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CANPARTNERS INVS. IV v. ALLIANCE GAMING CORP.

October 27, 1997

CANPARTNERS INVESTMENTS IV, LLC, and CERBERUS PARTNERS, L.P., Plaintiffs, against ALLIANCE GAMING CORP., Defendant.


The opinion of the court was delivered by: BAER

 HAROLD BAER, JR., District Judge:

 Defendant removed this breach of contract action from state court and now moves to dismiss the complaint. For the reasons discussed below, the motion is GRANTED in part and DENIED in part.

 BACKGROUND

 Plaintiffs Canpartners and Cerberus entered into a Commitment Letter dated August 30, 1995 ("Letter") with defendant Alliance Gaming, pursuant to which plaintiffs agreed to fund Alliance's subsidiary, BGII, in its tender offer, which sought to take over Bally Gaming. The Letter promised $ 30 million for the takeover. The Letter also provided for the payment of "Commitment Fees" to plaintiff in the amount of $ 750,000 upon acceptance by defendant. Letter at 3, P 8. Two side agreements of the same date provided for an additional $ 300,000 in Commitment Fees, for a total of over $ 1 million. There was acceptance by the defendant and the commitment fees for making the money available have been paid. Plaintiffs also received warrants for 250,000 shares of Alliance stock.

 The Letter is not a loan agreement. Rather, it commits the plaintiffs to make the $ 30 million available upon the occurrence of certain conditions precedent spelled out in Schedule I. These conditions precedent include the execution of actual loan documents and a successful effort by Alliance to borrow $ 35 million from a senior lender. The Commitments expired after six months (i.e., on February 28, 1996) unless the loans were funded or the terms of the Letter extended.

 The Letter also provides that Alliance shall pay the respective plaintiffs "break-up" fees of $ 1.17 million and $ 780,000,

 
in the event that the Borrower [Alliance] . . . enters into any written agreement, commitment letter or other written understanding with respect to providing, directly or indirectly, financing for the consummation of the Tender Offer or any other acquisition by the Borrower . . . either directly or indirectly, of more than 50% of the stock of Bally or involving a merger or consolidation with Bally.

 Letter at 5. This provision is central to the dispute. On October 18, 1995, Alliance signed a friendly Merger Agreement with Bally Gaming, under which Alliance acquired Bally Gaming's stock for cash and shares of Alliance stock. The Merger Agreement did not itself provide any financing for Alliance. It did require, however, as a "closing Condition," that "Alliance shall have obtained $ 150,000,000 of financing having terms that are commercially reasonable . . . . The financing shall include a sale for cash . . . of Series B Special Stock . . . and at least two-thirds of the financing shall be in the form of bank debt." Merger Agreement P 7.1.6. Subsequently, in June 1996, after the Letter agreement with plaintiffs expired, Alliance obtained the funding.

 DISCUSSION

 I. The First Cause of Action: Breach of Contract

 Plaintiffs allege in Count I of the complaint that Alliance breached the Letter by failing to pay the $ 1.95 million in break-up fees. Defendants move to dismiss on the ground that the Letter unambiguously does not require the payment of break-up fees. Defendants argue that the Merger Agreement with Bally does not provide direct financing for the defendants in order to trigger payment under the break-up provision, but rather contemplates Alliance getting financing elsewhere. "Under New York law . . . whether a contract is ambiguous is a matter of law for the court to decide . . . ." Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 299 (2d Cir. 1996).

 Plaintiffs contend in their papers that Alliance's Merger Agreement with Bally is a "written agreement . . . with respect to providing, directly or indirectly, financing . . . involving a merger or consolidation with Bally", Letter at 5, and that the break-up fees are therefore due and owing. Read in this fashion the argument fails since the Merger Agreement does not "provide financing", but rather contemplated that the defendant would obtain financing elsewhere.

 At oral argument, plaintiffs presented a more compelling argument, noting that the break-up provision ...


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