United States District Court, S.D. New York
ANDREW E. ROTH, derivatively on behalf of YRC WORLDWIDE, INC Plaintiff,
SOLUS ALTERNATIVE ASSET, MANAGEMENT LP, et al., Defendants.
OPINION & ORDER
WILLIAM H. PAULEY III, United States District Judge.
Roth brings this shareholder derivative suit on behalf of YRC
Worldwide Inc. (“YRC”) against Solus Alternative
Asset Management LP, Solus GP LLC, Sola Ltd., Solus
Opportunities Fund 1 LP, Solus Opportunities Fund 2 LP, Solus
Core Opportunities Master Fund Ltd., Ultra Master Ltd. and
Christopher Pucillo (collectively, “Solus”). Roth
alleges violations of § 16 of the Securities Exchange
Act and seeks disgorgement of short-swing profits. Both
parties move for summary judgment. For the following reasons,
Roth's motion for summary judgment as to liability is
denied and Solus's motion for summary judgment dismissing
this action is granted.
action arises from the 2013 restructuring of YRC, a
Kansas-based trucking company. (See Parties'
Joint Rule 56.1 Statement of Undisputed Facts (“56.1
Stmt.”) ¶ 1.) Toward the end of 2013 YRC found
itself in a precarious financial position, with more than $1
billion in debt due in February 2014. (56.1 Stmt.
¶¶ 14, 28, 29.) YRC launched a refinancing plan
that involved extending its labor agreement with the
International Brotherhood of Teamsters, the labor union to
which most YRC employees belonged. (56.1 Stmt. ¶ 12.) In
early December, YRC and the union leadership reached an
agreement to extend the contract through 2018 provided that,
inter alia, (1) the union membership ratified the
extension by January 8, 2014 and (2) YRC retired at least 90%
of its outstanding Series A and Series B Notes. (56.1 Stmt.
¶ 48.) Both the Series A and Series B Notes were
convertible into YRC common stock. As of November 14, 2013,
Solus held Series A and Series B Notes representing the
equivalent of 5.32% of all outstanding YRC stock. (56.1 Stmt.
the labor-contract extension in place, YRC developed a
restructuring plan that involved issuing new shares of common
stock, selling those shares in a private placement, and then
using the proceeds of the sale to repurchase Series A Notes
from the investors who participated in the private placement.
(56.1 Stmt. ¶ 49.) The company approached existing
noteholders in early December, asked them to sign
non-disclosure agreements, and began negotiating the terms of
the private placement. (56.1 Stmt. ¶ 46.)
December 9 and 13 (but prior to signing the non-disclosure
agreement), Solus purchased additional YRC securities, which
caused Solus to become a beneficial owner of more than 10% of
the outstanding YRC shares. (56.1 Stmt. ¶¶ 50-51.)
Thereafter, Solus made two purchases of Series A and Series B
Notes with an aggregate principal amount of more than $17.5
million and publicly reported these increases in beneficial
ownership pursuant to Schedule 13D and § 16(a). (56.1
Stmt. ¶¶ 52, 56.)
restructuring plan called for the issuance of a large block
of YRC common shares, creating a potential obstacle to the
restructuring in the form of the company's share cap-
that is, the maximum number of shares of common stock that
YRC could issue without holding a shareholder vote. (56.1
Stmt. ¶¶ 62-63.) YRC was obligated to hold enough
shares in reserve to cover conversion requests for all
outstanding Series A and Series B Notes. (56.1 Stmt. ¶
69.) The stock issue required to complete the restructuring,
when combined with those reserved shares, would cause YRC to
exceed its share cap. With the default date looming, however,
YRC did not have time to hold a shareholder vote on the share
cap. (56.1 Stmt. ¶¶ 70, 73.) Accordingly, YRC asked
all potential investors in the restructuring who held Series
A Notes to waive the convertibility feature, thereby freeing
up the corresponding reserved shares for issue in the private
placement. (56.1 Stmt. ¶ 73.) This conversion waiver was
terminable in the event that the restructuring did not close
on or before February 13, 2014. (See Declaration of
Michael E. Swartz (“Swartz Decl.”), Ex. 74 at
December 22, YRC set the final purchase price for the private
placement and notified the ten investors of their individual
share allocations. (56.1 Stmt. ¶ 78.) Solus's
allocation was worth $25 million. (56.1 Stmt. ¶ 80.) At
the time, Solus was a beneficial owner of 14.56% of YRC's
common stock through its holdings of stock and convertible
Notes. (56.1 Stmt. ¶ 55.) Thus, Solus was concerned that
any profits derived from its participation in the
restructuring would be subject to disgorgement as short-swing
gains under § 16(b).
advice of outside counsel, Solus requested that YRC modify
the conversion waiver in Solus's Stock Purchase Agreement
to make the waiver permanent and irrevocable upon execution,
regardless of whether the restructuring closed by February
13. (56.1 Stmt. ¶ 82.) This change would, Solus
believed, reduce its beneficial ownership to 8.43% of YRC
common stock prior to the stock purchase, thereby eliminating
any § 16(b) liability for Solus's participation in
the restructuring. (56.1 Stmt. ¶ 82.) To retain
“protection” in the event that the restructuring
failed to close, however, Solus also requested that the
permanent waiver apply only to Solus and its affiliates, and
not to any subsequent, unaffiliated purchaser of the Notes.
(56.1 Stmt. ¶ 88; Swartz Decl. Ex. 53.) YRC agreed to
these proposed changes, the parties executed the revised
Stock Purchase Agreement on December 23, and Solus filed an
amended Schedule 13D disclosing the full structure of the
transaction the following day. (56.1 Stmt. ¶ 92.) The
restructuring closed on January 31, 2014. (56.1 Stmt. ¶
judgment should be granted if the record 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); see also Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The
burden of demonstrating the absence of any genuine dispute of
material fact rests with the moving party. See Adickes v.
S.H. Kress & Co., 398 U.S. 144, 157 (1970). Once the
moving party has made an initial showing that there is no
genuine dispute of material fact, the non-moving party cannot
rely on the “mere existence of a scintilla of
evidence” to defeat summary judgment but must set forth
“specific facts showing that there is a genuine
issue for trial.” Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
“A dispute about a ‘genuine issue' exists for
summary judgment purposes where the evidence is such that a
reasonable jury could decide in the non-movant's
favor.” Beyer v. Cty. of Nassau, 524 F.3d 160,
163 (2d Cir. 2008) (quoting Guilbert v. Gardner, 480
F.3d 140, 145 (2d Cir. 2007)). “Where the record taken
as a whole could not lead a rational trier of fact to find
for the nonmoving party, there is no ‘genuine issue for
trial.'” Scott v. Harris, 550 U.S. 372,
380 (2007) (citing Matsushita, 475 U.S. at 586-87).
The Court resolves all factual ambiguities and draws all
inferences in favor of the non-moving party. See Liberty
Lobby, 477 U.S. at 255; see also Jeffreys v. City of
New York, 426 F.3d 549, 553 (2d Cir. 2005).
establish liability under § 16(b), a plaintiff must show
“that there was (1) a purchase and (2) a sale of
securities (3) by an officer or director of the issuer or by
a shareholder who owns more than 10% of any one class of the
issuer's securities (4) within a six month period.”
Gwozdzinsky v. Zell/Chilmark Fund, L.P., 156 F.3d
305, 308 (2d Cir. 1998). “Section 16(b) thus compels
statutory insiders to disgorge profits earned on any purchase
and sale ...