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FLEET CAPITAL CORP. v. MULLINS

March 18, 2004.

FLEET CAPITAL CORP., Plaintiff, -against- BILLY J. MULLINS, JR., et al., Defendants


The opinion of the court was delivered by: RICHARD J. HOLWELL, District Judge

Memorandum Opinion and Order

Fleet Capital Corporation ("Fleet") filed this action seeking declaratory judgment and an injunction against Billy J. Mullins, Jr. and Faraway Enterprises, Inc. (collectively "Mullins"). Mullins has moved to dismiss, stay, or transfer this action. HIG Capital, LLC, HIG TestAmerica Cayman, Inc., and TestAmerica Environmental Services, LLC (collectively "HIG") have moved to intervene in the present case. Sagaponac Partners, L.P. and Marc Weisman (collectively "Sagaponac") have also moved to intervene and have submitted an opposition brief in response to Mullins's motion to dismiss, stay, or transfer this action. For the following reasons, Mullin's motion to stay the case is granted. HIG's and Sagaponac's motions are denied without prejudice.

FACTS

  The following facts are gleaned from Fleet's complaint, as well as HIG's and Sagaponac's motions, and are assumed true for the purposes of resolving the present Page 2 motions. See Astor Holdings, Inc. v. Roski, No. 01 Civ. 1905 (GEL), 2002 WL 72936, at *7 (S.D.N.Y. Jan. 17, 2002) ("For the purposes of deciding Defendants' motion to dismiss for improper venue or, in the alternative, to transfer the case to another judicial district, the Court must accept all of the uncontroverted allegations in Plaintiffs' complaint as true and construe all reasonable inferences in plaintiffs' favor."); Herman v. New York Metro Area Postal Union, No. 97 Civ. 6839 (KMW), 1998 WL 214787, at * 1 (S.D.N.Y. Apr. 30, 1998) ("The applicants' well pleaded allegations must be accepted as true for purposes of considering a motion to intervene, with no determination made as to the merits of the issues in dispute.").

  In 1997, Sagaponac, an investment partnership, provided debt financing to a company called TestAmerica Inc.*fn1 See Mem. of Law in Supp. of Mot. to Intervene on Behalf of Sagaponac at 1 (hereinafter "Sagaponac Mot."). As part of the financing arrangement, Sagaponac received the right to block any sale by TestAmerica of a substantial portion of its assets. See id. at 2; Compl. ¶ 21.

  In 1998, Fleet entered into an agreement to provide TestAmerica with an additional $37 million in debt financing. See Compl. ¶ 7. TestAmerica used part of this additional financing to purchase from Muliins all the assets of Mullins Environmental Testing Company. See id. ¶ 10. In exchange for the assets, Mullins received, among other things, over $8 million in cash and an 8% Subordinated Convertible Note valued at approximately $2 million. See id. ¶ 11. Page 3

  The purchase transaction was executed through a set of agreements, one of which was a Subordination Agreement signed by Mullins, Fleet, and Sagaponac. See Sagaponac Mot. at 3; Compl. ¶ 12. The Subordination Agreement made Mullins TestAmerica's juniormost subordinated creditor, effectively placing Mullins's right to repayment of any debt owed by TestAmerica behind Fleet's and Sagaponac's rights to repayment by TestAmerica. See Sagaponac Mot. at 3; Compl. ¶ 13. The Subordination Agreement also stated:
ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT IN A COURT OF RECORD IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, THE COMPANY, THE SUBORDINATED CREDITOR AND ALL OTHER PRESENT OR FUTURE HOLDERS OF SUBORDINATED DEBT HEREBY CONSENTING AND SUBMITTING TO THE JURISDICTION THEREOF . . . AND MUTUALLY WAIVE TRIAL BY JURY AND ANY CLAIM THAT NEW YORK COUNTY OR THE SOUTHERN DISTRICT OF NEW YORK IS AN IMPROPER OR INCONVENIENT FORUM OR VENUE.*fn2 Compl. ¶ 15.
  On August 10, 2001, Fleet sent a notice of default to TestAmerica, a copy of which was also sent to Mullins. Compl. ¶ 17. TestAmerica's default to Fleet resulted in a cross-default under TestAmerica's agreement with Sagaponac. See Sagaponac Mot. at 3.

  In Fall 2002, HIG, a private equity management company, began looking into purchasing the assets of TestAmerica. See Mem. of Law in Supp. of HIG's Mot. to Page 4 Intervene at 1 (hereinafter "HIG Mot."). HIG discovered that TestAmerica owed Fleet over $26 million. See id. at 2. HIG also discovered that TestAmerica could not sell its assets without Sagaponac's consent. See id. After extensive negotiations, HIG reached an agreement with TestAmerica, Fleet, and Sagaponac whereby, in exchange for acquiring TestAmerica's assets, HIG would pay Fleet approximately $23 million in full settlement of the debt owed by TestAmerica and Fleet, in turn, agreed that Sagaponac would be paid the remaining approximately $3 million for Sagaponac's consent to the sale of TestAmetica's assets. See id. at 2-3; Compl. ¶¶ 22-25.

  On January 3, 2003, HIG consummated this agreement by wiring the agreed upon sums to Fleet and Sagaponac. See Sagaponac Mot. at 4. However, HIG's payment to Sagaponac did not reduce TestAmerica's debt to Sagaponac. See id. TestAmerica used the remaining proceeds from the sale of assets to pay off part of its debt to Sagaponac, but the debt was not fully paid off See id. Mullins, as the most subordinated debt holder, did not receive any sums owed under the Subordinated Note. See id.

  In Winter 2002, just before HIG consummated the agreement, Mullins filed suit against TestAmerica and Sagaponac in Texas state court. See id. The case was removed to the United States District Court for the Northern District of Texas. See id. The Texas district court promptly dismissed Sagaponac from the suit, upon Sagaponac's motion, for lack of personal jurisdiction. See id. Neither Fleet nor HIG were named as parties originally. See id. However, on July 17, 2003, Mullins sought leave from the Page 5 Texas district court to amend his complaint to, among other things, add Fleet, Sagaponac, and HIG.*fn3

  On September 3, 2003, Fleet filed the present action in the United States District Court for the Southern District of New York. The complaint seeks a declaratory judgment decreeing that the approximately $3 million payment to Sagaponac did not violate Mullins's rights and that the claims asserted against Fleet in Mullins's Texas action lack merit. Compl. ¶ 34. The complaint also seeks an injunction against Mullins from prosecuting any claim against Fleet related to this dispute in any action other than the present action. Compl. ¶ 35.

  On October 16, 2003, Mullins moved to dismiss, stay, or transfer the present action in light of the Texas action. That same day, Sagaponac moved to intervene in the present action. On October 28, 2003, HIG similarly moved to intervene in the present action.

  On December 16, 2003, the Texas court granted Mullins leave to amend his complaint, and Mullins has since filed an amended complaint in that action naming Fleet, Sagaponac, and HIG as parties. On January 30, 2004, Sagaponac again moved in the Texas action to dismiss the ...


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