bidding, the fact that Murray's offer was made at par value, the fact that the lenders had to sell all or none of their debt, and the payment of the same price by all the participants in the Specified Auction.
1. The Discount Range
According to Professor Yilmaz, "a stated discount range" is a key component of a modified Dutch auction. Yilmaz Report ¶ 12. He notes that the Specified Auction's range appears to have been zero and states that he has "never seen a modified Dutch Auction where the offer range is expressed as a single point." Id . ¶ 40.
Mr. Stark, by contrast, contends that no discount range was necessary in order for the Specified Auction to constitute a modified Dutch auction. Stark Report at 18. In support of this contention, he relies on a single example of a modified Dutch auction that purportedly lacked a range of prices:
The term "modified Dutch auction" is not understood within the industry to require that a price exist within some range of different values, as opposed to being bounded at a given point. For example, Sherritt International, Inc., recently announced a "Dutch Auction to Purchase up to $75 million of Outstanding Debentures," which announcement set only a maximum price that the company would pay.
Id .
Professor Yilmaz, however, contends that this example does not support Mr. Stark's position. He points out that the Sherritt International transaction did in fact involve a range:
Mr. Stark references a recent auction run by Sherritt International (an auction ... also referenced in the Yilmaz Report). Mr. Stark points to Sherritt's setting of "only a maximum price" as an example of an auction where the price range was "bounded at a given point." To be sure, some buyback auctions do specify only a maximum price (minimum discount) at which the debt will be
bought back. However, reply bids in these auctions, just like the Sherritt auction, could have included prices at any point less than the maximum . The setting of a maximum point does not set a range equal to zero, but rather sets a range equal to all values between zero and the given maximum value .
Yilmaz Rebuttal Report ¶ 24 (footnote omitted) (emphasis in original).
In addition to arguing that modified Dutch auctions do not require a discount range greater than zero, Mr. Stark also argues that there effectively was a range here. He does so by describing a modified Dutch auction as a "process" that begins with negotiation before the bids are officially solicited. In short, according to Mr. Stark, the entire 2018 Transaction, including the negotiations leading up to it, constituted a modified Dutch auction:
Professor Yilmaz ... misses elements of the 2018 Transaction that occurred at the beginning of the Specified Auction process, which are typical in auction processes of this kind. In my experience, a borrower looking to modify its credit agreement and repurchase debt would rarely go through the expense and time of such effort without first approaching its lenders to discuss acceptable terms. A borrower first determines that the terms on which its lenders are willing to engage are consistent with the borrower's needs. Only after completing the first step, would a borrower of this size begin the second step, which is an auction process, the broad contours of which are outlined in their lending documents. The terms—including any potential range of prices—would then incorporate the information gained from their initial negotiations with the lenders. That is precisely what happened here, as the Company and its advisors negotiated with the Term Loan holders and their advisors and achieved certain price discovery, including how much additional collateral the Company needed to pledge in order to incentivize the Term Loan holders to exchange their early-maturity notes for ones with later-maturity dates.
...
Professor Yilmaz ignores the negotiations that led up to each lender's bid. ... [W]hat "range" of terms might be acceptable (including price, but also including other potential concessions, such as maturity date or additional collateral) was achieved during [the] solicitation of lender interest in the transaction. Indeed, these negotiations led to the signing of the Transaction Support Agreement by lenders holding over 60% of the notional amount of the debt. This "discovery" phase thus provided the equivalent of the non-single "range" demanded by Professor Yilmaz, as the Company was able to discover how much additional collateral needed to be pledged in order to incentivize the Term Loan holders to exchange their shorter-dated loans for longer-dated ones.
Murray and the lenders supporting the 2018 Transaction entered into a Transaction Support Agreement whereby they agreed to "support and pursue" an "exchange or other transfer" of the "Existing Term Loans for New Term Loans." Black Diamond Ex. 14.
Stark Rebuttal Report at 5, 11 (footnotes omitted).
While Mr. Stark relies on these negotiations to support his position that there was a non-zero discount range, Professor Yilmaz counters that "[c]ompromise and concession among buyers and sellers are certainly elements of a negotiation, but these are not elements of auction." Yilmaz Rebuttal Report ¶ 32. 2. Bidding
According to Professor Yilmaz, the Specified Auction "lack[ed] the fundamental bidding aspect of an auction." Yilmaz Report ¶ 42. He continues:
In the Specified Auction, the Return Bid was already filled out when it was sent to Lenders; it did not allow a lender to choose a price. The design of the Specified Auction and the failure to allow for a range of bids is, in [his] experience, inconsistent with the notion of any form of auction.
Id . ¶ 46. It is a point he makes repeatedly. See id . ¶ 12 ("Two of the key components of any auction are bids and counterbids, or in the case of a modified Dutch Auction a stated discount range and then return bids within that range."); id . ¶ 21 ("Regardless of how you define (or design) an auction, one element is key: Competitive bidders interact to determine the price at which the market clears and demand equals supply. This is price discovery, and it was not present in the Specified Auction."); id . ¶ 22 ("In the Specified Auction, the price was pre-determined—not by bidding, but by decree. This is not how an auction works."); id . ¶ 28 ("In any auction ... the price (or prices) at which trades occur is determined by the interaction of competitive bidders."); id . ¶ 36 ("Reply bids are a central component of an auction[.]").
For his part, Mr. Stark again points to the negotiations leading up to the Specified Auction. He contends that:
the 2018 Transaction ... included bidding as well. The bidding mechanism was, again, accomplished ... during the solicitation of support for the Transaction Support Agreement [,which] determined how long the majority of Term Loan holders were willing to extend and at what price they were willing to do so. The consideration included the additional collateral.
Stark Rebuttal Report at 12; see also id . at 9 ("Nor would it even be correct to say that these lenders did not decide on the price here, where 97% of lenders agreed to the auction, and where that price and the concessions the company would make for it were negotiated in advance.").
3. De-leveraging
Professor Yilmaz states that "the single point bid [in the Specified Auction] is for par value , which is inconsistent with the typical intention, design and execution of a modified Dutch Auction." Yilmaz Report ¶ 43 (emphasis in original). He also notes that the "typical" intention and design of a modified Dutch Auction "is to create a win-win situation where (i) lenders who value their investments the least are able to sell their loans at above market prices and (ii) remaining claimholders’ interests are strengthened because the company was able to effectuate a de-leveraging at discounted prices." Id . Mr. Stark, by contrast, contends that "de-leveraging a company or ‘extinguish[ing] debt is not the sole, or even the primary purpose of a modified Dutch auction." Stark Rebuttal Report at 6. In his experience, "modified Dutch auctions have been conducted for several reasons apart from ‘extinguishing’ debt,’ including but not limited to, allowing companies to issue new debt on different terms, such as with different collateral, with a different interest rate, or with different maturities, as was the plain goal here." Id . He continues:
[T]here is no requirement that a modified Dutch auction result in or be conducted to achieve a reduction in the amount of outstanding debt. Just because a Dutch auction may be used as a mechanism to de-lever a company or reduce the principal of its outstanding loans does not negate all other purposes for which a modified Dutch auction may
be used (e.g. , in this case, to extend maturities). To the contrary, de-levering is not a required, and sometimes not a desired, outcome for modified Dutch auctions.
Id . at 7 (footnote omitted).
4. Payment of a Uniform Price
Mr. Stark states that "a Dutch auction is also known by the more descriptive name ‘uniform price auction.’ The fact that all successful bidders pay the same price is the reason for the name ‘uniform price auction.’ " Stark Report at 5 n.5 (citing Ross, S.A., Westerfield R.W., & Jordan B.D., Fundamentals of Corporate Finance , 503 (12th ed. 2019); see also id. at 17 ("A Dutch auction is also known by the more descriptive name uniform price auction. In other words, it is an auction where each participant pays the same price. ... [I]n this case, the auction mechanism ensured that each bidder would pay the same price—a feature that puts this auction within the broad meanings of ‘modified Dutch auction’ as that term would have been understood by professionals within the industry."). Mr. Stark thus opines that the Specified Auction was a modified Dutch auction even though Murray repurchased the Superpriority Lenders’ term loans at the same price—par value.
In addressing Mr. Stark's contention that a Dutch auction may include an auction where each participant pays the same price, Professor Yilmaz reiterates that bidding is a central component of a Dutch auction:
Mr. Stark opines that a more descriptive name for a Dutch Auction is a "uniform price auction," and that a modified Dutch Auction "is an auction where each participant pays the same price." In support, Mr. Stark refers to a passage from an introductory textbook, Fundamentals of Corporate Finance. But more relevant to the issue at hand are the portions of the text at the beginning of his citation and the sentence that directly follows it, both of which make abundantly clear that his definition of modified Dutch Auction is incorrect.
The passage quoted by Mr. Stark begins: "With Dutch auction underwriting, the underwriter does not set a fixed price for the shares to be sold. Instead, the underwriter conducts an auction in which investors bid for shares. The offer price is determined based on the submitted bids." In other words, an auction requires competitive bidding—a feature the Specified Auction clearly did not possess.
The sentence that follows the passage that he quotes is equally clear. It defines Dutch Auction underwriting as: "[t]he type of underwriting in which the offer price is set based on competitive bidding by investors."
Yilmaz Rebuttal Report ¶¶ 10–12 (footnotes omitted).
Professor Yilmaz also points out that "the Credit Agreement itself disproves the contention that a modified Dutch Auction is another name for a ‘uniform price auction.’ Exhibit M explicitly states that non-uniform prices shall be paid: ‘All Term Loans included in Qualifying Bids ... received at a Reply Price lower than the Applicable Threshold Price will be purchased at the applicable Reply Price ....’ " Id . ¶ 13. In addition, a survey conducted by Professor Yilmaz of credit agreements that had debt buyback provisions described as a form of Dutch auction demonstrated that Dutch auctions "often are structured without a uniform-pricing mechanism." Id . ¶ 14. Of the credit agreements he surveyed, about half provided for the auction "to be settled with a uniform price paid to all lenders at or below the ‘clearing price,’ " but the other half provided for the auction to be settled with each lender being paid "whatever price he or she bid at or below the ‘clearing price,’ " thereby providing for non-uniform pricing. Id . According to Professor Yilmaz, all this "cannot be reconciled with Mr. Stark's claim that modified Dutch Auctions are uniform-price auctions. If his statement was correct, it would be illogical to include an instruction that a modified Dutch Auction includes non-uniform pricing as an element of the procedures for that auction." Id . ¶ 15.
5. Reply Amount
Professor Yilmaz maintains that the Specified Auction was not a modified Dutch auction because it did not allow the lenders to sell only a portion of their loans:
In a typical modified Dutch Auction, and the one contemplated in the procedures set forth in Exhibit M, lenders can choose to participate by committing only a portion of their loans in the process. According to the reply procedures in Exhibit M, reply bids need not be for the ‘entire principal amount’ of the debt that the lender holds, suggesting clearly that lenders can include in their reply bids an offer to sell a part of their holdings. Section 10.6(i) likewise states that a Lender shall have the right to "sell ... all or a portion of its Term Loan Commitment or Term Loans" ... pursuant to a modified Dutch Auction or open-market purchase. In the Specified Auction, however, lenders were required to commit all or none of their holdings. This all-or-none requirement strips the lenders of their right to manage their portfolios in an efficient manner.
Yilmaz Report ¶¶ 47–49 (emphasis in original).
Mr. Stark reads Section 10.6(i) differently:
Professor Yilmaz states that the Reply Amount requires lenders to choose whether to offer for sale "all or a portion" of its Term Loans; that is inconsistent with Section 10.6(i), which provides lenders with two exclusive rights—they have the right to sell all of their loans in a modified Dutch auction or they have the right to sell a portion of their loans in a modified Dutch auction. Section 10.6(i) does not by its terms require that any modified Dutch auction provide lenders with both rights.
Stark Rebuttal Report at 9 (footnotes omitted).
C. Evidence Bearing on the Defendants’ Equitable Defenses
The Defendants assert the equitable defenses of ratification, laches, unclean hands, and equitable estoppel against Black Diamond's request for a declaratory judgment. They place great reliance on the fact that four funds affiliated with Black Diamond—Black Diamond CLO 2015-1 Designated Activity Company, Black Diamond CLO 2016-1 Ltd., Black Diamond CLO 2017-1 Ltd., and Black Diamond CLO 2017-2 Designated Activity Company (collectively, the "Black Diamond Participating Funds")—participated in the 2018 Transaction. Murray and GLAS Mem. of Law ¶ 11. And this fact is undisputed. See Black Diamond Response to Statement of Material Facts ¶ 11.
The following chart sets forth, side by side: (1) the other evidence Murray and GLAS rely on to support their equitable defenses; and (2) Black Diamond's response as to each point.
Evidence Offered by Murray and GLAS Black Diamond's Response "The Third Amendment was approved and "Undisputed, except to the extent ... signed off on by Stephen Deckoff, the Defendants suggest that Mr. Deckoff's acts founder and managing member of the Black on behalf of the participating Black Diamond Diamond corporate family, including both the funds bear on the rights of the non-participating and non-participating Black Black Diamond funds or of Diamond funds." Murray and GLAS Mem. Plaintiff Black Diamond.... of Law ¶ 11. Plaintiff [Black Diamond] is a separate and distinct entity that originates loans and, as relevant here, acts as a loan administrative agent. It serves as the Administrative Agent for all lenders who refused to participate in the 2018 Transaction (the "Non-Participating Lenders"), including those unaffiliated with Black Diamond." Appendix to Black Diamond's Reply (Response to Statement of Material Facts) (the "Response") ¶ 11 (citations and footnotes omitted). "As early as mid-May 2018—three weeks "Undisputed, except to the extent Defendants before the 2018 Transaction was officially suggest that acts on behalf of the participating announced—Black Diamond-affiliated Black Diamond funds bear on the rights of entities engaged in internal discussions about the non-participating Black Diamond funds or the 2018 Transaction. Notably, both Mr. of [Black Diamond]." Resp. ¶ 16. Ehrlich, the analyst responsible for the Murray investment, and Mr. Deckoff testified that they could not recall any conversation about whether the exchange was a Dutch auction until the latter half of 2019." Murray and GLAS Mem. of Law ¶ 16 (footnotes omitted).
"Analysts for Black Diamond Capital "Undisputed insofar as the June 8, 2018 Management, L.L.C., ("BDCM"), a Black amendment summary includes a Diamond entity responsible for providing recommendation that the 2018 Transaction be investment advice to the Black Diamond-affiliated `Approved' to `maintain[] first priority on funds, examined the 2018 existing collateral, and avoid being put into a Transaction in detail and recommended that junior position on a coal company with the Black Diamond-affiliated funds stripped covenants' and the BDCM participate. A June 8, 2018 `Amendment investment committee met on June 12, 2018. Summary,' drafted by BDCM analysts Disputed to the extent Defendants suggest Richard Ehrlich and Thomas Pisiewicz for this document reflects BDCM's ultimate the BDCM investment committee, laid out investment recommendations. BDCM is an the central features of the 2018 Transaction asset management firm that advises numerous and concluded with a `Buy recommendation.' different investment vehicles; it provided The BDCM investment committee met on different recommendations to different June 12, 2018, to discuss the amendment to entities, based on each of those entities' the 2015 Credit Agreement." Murray and investment requirements and numerical GLAS Mem. of Law ¶ 17 (footnotes omitted). targets. Here, two Black Diamond-affiliated CLOs could not consent to extend their Term Loans because doing so would have caused them to violate their weighted maturity requirements, while two other Black Diamond-affiliated entities declined to extend because they had target returns that the Non-Extended Term Loans did not meet." Resp. ¶ 17. "Following that meeting, four Black Diamond "Undisputed insofar as Defendants accurately Participating Funds authorized the 2018 identify the four Black-Diamond affiliated Transaction. But despite the advisor's entities that declined to participate in the recommendation, four other Black Diamond 2018 Transaction. Denied to the extent that funds held back: Black Diamond CLO 2013-1 Defendants suggest BDCM made a single Ltd., Black Diamond CLO 2014-1 Ltd., `recommendation' regarding the 2018 BDCM Strategic Capital Fund, L.P., and Transaction and that it `designated' certain Black Diamond Credit Strategies Master funds to vote against the amendment. BDCM Fund Ltd. (collectively, the "Black Diamond provided investment-vehicle-specific advice Non-Participating Funds") were designated to to each of the funds it advised." Resp. ¶ 18. `vote against the amendment, [] not participate in the auction, and [] remain in the current facility (which matures in April 2020) for all Murray Energy Term Loans.' Those funds held a significant portion of the non-extending debt." Murray and GLAS Mem. of Law ¶ 18 (footnotes omitted).
"The decision of these four Black Diamond "Undisputed insofar as it accurately reflects affiliates not to participate was hardly that BDCM appropriately gave investment inadvertent. The two collateralized loan vehicle-specific recommendations based on obligations ("CLO") entities. Black Diamond the entities' individual requirements and CLO 2013-1 Ltd. and Black Diamond CLO targets and not because it wanted to "have it 2014-1 Ltd., could not participate in the 2018 both ways." And undisputed insofar as it Transaction because doing so would cause accurately reflects that Strategic's purchase them to violate their weighted maturity date of Term Loans was consistent with the requirements. Id. The two others, BDCM specific advice it received, and inconsistent Strategic Capital Fund, L.P. ("Strategic") and with allegations of vote splitting." Resp. ¶ 19 Black Diamond Credit Strategies Master (citations and footnotes omitted). Fund Ltd. ["Strategies"], had more flexibility. The record is clear that BDCM directed them not to participate so that they would be paid out on an earlier maturity schedule and could reinvest elsewhere. Indeed, Strategic bought $5 million of Term Loan debt after BDCM was aware of the impending 2018 Transaction, with the express purpose of not participating in the transaction. " Murray and GLAS Mem. of Law ¶ 19 (footnotes omitted) (emphasis in original). "The record is undisputed that Black "Undisputed insofar as it accurately quotes Diamond's decision not to extend the Murray Mr. Deckoff's testimony. Disputed to the loans for certain of the funds that voted not to extent it implies that the non-participating extend was driven by a desire to obtain the CLOs had a choice in participating in the higher yield associated with the shorter 2018 Transaction. Two Black Diamond-affiliated maturity. Certain of the funds that elected not CLOs could not extend their Term to extend made that choice because of the Loans because doing so would have caused higher yield associated with shorter term them to violate their weighted maturity paper. Those non-extending funds, Mr. requirements." Resp. ¶ 22 (footnote omitted). Deckoff explained, had higher yield hurdles, and therefore, we didn't want to extend because that would lower our yield.'" Murray and GLAS Mem. of Law ¶ 22.
"This, in short, was an intentional hedge. "Undisputed insofar as it accurately quotes Black Diamond understood that it needed to the cited documents and testimony. Denied weigh the higher yield associated with the otherwise. BDCM provided investment shorter paper with the stronger collateral vehicle-specific recommendations based on package associated with the longer paper. each of the entities' individual requirements And betting that if the number of `hold-out' and numerical targets. It was not a `hedge.' lenders was small enough, that shorter paper The fact that BDCM's management ensured would be paid on maturity, they made a its instructions were accurately executed is specific calculated judgment about how to evidence of diligent oversight, not devious weigh those competing concerns. Mr. intent." Resp. ¶ 23. Ehrlich of BDCM wrote in bolded font in a June 14, 2018 internal email, `We are voting different funds differently on the Murray Energy Amendment.' The precise split, moreover, was important to senior management at BDCM. On June 14, 2018, Lanny Epperson, a Senior Managing Director at BDCM, told Mr. Ehrlich, `make sure these guys get the voting splits right.' The next day, Mr. Deckoff himself emailed Mr. Ehrlich and asked him, "How much of the 5 percent [non-extending lenders] are we?'" Murray and GLAS Mem. of Law ¶ 23 (footnotes omitted) (emphasis in original). As it turned out, Black Diamond executed "Denied. Black Diamond did not have a nearly perfectly on its hold out strategy: only `hold out' strategy—certain of the funds it three percent of the holders of the 2015 [debt] advised declined to participate in the declined to extend, of which Black Diamond-related transaction due to the investment-vehicle-specific funds made up a sizeable portion. As advice it provided based on each of a result, the likelihood that Murray would be the entities' individual requirements and able to pay on the non-extended term loans investment targets." Resp. ¶ 24. when they matured in 2020 was maximized." Murray and GLAS Mem. of Law ¶ 24.
"Other Black Diamond affiliates agreed to Undisputed insofar it reflects that BDCM did participate in the 2018 Transaction, ignoring not develop a single, collective view about any perceived legal issues with it—which, to the legality of the 2018 Transaction in the be clear, none voiced at the time. There is no few weeks between when it learned the suggestion in the record that anyone at Black particulars of the 2018 Transaction and when Diamond had any concern that the auction it was required to vote on it. Mr. Deckoff [mechanism] of the transaction was not a believed it executed an impermissible release proper `Dutch auction." Rather, the record of collateral. Mr. Caluori did not. Denied shows that the issue that concerned Black otherwise." Resp. ¶ 25. Diamond was that the 2018 Transaction subordinated the liens of the non-participating holders. In a June 13, 2018 e-mail with the subject line `Murray Energy legal considerations.' Anthony Caluori, a Managing Director at BDCM, raised a series of legal questions about the 2018 Transaction, questioning whether subordination of liens could constitute a release of collateral. Mr. Caluori conceded that `[t]echnically speaking being primed on collateral does not constitute a release of collateral,' but noted that he had `asked a few bankers and lawyers to send [him] ... case studies on the topic.' Mr. Deckoff testified that he thought the 2018 Transaction was `illegal' because it had the effect of releasing collateral, but thought that Murray would pay off the facility and that his concern would become moot. BDCM was willing to overlook any concerns because it hoped that the Black Diamond Non-Participating Funds would soon be paid off." Murray and GLAS Mem. of Law ¶ 25 (footnotes omitted).
V. Legal Analysis
A. The Propriety of Considering Extrinsic Evidence
In general, courts may consider extrinsic evidence when construing contracts only if their terms are ambiguous. See Madelaine Chocolate Novelties v. Great N. Ins. Co. , 399 F. Supp. 3d 3, 8 (E.D.N.Y. 2019) ("The Court cannot consider extrinsic evidence unless it determines the relevant contractual provision is sufficiently ambiguous as to be ‘susceptible of at least two fairly reasonable meanings.’ ") (quoting Wards Co., Inc. v. Stamford Ridgeway Assoc's , 761 F.2d 117, 120 (2d Cir. 1985) ). While the Defendants assert that the Court has found the term "modified Dutch auction" to be ambiguous, Murray and GLAS Mem. ¶ 31, that is not the case. Rather, the Court simply concluded that the term "modified Dutch auction" is a technical term. Murray Energy , 616 B.R. at 95. And New York law, which governs the Credit Agreement, see Credit Agreement § 10.15, 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, 963–64 (1891) ); see also Pujals v. Standard Chartered Bank , 533 F. App'x 7, 10 (2d Cir. 2013) ("Where a contract uses a technical term, courts may consider evidence regarding the technical meaning of that term in the industry in question even without a threshold finding that the contract is ambiguous."); 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"). It is therefore appropriate for the Court to consider, as it did above, the parties’ expert evidence regarding whether the Specified Auction would have been considered a "modified Dutch auction" as that term is understood in the finance industry.
B. Summary Judgment Standard
Under Rule 56 of the Federal Rules of Civil Procedure, made applicable in this adversary proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure, a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "On a motion for summary judgment, facts must be viewed in the light most favorable to the nonmoving party only if there is a genuine dispute as to those facts." Ricci v. DeStefano , 557 U.S. 557, 586, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009) (internal quotation marks omitted). A dispute is genuine only if it is "based on evidence upon which a reasonable [finder of fact] could return a [judgment] in favor of the non-moving party." Gallagher v. C.H. Robinson Worldwide, Inc. , 567 F.3d 263, 270 (6th Cir. 2009). And "[a] factual dispute concerns a ‘material’ fact only if its resolution might affect the outcome of the suit under the governing substantive law." Id . The filing of cross-motions does not alter the standards governing the determination of summary judgment motions. See Taft Broad. Co. v. United States , 929 F.2d 240, 248 (6th Cir. 1991). But " ‘cross motions for summary judgment do authorize the court to assume that there is no evidence which needs to be considered other than that which has been filed by the parties.’ " Schafer v. Rapp (In re Rapp) , 375 B.R. 421, 428 (Bankr. S.D. Ohio 2007) (quoting Greer v. United States , 207 F.3d 322, 326 (6th Cir. 2000) ).
In the context of construing terms used in a particular industry, summary judgment may be granted if:
(1) there is no question as to the credibility of the [expert] evidence, which is of such a definitive nature as to establish, as a matter of law, the meaning of that term to the industry ... (2) it has been shown either that the parties are actually aware of the established usage of the term, or that the usage in the business to which the transaction relates is so notorious that a person of ordinary prudence in the exercise of reasonable care would be aware of it; and (3) there is no question that the intention of the parties was to follow, rather than depart from, the particular industry custom at issue[.]
J.P. Morgan Inv. Mgmt. Inc. v. AmCash Grp., LLC , 106 A.D.3d 559, 966 N.Y.S.2d 23, 24 (2013) (citations and internal quotation marks omitted).
C. Given the Conflicting Expert Testimony, Black Diamond's First Claim for Relief Is Not Ripe for Summary Judgment.
The Court cannot decide on summary judgment whether the Specified Auction was a modified Dutch auction. Neither party's evidence "is of such a definitive nature as to establish, as a matter of law" the meaning of the term modified Dutch auction. Id . Based on the evidence presented, the Court is unable to determine whether a modified Dutch auction requires a range of offer prices or a minimum discount at which the debt will be repurchased. There also are genuine issues of material fact as to whether: (1) the negotiations leading up to the Specified Auction fulfilled any requirement of a range or minimum discount; (2) the negotiations leading up to the transaction can fulfill the requirement of bidding; and (3) the par-value bid precludes a finding that the Specified Auction was a modified Dutch auction. So here there is a battle of the experts that "renders summary judgment improper." Edwards Sys. Tech., Inc. v. Digital Control Sys., Inc. , 99 F. App'x 911, 921 (Fed. Cir. 2004) ; see also Reyazuddin v. Montgomery Cty., Maryland , 789 F.3d 407, 417 (4th Cir. 2015) ("The evidence therefore sets up a battle of the experts, which should not be resolved at summary judgment."); Guinn v. Praxair, Inc ., 386 F. Supp. 3d 850, 882 (E.D. Mich. 2019) ("[A] motion for summary judgment is not the time to referee a ‘battle of the experts.’ ").
"[F]ederal courts do not make findings of fact at the summary judgment stage." Oil & Gas Transfer L.L.C. v. Karr , 928 F.3d 1120, 1124 (8th Cir. 2019). And making findings—including findings regarding the credibility of the parties’ experts—is what is required here to determine whether the Specified Auction was a modified Dutch auction. In sum, that issue must be resolved by a trial on the merits. See Phillips v. Cohen , 400 F.3d 388, 399 (6th Cir. 2005) ("Indeed, competing expert opinions present the ‘classic battle of the experts and it [is] up to [the fact finder] to evaluate what weight and credibility each expert opinion deserves.’ "); In re Sulfuric Acid Antitrust Litig. , 743 F. Supp. 2d 827, 866 (N.D. Ill. 2010) ("Defendants assert that Plaintiffs’ causation expert and statistician rely on faulty analytical methods or mere guesswork. But the ... credibility and persuasiveness of Plaintiffs’ expert witnesses are issues best left to [the] factfinder.").
D. The Propriety of Declaratory Judgment
Murray and GLAS argue that, even if the Court were to find that the Specified Auction is not a modified Dutch auction, Black Diamond still would not be entitled to relief because the issuance of a declaratory judgment is not proper here. In particular, they contend that the Court should not entertain Black Diamond's request for declaratory judgment because the injury for which it seeks redress has already occurred, making an action for breach of contract more appropriate. Murray and GLAS Mem. of Law ¶¶ 34–35. The Sixth Circuit has held that trial "courts possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites." AmSouth Bank v. Dale , 386 F.3d 763, 784 (6th Cir. 2004) (quoting Wilton v. Seven Falls Co ., 515 U.S. 277, 282, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) ). "To ‘guide the exercise of discretion’ " when considering a request for declaratory judgment, the Sixth Circuit has used the following factors:
(1) Whether the declaratory action would settle the controversy;
(2) whether the declaratory action would serve a useful purpose in clarifying the legal relations in issue;
(3) whether the declaratory remedy is being used merely for the purpose of
"procedural fencing" or "to provide an arena for res judicata;"
(4) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach upon state jurisdiction; [which is determined by asking]
a. whether the underlying factual issues are important to an informed resolution of the case;
b. whether the state trial court is in a better position to evaluate those factual issues than is the federal court; and
c. whether there is a close nexus between underlying factual and legal issues and state law and/or public policy, or whether federal common or statutory law dictates a resolution of the declaratory judgment action; and
(5) whether there is an alternative remedy which is better or more effective.
Mass. Bay Ins. Co. v. Christian Funeral Directors, Inc. , 759 F. App'x 431, 435 (6th Cir. 2018) (citations omitted).
The first factor weighs in favor of exercising jurisdiction: Although Black Diamond says that it intends to bring "a later damages action against the Superpriority Lenders for breach of Section 2.17," Black Diamond Reply at 11, a decision in the declaratory judgment action will settle the controversy between Black Diamond and the Defendants. The second factor also weighs in favor of deciding the declaratory judgment action because doing so would serve the useful purpose of streamlining the later litigation while conserving judicial resources. This Court has already delved into the issue of whether the Specified Auction constituted a modified Dutch auction, and there is no reason why another court should have to start from scratch. Third, although Black Diamond argues that the Superpriority Lenders will be bound by a judgment against GLAS, there is no reason to believe that this adversary proceeding is being used merely for the purpose of procedural fencing or to provide an arena for res judicata. And because there is no pending state court action, the use of the declaratory judgment action would not increase the friction between federal and state courts or improperly encroach upon state jurisdiction. Finally, under the circumstances, there is no alternative remedy which is better or more effective. All in all, the factors weigh in favor of the Court's exercise of jurisdiction over this declaratory judgment action. E. Murray and GLAS's Alternative Arguments
Murray and GLAS do not contend that Black Diamond lacks standing to bring this adversary proceeding. But "[b]ecause the standing issue goes to this Court's subject matter jurisdiction, it can be raised sua sponte ." Loren v. Blue Cross & Blue Shield of Mich ., 505 F.3d 598, 607 (6th Cir. 2007). Under Sixth Circuit law, "[i]n the context of a declaratory judgment action, allegations of past injury alone are not sufficient to confer standing. The plaintiff must allege and/or ‘demonstrate actual present harm or a significant possibility of future harm.’ " Fieger v. Ferry , 471 F.3d 637, 643 (6th Cir. 2006) (quoting Peoples Rights Org., Inc. v. City of Columbus , 152 F.3d 522, 527 (6th Cir.1998) ). At this point, Black Diamond is seeking a declaratory judgment relating only to past events—that the Specified Auction was not a modified Dutch auction, that it violated Section 10.6 of the Credit Agreement, that the Default precipitated by that violation prevented Section 2 of the Third Amendment from becoming effective by its terms, and that the 2018 Transaction therefore was void ab initio . But at the time Black Diamond commenced this adversary proceeding, it was seeking, as part of the First Claim for Relief, prospective relief (which the Court denied) in the form of a judgment declaring the Term Loan Lenders to be the "true senior and first lien lenders with respect to the Term Loan Collateral" Am. Compl. at 31. And standing is determined at the time the adversary proceeding is commenced. See Barry v. Lyon , 834 F.3d 706, 715 (6th Cir. 2016) ("[C]ounsel for the state conceded at oral argument on the summary-judgment motion that plaintiff ... had standing at the commencement of the suit, which is the relevant time period for determining standing."). The Court accordingly concludes that Black Diamond has standing to bring the First Claim for Relief.
Murray and GLAS offer two other arguments in support of their position that the Court should decline to enter a declaratory judgment in favor of Black Diamond even if the Court were to find that the Specified Auction was not a modified Dutch auction as that term is understood in the finance industry. As explained below, however, neither of these arguments has any merit.
1. The Tethering Argument
Murray and GLAS contend that Black Diamond's request for declaratory relief should be denied because "it is wholly untethered to any claim for cognizable relief for breach of contract." Murray and GLAS Mem. of Law ¶ 14. The two decisions on which Murray and GLAS rely in making this argument do not support their position. In one of those decisions, the court merely held that the plaintiffs could not bring declaratory judgment claims under a statute that afforded them no private right of action. See Graham v. U.S. Bank, Nat'l Ass'n. , No. 3:15-cv-0990-AC, 2015 WL 10322087, at *11 (D. Or. Dec. 2, 2015), adopted by 2016 WL 393336 (D. Or. Feb. 1, 2016). In the other, the court held that the plaintiffs’ claim for declaratory relief was improper because it "duplicate[d] their other causes of action." Pugal v. ASC (America's Servicing Co.) , No. 11-00054, 2011 WL 4435089, at *3 (D. Haw. Sept. 21, 2011). There is no duplication in this case and no statute under which Black Diamond is seeking to bring a private right of action. And, subject to certain exceptions not applicable here, a federal court "may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought ." 28 U.S.C. § 2201(a) (the "Declaratory Judgment Act") (emphasis added). As the Supreme Court has explained:
"In ... cases seeking declaratory relief ... the federal court applies state law on substantive issues, but federal law controls the issue of whether the court may properly render a declaratory judgment." Grubstein v. Hemphill , No. 4:12cv385, 2013 WL 12291911, at *5 (N.D. Fla. Feb. 25, 2013) (quoting Faraday Capital Ltd. v. 325 Goodrich Ave., LLC , 2012 WL 2990273, at *4 (M.D. Ga. July 20, 2012) ; Townhouses of Highland Beach Condo. Assoc., Inc. v. QBE Ins. Corp ., 504 F. Supp. 2d 1307, 1309–10 (S.D. Fla. 2007) (holding that federal law determines appropriateness of rendering a declaratory judgment but that state law determines substantive rights and duties to the parties of the contract).
Prior to [the Declaratory Judgment] Act, a federal court would entertain a suit on a contract only if the plaintiff asked for an immediately enforceable remedy like money damages or an injunction, but such relief could only be given if the requisites of jurisdiction, in the sense of a federal right or diversity, provided foundation for resort to the federal courts. The Declaratory Judgment Act allowed relief to be given by way of recognizing the plaintiff's right even though no immediate enforcement of it was asked.
Skelly Oil Co. v. Phillips Petroleum Co. , 339 U.S. 667, 671–72, 70 S.Ct. 876, 94 L.Ed. 1194 (1950) ; see also Cont'l Cas. Co. v. Indian Head Indus., Inc. , 941 F.3d 828, 836 (6th Cir. 2019) (recognizing that a judgment may be entered in "an action for only declaratory relief"). Black Diamond's request for a declaratory judgment therefore need not be "tethered" to any other claim to be viable. 2. The Inequitable-Conduct Argument
Murray and GLAS also assert that Black Diamond has engaged in inequitable conduct that bars it from obtaining equitable relief. Murray and GLAS Mem. of Law ¶ 48. They raise a host of arguments in support of this contention, first arguing that what Black Diamond is really seeking is rescission and that it therefore must show that it is entitled to that remedy. They also contend that, because rescission is an equitable remedy, Black Diamond is subject to the equitable defenses of ratification, laches, unclean hands, and equitable estoppel. For the reasons explained below, Murray and GLAS's inequitable-conduct argument misses the mark.
a. Rescission
Murray and GLAS argue that Black Diamond's request for a declaratory judgment that the 2018 Transaction is void ab initio is "just a thinly disguised claim for rescission." For this proposition they rely on Anesthesia Associates of Mount Kisco, LLP v. N. Westchester Hosp. Ctr. , 59 A.D.3d 481, 873 N.Y.S.2d 202, 204 (2009), quoting it as follows: "Where the declaratory judgment cause of action seeks to have a contract between two of the defendants declared null and void ... the traditional action to present [that claim is] a claim for rescission." But what the court in Anesthesia Associates actually said is this: "[W]here the declaratory judgment cause of action seeks to have a contract between two of the defendants declared null and void, the traditional action ‘most likely [to] have been used to present the instant claim had the declaratory judgment action not been created ’ would have been a claim for rescission." Anesthesia Assocs. , 873 N.Y.S.2d at 204 (emphasis added) (quoting Indep. Church of Realization of Word of God v. Bd. of Assessors of Nassau Cnty ., 72 A.D.2d 554, 420 N.Y.S.2d 765 (1979) ).
The issue in Anesthesia Associates was whether the plaintiffs had waived their right to a jury trial. Under New York law, "joinder of claims for legal and equitable relief arising out of the same transaction amounts to a waiver of the right to demand a jury trial." Id . at 203. According to the Anesthesia Associates court, in order to determine whether a request for a declaratory judgment is legal or equitable in nature, "it is necessary to examine which of the traditional actions would most likely have been used to present the instant claim had the declaratory judgment action not been created." Id . at 203–04 (internal quotation marks and citations omitted). The court decided on rescission, holding that "[s]ince an action for rescission sounds in equity, the defendants are correct that the cause of action for declaratory relief in this case is equitable in nature." Id. at 204. The court therefore held that the right to a jury trial had been waived. But the court did not hold that the plaintiffs needed to establish the elements of rescission in order to obtain the declaratory judgment that the contract was null and void.
Black Diamond is seeking a declaratory judgment that the 2018 Transaction is void ab initio . Void contracts "never come[ ] into existence," Adams v. Suozzi , 433 F.3d 220, 227 (2d Cir. 2005), and Black Diamond is seeking a declaration that the Third Amendment never came into existence—that it is void ab initio —because a condition precedent to its formation never occurred. By contrast, rescission applies to voidable contracts, which give rise to obligations until they are rescinded. Id . Because Black Diamond is seeking a declaratory judgment that the 2018 Transaction is void ab initio , not that it be rescinded, Black Diamond need not satisfy the elements of rescission. See Moses v. Carver , 164 Misc. 204, 298 N.Y.S. 378, 388 (N.Y Sup. Ct. 1937) (holding that when a contract is "deemed to have been wholly void ab initio ... there is no contract to be disaffirmed" and that "[i]n such a case rescission is not the remedy"), aff'd , 254 A.D. 402, 5 N.Y.S.2d 783 (1938) ; Schroeder v. Zykan , 255 S.W.2d 105, 111 (Mo. App. 1953) ("A void contract has no existence. In such case there is no contract to rescind or to affirm[.]"). Asking that the 2018 Transaction be held void ab initio does not subject Black Diamond to equitable defenses.
b. Equitable Defenses
The fact that Black Diamond is seeking a declaratory judgment, however, may make it subject to equitable defenses. There is a question whether equitable defenses apply in the declaratory-judgment context. See Gen. Motors Corp. v. Blevins , 144 F. Supp. 381, 387 (D. Colo. 1956) ("There is uncertainty in the decision[s] as to whether or not equitable maxims and equitable defenses apply in a declaratory judgment action."). The Supreme Court has stated that a declaratory judgment action is "equitable in nature, and ... equitable defenses may be interposed." Abbott Labs. v. Gardner , 387 U.S. 136, 155, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967), abrogated on other grounds by Califano v. Sanders , 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977). And other courts, including the Sixth Circuit, have described declaratory judgments as equitable in nature. See In re Caudill , No. 20-3834, 2020 WL 6748203, at *1 (6th Cir. Oct. 30, 2020) ("[The] complaint plainly seeks equitable remedies, namely declaratory judgment and injunctive relief.") (citing Samuels v. Mackell , 401 U.S. 66, 70, 91 S.Ct. 764, 27 L.Ed.2d 688 (1971) for the proposition that "a suit for declaratory judgment [is] nevertheless ‘essentially an equitable cause of action’ "); Canal Ins. Co. v. Flores , No. 3:06-CV-84-KC, 2009 WL 1033770, at *16 (W.D. Tex. Apr. 14, 2009) ("[A]s a form of equitable relief, declaratory judgment may be foreclosed by equitable defenses, including unclean hands."); Crosslink Orthopaedics, LLC v. Synthes Spine Co. , No. 7:07-cv-59, 2007 WL 3333342, at *4 (M.D. Ga. Nov. 9, 2007) ("Declaratory judgment is a form of equitable relief, and therefore equitable defenses—including unclean hands—may be interposed."); United States v. Fall River Navigation Co. , 285 F. Supp. 354, 358 (S.D.N.Y. 1968) (stating that "unclean hands ... is a recognized ground to refuse to grant declaratory relief").
That said, the Supreme Court and another panel of the Sixth Circuit have on other occasions described the action for a declaratory judgment as being neither legal nor equitable in nature. Gulfstream Aerospace Corp. v. Mayacamas Corp ., 485 U.S. 271, 284, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988) (stating that "[a]ctions for declaratory judgments are neither legal nor equitable"); Sanders v. Louisville & N.R. Co ., 144 F.2d 485, 486 (6th Cir. 1944) ("[A]ctions for declaratory judgment are sui generis and the procedural remedy is neither legal nor equitable.").
The Court will assume for the sake of argument that equitable defenses of ratification, laches, unclean hands, and equitable estoppel apply where a party is seeking a declaratory judgment. But even if those defenses apply in this context, they are unavailing here. And that is because all the evidence Murray and GLAS put forth in support of their equitable defenses suffers from the same infirmity—it conflates the Black Diamond entities. That is, it treats Black Diamond, the Black Diamond Participating Funds and the Black Diamond Non-Participating Funds as though they were a single entity that collectively executed a "hold-out" or "hedge" strategy. Without citing any authority, Murray and GLAS contend that "[b]ecause Black Diamond serves as administrative agent for the Black Diamond Non-Participating Funds, and because they are under common control under managing principal Mr. Deckoff, the knowledge of inequitable conduct of one Fund may be chargeable to other Funds and to Black Diamond itself." Murray and GLAS Mem. of Law. ¶ 57 n.58. But Black Diamond, the Black Diamond Non-Participating Funds, and the Black Diamond Participating Funds are separate entities, and Murray and GLAS do not offer any evidence to establish that they should be treated as one. Thus, equitable defenses can be asserted only against Black Diamond based on actions taken by it and by the Black Diamond Non-Participating Funds on whose behalf it is now acting, not based on the conduct of the separate Black Diamond Participating Funds. And there is no evidence in the summary judgment record suggesting that Black Diamond or the Black Diamond Non-Participating Funds engaged in any conduct that would give rise to the equitable defenses of ratification, laches, unclean hands, or equitable estoppel.
Murray and GLAS also contend that the Black Diamond Non-Participating Funds failed to object to the 2018 Transaction in a timely fashion and that the Debtors relied on the lack of any objection when they commenced their Chapter 11 cases and negotiated DIP financing. But they fail to mention the letters that counsel for Black Diamond sent to counsel for the Debtors and counsel for the ad hoc group of Superpriority Lenders (the "Ad Hoc Group"). Black Diamond became the administrative agent for the Term Loan Lenders on October 10, 2019. Two weeks later, on October 24, 2019, its counsel sent a letter to counsel for the Debtors stating that "the Third Amendment suffers from numerous infirmities and violated the Credit Agreement in several respects." Black Diamond Ex. 24, Letter to Kirkland & Ellis, at 2. That same day, Black Diamond sent counsel for the Ad Hoc Group a letter that was even more explicit:
[Murray Energy] has taken the position that the Superpriority Lenders have the first lien on Collateral under the Collateral Trust Agreement. But the [Third Amendment], which enabled the creation of Superpriority Lenders, suffers from multiple infirmities and violated the Credit Agreement in several respects. These include, but are not limited to, the following:
• The Specified Auction was not a "modified Dutch Auction" as that term is used in the Credit Agreement and understood in the industry. The consummation of the Specified Auction therefore violated Section 10.6(i) of the Credit Agreement and gave rise to a default under Section 8.1(e) of the Credit Agreement.
Black Diamond Ex. 25, Letter to Davis Polk & Wardwell LLP, at 1.
Counsel for the Debtors and the Ad Hoc Group were in possession of these letters when, on October 28, 2019, the Debtors entered into a Restructuring Support Agreement providing for DIP financing and the filing of Chapter 11 cases by the Debtors the next day. Thus, it is not accurate to say that the Black Diamond Non-Participating Funds failed to raise issues with the Specified Auction before the Debtors commenced their Chapter 11 cases and negotiated DIP financing.
In the end, Murray and GLAS do not make the case for treating Black Diamond, the Black Diamond Non-Participating Funds, and the Black Diamond Participating Funds—all separate legal entities—as one. Thus, equitable defenses can be asserted only against Black Diamond based on actions taken by it and by the Black Diamond Non-Participating Funds on whose behalf it is now acting, not based on the conduct of the separate Black Diamond Participating Funds. See Fed. Deposit Ins. Corp. v. Hanson , No. C13-0671-JCC, 2013 WL 12074983, at *6 (W.D. Wash. Dec. 10, 2013) ("Plaintiff argues that equitable estoppel cannot be asserted against the FDIC-R based on the actions of the FDIC-REG and the WDFI, as those are two separate entities. Because equitable estoppel requires an admission, statement, or act by a party inconsistent with a claim later asserted by the same party ... and because any actions by the FDIC-REG or the WDFI were not performed by the FDIC-R, the Court agrees that equitable estoppel cannot be asserted against the FDIC-R."). And Murray and GLAS have offered no evidence that Black Diamond or the Black Diamond Non-Participating Funds engaged in any conduct that would give rise to the equitable defenses of ratification, laches, unclean hands, or equitable estoppel.
c. Ratification
Murray and GLAS contend that the Term Loan Lenders ratified the 2018 Transaction by not contesting it sooner than they did:
Black Diamond, through its lender constituency—the non-extending Term Loan [L]enders—ratified the Specified Auction by its conduct over the course of eighteen months. ...
The non-extending Term Loan [L]enders were fully aware that the 2018 Transaction was being conducted as a modified Dutch auction. They also questioned and researched specifically (1) why the 2018 Transaction was being structured as an auction, and (2) whether the auction was permissible under the 2015 Credit Agreement. If they believed that the auction structure violated the 2015 Credit Agreement, it was incumbent upon them to say so at the time. Instead, with eyes wide open, BDCM stayed silent and instead deliberately split their votes—for economic reasons—between the Black Diamond Participating Lenders and the Black Diamond Non-Participating Lenders. The Black Diamond Non-Participating Lenders made an express and calculated judgment to roll the dice on the proposition that Murray would stay out of bankruptcy and that they would be paid when their term loans matured in 2020.
Murray and GLAS Mem. of Law ¶ 56.
Murray and GLAS rely on In re Levy , 69 A.D.3d 630, 893 N.Y.S.2d 142 (2010) for the proposition that "[t]he essence of ratification" of a transaction is that the counterparty "elects to treat it as a lawful transaction." Levy , 893 N.Y.S.2d at 144. The facts of Levy are much different than those present here. In Levy , two sons, Joel and David, received a distribution of artwork from their father's estate. Joel eventually became dissatisfied with the distribution, but the court held that he had ratified it because he "failed to complain until more than 25 years after the distribution, during which time he sold most or all of the works of art he received, making rescission impossible, and frustrating any effort to attempt to place values on those items as of the time of distribution." Id . Here, by contrast, the Black Diamond Participating Funds did not ratify the 2018 Transaction. In fact, they did not participate in it. And Black Diamond was not required to bring this adversary proceeding on their behalf any earlier than it did. The Credit Agreement provides that "[n]o failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein." Credit Agreement § 10.9.
d. Laches
Murray and GLAS also rely on the defense of laches, Murray and GLAS Mem. of Law ¶ 59, which is "such neglect or omission to assert a right as, taken in conjunction with the lapse of time ... and other circumstances caus[e] prejudice to an adverse party." Schulz v. State , 81 N.Y.2d 336, 599 N.Y.S.2d 469, 615 N.E.2d 953, 957 (1993) (citation omitted). "The essential element of this equitable defense is delay prejudicial to the opposing party." Id . (citation omitted). There is some question whether a laches defense arises when a party delays in exercising a contractual right. See DiStefano v. Maclay , 102 F. App'x 188, 190 (2d Cir. 2004) (holding that laches "does not apply to the delayed exercise of a contractual right"); U.S. Bank Nat'l Ass'n v. Windstream Servs., LLC , No. 17-CV-7857 (JMF), 2019 WL 948120, at *11 (S.D.N.Y. Feb. 15, 2019) (same) (citing DiStefano ). But even if the defense of laches otherwise would apply in this context, it does not bar Black Diamond from obtaining relief under the circumstances presented here. The Defendants contend that they would be prejudiced by a challenge to the 2018 Transaction because the "Debtors and the Superpriority Term Loan Lenders entered a DIP Facility in October 2019 in reliance on the validity of the 2018 Transaction." Murray and GLAS Mem. of Law ¶ 59. But, again, the Defendants fail to acknowledge the letters that counsel for Black Diamond sent to counsel for the Debtors and counsel for the Ad Hoc Group before the Debtors entered into a Restructuring Support Agreement providing for their filing of Chapter 11 cases and entry into a DIP financing agreement. Given that the Defendants were on notice that Black Diamond was challenging the 2018 Transaction, the defense of laches is not available. See Weiss v. Mayflower Doughnut Corp ., 1 N.Y.2d 310, 319–320, 152 N.Y.S.2d 471, 135 N.E.2d 208 (N.Y. 1956) (holding in a lawsuit to enforce a restrictive covenant that the defendant could not assert laches given that he knew that the plaintiff would seek to enforce the covenant); Cohen v. Krantz , 227 A.D.2d 581, 643 N.Y.S.2d 612, 614 (1996) (holding that laches did not apply where, "[b]ased on the evidence, the defendants were on notice that the plaintiffs would assert their claim for relief"); Donovan v. Diplomat Envelope Corp ., 587 F. Supp. 1417, 1423 (E.D.N.Y. 1984) (holding that an action was not barred by laches where "defendants were on notice of the existence of [the plaintiff's] claim that he was discriminatorily discharged" more than a year before the action was commenced and noting that defendants were not "so severely prejudiced by the delay as to render the commencement of this action inequitable"), aff'd , 760 F.2d 253 (2d Cir. 1985).
e. Unclean Hands
Murray and GLAS also rely on the defense of unclean hands. Murray and GLAS Mem. of Law ¶¶ 60–61. The party asserting this defense must show that the plaintiff committed (1) "immoral, unconscionable conduct," that (2) the asserting party relied on that conduct; and that (3) the "asserting party was injured as a result." Cohen v. Treuhold Capital Grp., LLC (In re Cohen) , 422 B.R. 350, 381 (E.D.N.Y. 2010). The Defendants have not alleged any conduct on the part of Black Diamond or the Black Diamond Non-Participating Funds that can be characterized as immoral or unconscionable, and the defense of unclean hands accordingly does not apply.
Murray and GLAS contend that "New York courts have applied the unclean hands doctrine where a party attempts to have it both ways by engaging in incongruous action." Murray and GLAS Mem. of Law ¶ 61. But neither Black Diamond nor the Black Diamond Non-Participating Funds engaged in any such incongruous action. The Black Diamond Non-Participating Funds declined to participate in the 2018 Transaction. The only way the Court could find that the Black Diamond Non-Participating Funds engaged in incongruous action is by conflating them with the Black Diamond Participating Funds. Again, Murray and GLAS fail to make the case for doing so.
f. Equitable Estoppel
Murray and GLAS also rely on the defense of equitable estoppel. Murray and GLAS Mem. of Law at ¶¶ 65–67. Equitable estoppel applies when it is necessary "to preclude a person from asserting a right after having led another to form the reasonable belief that the right would not be asserted, and loss or prejudice to the other would result if the right were asserted." Shondel J. v. Mark D ., 7 N.Y.3d 320, 820 N.Y.S.2d 199, 853 N.E.2d 610, 613 (2006). Murray and GLAS state that they relied on both Mr. Deckoff's signature on behalf of the Black Diamond Participating Funds and on the absence of any objection to the 2018 Transaction to arrive at the conclusion that the 2018 Transaction was valid and enforceable, "when bringing these chapter 11 cases and obtaining additional funding from the Superpriority [L]enders through the DIP Facility in October 2019." Murray and GLAS Mem. of Law ¶ 66. But, again, they fail to take into account the letters that counsel for Black Diamond sent to counsel for the Debtors and counsel for the Ad Hoc Group asserting that the Third Amendment violated the Credit Agreement. Those letters were sent before the Debtors commenced their bankruptcy cases and before they obtained debtor in possession financing from the Superpriority Lenders. Thus, it cannot be said that the Black Diamond Non-Participating Lenders led the Debtors and the Superpriority Lenders to believe that the right to challenge the Third Amendment would not be asserted, and the defense of equitable estoppel therefore does not apply.
VI. Conclusion
"A court should not grant a summary judgment until the facts have been sufficiently developed to enable it to decide with reasonable certainty that it is making a correct determination of the law." Local Union No. 1423, Glaziers v. P.P.G. Indus., Inc. , 378 F. Supp. 991, 1000 (N.D. Ind. 1974). In order to adjudicate this matter, the Court needs to decide whether the Specified Auction that Murray conducted back in 2018 was a modified Dutch auction—as that term is commonly understood in the finance industry—or another type of transaction. Here, there are too many unanswered questions for the Court to decide that issue on summary judgment. And, as explained above, the defenses asserted by Murray and GLAS are inapplicable under the circumstances of this case, so they provide no basis for summary judgment in their favor. For all these reasons, the Court denies the Black Diamond Motion, the Murray and GLAS Motion, and the U.S. Bank Motion. The Court will by separate order schedule a status conference to address pretrial matters and the scheduling of a trial.