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BLUE RIDGE INVESTMENTS, LLC v. ANDERSON-TULLY COMPANY

January 11, 2005.

BLUE RIDGE INVESTMENTS, LLC, Plaintiff,
v.
ANDERSON-TULLY COMPANY Defendant.



The opinion of the court was delivered by: HAROLD BAER, JR., District Judge

OPINION & ORDER

Plaintiff, Blue Ridge Investments, LLC ("Blue Ridge"), filed the instant action to recover the prepayment penalty of $784,731.93 triggered by Defendant's, Anderson-Tully Company ("ATCO") early redemption of ATCO shares held by Blue Ridge. Blue Ridge moves for summary judgment pursuant to Fed.R.Civ.P. 56. For the reasons set forth below, the motion for summary judgment is GRANTED.

I. BACKGROUND

  ATCO is a timber company currently organized under the laws of the State of Mississippi. (Springer Decl. at ¶ 3). An affiliate of Bank of America ("Bank"), Blue Ridge was created to purchase equity that, because of regulatory restrictions, the Bank was not permitted to purchase directly. (Springer 11/11/2004 Dep. Tr. 20:23-21:24.)

  A. Certificate of Designation

  In May 1999, ATCO's Board of Directors adopted and filed with the Mississippi Secretary of State a Certificate of Designation (the "Certificate") which, inter alia, issued "25 Class A Voting Cumulative Participating Mandatory Redeemable Preferred Shares,*fn1 with a par value of $1.00 per share." ("Preferred Shares") (Springer Decl. Ex. 1, Certificate at 1). The Certificate also articulated two ways ATCO could redeem the Preferred Shares once sold: (1) Mandatory Redemption and (2) Optional Redemption. (Certificate, (vi)(A) at 10).

  1. Mandatory Redemption

  "Mandatory Redemption" required ATCO to repurchase the Preferred Shares from the holder by June 15, 2004 (the "Mandatory Redemption Date") or upon certain events such as:
[T]he aggregate value of all outstanding shares of Class A Preferred Stock held by the Original Holder [ATCO] . . . is equal to or exceeds 25% (the "Preferred Percentage") . . . in which case, only those number of shares of Class A Preferred Stock held by the Original Holder (as defined herein) . . . shall be redeemed as is necessary to reduce the Preferred Percentage to 24.9%.
(Certificate, (vi)(A) at 10) ("Mandatory Redemption Event").

  2. Optional Redemption

  "Optional Redemption" granted ATCO the option of redeeming the Preferred Shares before the Mandatory Redemption Date or Event. To invoke the Optional Redemption, ATCO would be required to pay a set price equal to: (i) "Liquidation Preference" plus (ii) a prepayment penalty equal to the "Make-Whole Amount." (Certificate, (vi)(B) at 11). The "Liquidation Preference" was $3,000,000 per share of Preferred Stock "plus an amount equal to all dividends accumulated, accrued and unpaid on the Preferred Stock as of the date of final distribution" (Certificate, (iv) at 6) and the:
"Make Whole Amount" means, with respect to any Class A Preferred Stock, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Preferred Stock over the Discounted Value of the Adjusted Remaining Scheduled Payments with respect to the Called Preferred Stock, provided that the Make Whole Amount may in no event less than zero . . .
(Certificate, (vi)(B) at 11).

  B. Subscription Agreement

  On May 11, 1999, ATCO and Blue Ridge agreed to Blue Ridge's purchase of $75,000,000 of ATCO Preferred Shares. (Springer Dec. Ex. 2, at 2) (herein, "Subscription Agreement"). The Subscription Agreement included a "governing law" clause, "[t]his Subscription agreement . . . shall be governed by and construed in accordance with the law of the state of New York." (Subscription Agreement § 5(d), at 7). Also included in the Subscription Agreement was a clause that prohibited oral modifications:
. . . No amendment, modification or waiver of any provision of this Subscription Agreement and no consent by any party to departure herefrom shall be effective unless and until such amendment, modification or waiver shall be in writing and duly executed by both of the parties hereto. (Subscription Agreement § f(g), at 8). Pursuant to the terms of the Subscription Agreement, the Certificate controlled the terms and conditions of both Blue Ridge's ownership rights and ATCO's Mandatory and Optional Redemption rights.*fn2 (Certificate, (vi)(A)-(B), at 10-11).
C. "Optional Redemption" Negotiations
  According to ATCO Executive Vice-President-Treasurer, E. David Coombs, Jr. ("Coombs"), approximately two years after the issuance of the Preferred Shares, Managing Director of Bank, David Springer ("Springer"), contacted Coombs regarding ATCO's ability to redeem the Preferred Shares from Blue Ridge before the Mandatory Redemption date:
Springer told me that that he had assumed all along that ATCO had no intention of leaving the shares in Blue Ridge's hands for the full five years . . . that Blue Ridge had an interest in terminating its investment [and] asked what the Bank could do to help facilitate ATCO's early redemption of the Preferred Shares. At that time, I told Springer that we could not do anything prior to June 15, 2001, pursuant to the terms of the Certificate of Designation.
(Coombs Aff. at ¶ 10).

  On January 24, 2003, representatives from Bank and ATCO met in Chicago.*fn3 (Coombs Aff. at ¶ 15). According to Coombs, during the meeting, ATCO made clear that it did not want to purchase the Preferred Shares back from Blue Ridge if the Make Whole Amount was included. (Coombs Aff. at ¶ 15). The Bank acquiesced. (Coombs Aff. at ¶ 15).*fn4

  In accordance with Blue Ridge's early redemption request, Coombs and others explored the various methods to achieve the necessary financing to redeem the Preferred shares. Ten months later, in October 2003, ATCO signed an Agricultural Mortgage Loan Application for $115 million with Citigroup to provide funds for the redemption. (Coombs Aff. at ¶ 27), and, in November 2003, Springer advised Blue Ridge of the Citigroup loan agreement. (Coombs Aff. at ¶ 19). On Friday, December 12, 2003, Coombs called Springer and Stokes. (Coombs Aff. at ¶ 31). After Coombs stated that the agreement would not include the Make-Whole Amount, ...


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