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Wilmington Trust, National Association v. Estate of McClendon

United States District Court, S.D. New York

February 20, 2018

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Administrative Agent and Collateral Agent, Plaintiff,
v.
THE ESTATE OF AUBREY K. MCCLENDON, deceased, THOMAS J. BLALOCK, in his capacity as Personal Representative of the Estate of Aubrey K. McClendon, deceased, and KATHLEN B. MCCLENDON, in her capacity as Special Administrator of the Estate of Aubrey K. McClendon, deceased, Defendants.

          LATHAM & WATKINS LLP New York, NY 10022 By: Blair G. Connelly, Esq. Arthur F. Hoge, III, Esq. Attorneys for Plaintiff

          PATTERSON BELKNAP WEBB & TYLER LLP By: James V. Masella, III, Esq. Matthew E. Funk, Esq. CONNER & WINTERS, LLP Jared D. Giddens, Esq. Bryan J. Wells, Esq. J. Dillon Curran, Esq. KAPLAN RICE LLP Howard J. Kaplan, Esq. Joseph A. Matteo, Esq. Attorneys for Defendants

          OPINION

          ROBERT W. SWEET, U.S.D.J.

         This action arises out of a personal guaranty (the "Guaranty") that was executed by the late Aubrey K. McClendon ("McClendon") to secure a $465 million loan made to certain companies McClendon controlled. The issues presented raise the always delicate and thorny issue of jurisdiction between the federal and state courts.

         Thomas J. Blalock, the Personal Representative of the Estate of Aubrey K. McClendon ("Blalock" or the "Personal Representative") has moved pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to dismiss the Complaint filed by Plaintiff Wilmington Trust, National Association (the "Plaintiff" or "Wilmington"). Kathleen B. McClendon, the Special Administrator of the Estate of Aubrey K. McClendon ("Kathleen" or the "Special Administrator" and, together with the Personal Representative, the "Defendants"), has also moved to dismiss Plaintiff s Complaint under Federal Rules of Civil Procedure 12 (b) (1) and 12 (b) (6) .

         Based upon the conclusions set forth below, the motions are granted in part and denied in part.

         Facts

         The Complaint sets forth the following facts, which are assumed true for the purpose of the parties' motion to dismiss. See Koch v. Christie's Int'l PLC, 699 F.3d 141, 145 (2d Cir. 2012) . As part of a motion to dismiss, a "court may consider any-written instrument attached to the complaint as an exhibit or incorporated in the complaint by reference, as well as documents upon which the complaint relies and which are integral to the complaint." N.Y. Life Ins. Co. v. United States, 724 F.3d 256, 258 n.1 (2d Cir. 2013) (quoting Subaru Distribs. Corp. v. Subaru of Am., Inc., 425 F.3d 119, 122 (2d Cir. 2005)).

         The instant dispute originates from a $465 million term loan made by Wilmington and other lenders (the "Lenders") to American Energy Partners Holdco, LLC ("Holdco") and other entities controlled by McClendon (together, the "Borrowers") in November 2014 (the "Credit Agreement"). Compl. ¶¶ 1-2. Part of the terms of the Credit Agreement included discussion of collateral to be pledged by the Borrowers to the Lenders (the "Equity Collateral"). See, e.g., Compl. Ex. B, § 5.2; id. Ex. C, § 5(b). Under the terms of the Credit Agreement, Wilmington is the Lender's Administrative and Collateral Agent. Compl. ¶ 7.

         a. The Guaranty

         As an inducement to the Lenders to enter into the Credit Agreement, McClendon executed the Guaranty to secure the loan. Compl. ¶¶ 2, 24; id. Exs. C, D. The Guaranty contains several clauses relevant to the current motion.

         Section 3 of the Guaranty states that the Guaranty is a "guaranty of payment and not merely of collection" and that "Guarantor's[1] [McClendon's] obligations under this Guaranty shall be absolutely and unconditional." Compl. Ex. C, § 3.

         Section 5 of the Guaranty contains certain negative covenants that required McClendon, as Guarantor, to refrain from performing certain actions (the "Negative Covenants"). These Negative Covenants included, inter alia, that McClendon would "not sell, transfer, assign or otherwise dispose of, or dividend or otherwise distribute, whether directly or indirectly, any of the Equity Interests in an Credit Party, [or] any subsidiary . . ., " id., § 5(g)(ii), and would "[n]ot amend or otherwise modify, or cause any other Person to amend or otherwise modify, any Organizational Documents of any Credit Party or any subsidiary thereof . . ., in a manner adverse to the rights and interests of [Wilmington] or the Lenders under the Credit Documents . . ., " id., § 5(m)(i).

         Section 5(1) of the Guaranty required McClendon to provide Wilmington financial information both at regular intervals and upon request (the "Financial Information Covenants"), which included: "within 75 days following the end of each calendar quarter, signed unaudited financial statements" of McClendon's; "within 15 days following the filing thereof (but not later than October 31 of the year following such tax year), copies of the most recently filed federal and state tax returns" that McClendon filed; and "promptly upon the reasonable request of [Wilmington], but in any event no later than thirty (30) days after receipt of such request, such other financial information regarding [McClendon] as so requested." Id., § 5(1).

         Section 8 of the Guaranty contains an assignment clause, which provides: "The Guaranty shall be binding upon Guarantor, Guarantor's successors and assigns and Guarantor's estate and legal representatives in the event of the death or incapacity of Guarantor." Id., § 8.

         Section 13 of the Guaranty contains a choice of law provision, which provides: "This Guaranty and the rights and obligations of the parties (including, without limitation, any claims sounding in contract law or tort law arising out of the subject matter hereof and any determinations with respect to post-judgment interest) shall be governed by, and shall be construed and enforced in accordance with, the laws of the state of New York." Id., § 13.

         Section 14 of the Guaranty contains a mandatory forum selection clause, which provides:

All judicial proceedings brought against any party arising out of or relating hereto or any other credit documents or any of the obligations, shall be brought in any federal court of the United States of America sitting in the borough of Manhattan or, if that court does not have subject matter jurisdiction, in any state court located in the City and County of New York. By executing and delivering this Guaranty, Guarantor, for itself and in connection with its properties irrevocably (A) accepts generally and unconditionally the exclusive (subject to Clause (E) below [the Lenders' right to enforce judgments in any other jurisdiction]) jurisdiction and venue of such courts ....

Id., § 14 (the "Forum Selection Clause").

         b. The Probate Proceeding and Wilmington Claim Appeal

         McClendon died in March 2016, which resulted in a default under the terms of the Guaranty. Compl. ¶ 3; id. Ex. A, § 8.1(j). Following his death, McClendon's estate (the "Estate") entered probate, and Blalock, a former associate of McClendon, was appointed as the Estate's Personal Representative. Id. ¶¶ 41-42; In the Matter of the Estate of Aubrey K. McClendon, Deceased, No. PB-2016-342 (Okla. Cnty. Dist. Ct.) (the "Probate Proceeding") .

         In May 2016, as part of the Probate Proceeding, Wilmington presented to the Personal Representative a creditor claim against the Estate based on the Guaranty in the amount of $464, 369, 418.22 plus interest accrued and accruing, costs, expenses, and attorneys' fees. Compl. ¶ 43; see Okla. Stat. tit. 58, § 331 (1988). On August 15, 2016, in the Probate Proceeding, the Personal Representative partially rejected Wilmington's creditor claim by accepting the principal amount of Wilmington's claim "less the value of certain collateral that was pledged to Wilmington in connection with the Credit Agreement and that Wilmington presently controls." Declaration of N. Martin Stringer dated October 24, 2017 ("Stringer Decl.") Ex. 1, at 1; see Compl. ¶¶ 44-45.

         On September 28, 2016, Wilmington commenced an independent action against the Personal Representative for wrongful denial of its creditor claim under Oklahoma probate law in Oklahoma County District Court (the "Wilmington Claim Appeal"). Compl. ¶ 47; see Wilmington Trust, National Association v. Blalock, No. CJ-2016-4974 (Okla. Ctny. Dist. Ct.); Okla. Stat. tit. 58, § 339. On September 29, Wilmington entered into a tolling agreement with the Personal Representative (the "Tolling Agreement"), under which Wilmington agreed to file the Wilmington Claim Appeal "initially only in Oklahoma on or before September 29, 2016, " but reserved all rights to later file and pursue its Guaranty-related claims in New York. Compl. ¶ 49/ see also Declaration of Blair Connelly dated November 14, 2017 ("Connelly Decl.") Ex. 2, at 1. Under the Tolling Agreement, the Estate agreed not to assert that Wilmington was required to file any claims in New York by September 29, 2016, or that Wilmington had waived the Guaranty's Forum Selection Clause in by not filing claims in New York by that date. See Connelly Decl. Ex. 2, at 2.

         c. The SCOOP Litigation

         Wilmington's dispute with the Personal Representative as to the amount of Wilmington's creditor claim under the Guaranty is not the only dispute involving the Estate before the Court. Another issue arises from the Estate's equity ownership of SCOOP Energy Company Holdings, LLC ("SCOOP Holdings") and SCOOP Energy Company, LLC ("SEC" and, together with SCOOP Holdings, the "SCOOP Res"). Compl. ¶ 96. The two issues, however, draw from the same repertory theatre of involved actors.

         On November 10, 2016, Scott R. Mueller ("Mueller"), a former associate of McClendon, commenced an action in Oklahoma state court. Compl. ¶ 50; see Mueller v. SCOOP Energy Company Holdings, LLC, No. CJ-2016-5774 (Okla. Cnty. Dist. Ct.) (the "SCOOP Litigation"). In the SCOOP Litigation, Mueller alleges that Blalock, in his individual capacity, Ryan A. Turner, and he are entitled to certain equity interests in, amongst other businesses, SCOOP Holdings and SEC. Compl. ¶ 52; see Declaration of James V. Masella, III, dated October 24, 2017 ("Masella Decl.") Ex. 1.

         As a result of Blalock's conflict of interest regarding the Estate in the context of the SCOOP Litigation, the Oklahoma probate court appointed McClendon's widow, Kathleen, as Special Administrator of the Estate and authorized and empowered her to, inter alia, "[a]ppear on behalf of and represent the Estate in the SCOOP Litigation and any related appeal, mediation or arbitration." Compl. ¶ 53; see also id. ¶ 54; Masella Decl. Ex. 2, at 4.

         On February 21, 2017, Wilmington's Motion to Intervene in the SCOOP Litigation was denied. Masella Decl. Ex. 3. In June and July 2017, Wilmington wrote the Special Administrator to aver that any distribution of the Estate of its equity interests in SCOOP Holdings or SEC to any plaintiff in the SCOOP Litigation would, without Wilmington's consent, violate the Guaranty's Negative Covenants. See Compl. ¶¶ 59, 97.

         d. Wilmington's Requests for Financial Information

         Since May 2017, Wilmington has sent multiple letters to the Personal Representative seeking financial information from the Estate pursuant to the Financial Information Covenants. See Compl. ¶ 61. Specifically, Wilmington has requested, inter alia: copies of all tax returns that have been filed by or on behalf of the Estate, along with all associated schedules, forms, attachments, and other supporting documentation; information and documents pertaining to life insurance policies held by McClendon or on McClendon's life; and an analysis of all liabilities of McClendon and the Estate. Compl. ¶¶ 61-62; see also Connelly Decl. Exs. 4-7. The Personal Representative objected to certain of Wilmington's requests unless Wilmington consented to particular confidentiality agreements. Compl. ¶¶ 63-68; see Connelly Decl. Exs. 8-10. Wilmington and the Personal Representative ultimately entered into an omnibus confidentiality agreement, although without conclusive resolution as to any future requests by Wilmington for financial information. See Compl. ¶ 66; Pl.'s Omnibus Opp. to Defs.' Mots. ("Pl.'s Opp.") at 13 n.9.

         Prior Proceedings

         On September 1, 2017, Plaintiff filed its Complaint, alleging causes of action for: (1) Judgment on the Guaranty (the "First Cause"); (2) Declaratory Judgment with Respect to the Negative Covenants (the "Second Cause"); (3) Declaratory Judgment with Respect to the Financial Information Covenants (the "Third Cause"); and (4) Specific Performance of the Financial Information Covenants (the "Fourth Cause"). See Compl. ¶¶ 70-114; Dkt. No. 1.

         On October 24, 2017, Defendants filed their respective motions to dismiss. Dkt. Nos. 17, 20. The instant motions were heard ...


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