EXHIBIT 99
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
IN RE:
VENTURE HOLDINGS COMPANY, LLC, Case No. 03-48939
et al., Chapter 11
Judge Thomas J. Tucker
Debtors.
_____________________________/
AMENDED OPINION DENYING CONFIRMATION OF DEBTORS'
"SECOND AMENDED JOINT PLAN OF REORGANIZATION"(1)
The eleven Debtors(2) in this jointly administered case seek confirmation
of "Debtors' Second Amended Joint Plan of Reorganization," filed May 26, 2004
("Plan"). Larry J. Winget ("Winget"),(3 )among others, filed objections to
confirmation. The Court held a lengthy trial on Winget's objections, on a
consolidated basis with the trial of a related adversary proceeding. The trial
concluded on October 8, 2004. After extensive post-trial briefing that concluded
on October 25, 2004, the Court
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(1) This amends the Court's Opinion filed January 21, 2005.
(2) Debtors are Venture Holdings Company L.L.C. ("Venture Holdings") and
its domestic subsidiaries, VEMCO, Inc., Venture Industries Corporation, Venture
Mold & Engineering Corporation, Venture Leasing Company, VEMCO Leasing, Inc.,
Venture Holdings Corporation, Venture Service Company, Experience Management
L.L.C., Venture Europe, Inc., and Venture EU Corporation.
(3) Winget and the Larry J. Winget Living Trust, directly or indirectly,
are the sole record and beneficial owners of Debtors as well as the direct and
indirect sole equity holders of Deluxe Pattern Corporation ("Deluxe") and its
affiliated companies: Venture Heavy Machinery Limited Liability Company Venture
Equipment Acquisition Company, Venture Real Estate Acquisition Company, Realven
Corporation, Venture Real Estate, Inc., Venture Automotive Corp., Farm & Country
Real Estate Company, Patent Holding Company, and Venture Sales and Engineering
Corp. (collectively, the "Deluxe debtors"). The Deluxe debtors are
debtors-in-possession in Bankruptcy Case No. 04-54977, a jointly administered
case.
took the matter under advisement. For the reasons stated in this Opinion, the
Court will deny confirmation and enter judgment for Winget in the related
adversary proceeding.(4)
I. BACKGROUND.
On March 28, 2003, Debtors filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code. Debtors continue to operate their respective
businesses as Debtors-in-Possession. On April 14, 2003, the United States
Trustee formed an Official Committee of Unsecured Creditors ("Creditors'
Committee").
A. THE CONTRIBUTION AGREEMENT.
Central to Debtors' Plan and to this confirmation dispute is a
"Contribution Agreement" dated September 22, 2003.(5) The parties to that
agreement were Winget, and the Larry J. Winget Living Trust, as first parties,
Venture Sales & Engineering Corp. and P.I.M. Management Company as second
parties (collectively with Winget and the Larry J. Winget Living Trust, "the
Transferors"), and Debtors as third parties. Some of the key components of the
Contribution Agreement, and of Debtors' Plan, are that Winget and entities
controlled by him are to contribute certain of their assets to the reorganized
Venture in exchange for, among other consideration, 100 percent of the initial
common equity in the reorganized Venture. The assets to be contributed include,
among many others, Winget's equity in valuable South African and Australian
entities. Winget's initial 100 percent common equity in
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(4) This Opinion will constitute the Court's findings of fact and
conclusions of law with respect to both matters.
(5) The Contribution Agreement is attached as Exhibit D to the Plan.
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the reorganized Venture would be subject to possible dilution for the benefit of
unsecured creditors by a "Creditor's Warrant," under a complicated warrant
valuation formula.
Section 9 of the Contribution Agreement contains conditions to Venture
Holdings' and the Transferors' obligations "to consummate the transactions
contemplated by" the Contribution Agreement. Section 9.1(d) of the Contribution
Agreement requires Debtors to execute and deliver a commitment letter for exit
financing not later than the date of the hearing on the Disclosure Statement,
meeting certain requirements. These requirements included "having a committed
amount of $85.0 million (or such other amount mutually agreed upon by Venture
Holdings, Larry J. Winget and the Agent)," and being "otherwise on market terms
acceptable to the Bank Steering Committee[,] Venture Holdings and Larry J.
Winget."(6) Section 10.1(f)(v) gives Winget the right to terminate the
Contribution
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(6) Section 9.1 provides:
Section 9.1 Joint Conditions of the Obligations of the Transferors
and Venture Holdings. The obligations of the Transferors and Venture
Holdings to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the
Closing Date, of each of the following conditions unless waived by
the Transferors, on the one hand, and Venture Holdings (with the
consent of the Agent), on the other hand: . . .
(d) Commitment Letter for Exit Financing. NOT LATER THAN THE
DATE OF THE HEARING ON THE DISCLOSURE STATEMENT, DEBTORS SHALL HAVE
OBTAINED, AND EXECUTED AND DELIVERED, A COMMITMENT LETTER from one
or more banks or financial institutions FOR THE EXIT FINANCING,
HAVING A COMMITTED AMOUNT OF $85.0 MILLION (OR SUCH OTHER AMOUNT
MUTUALLY AGREED UPON BY VENTURE HOLDINGS, LARRY J. WINGET AND THE
AGENT), WHICH EXIT FINANCING SHALL BE senior in lien and claim
priority to the Bank Senior Notes and the Bank Junior Notes (each as
defined in the Plan) and OTHERWISE ON MARKET TERMS ACCEPTABLE TO THE
BANK STEERING COMMITTEE[,] VENTURE HOLDINGS AND LARRY J.
(continued...)
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Agreement if the condition to closing in Section 9.1(d) is not satisfied.
Section 10.2 of the Contribution Agreement states, in relevant part, that "[i]n
the event of termination of this Agreement as provided in Section 10.1, this
Agreement shall forthwith become void."
B. THE PLAN.
On September 24, 2003, Debtors filed "Debtors' Joint Plan of
Reorganization," the plan contemplated by the Contribution Agreement ("Original
Plan"). On May 18, 2004, Debtors filed "Debtors' First Amended Joint Plan of
Reorganization," and on May 26, 2004, Debtors filed the Second Amended Plan (the
"Plan"). The Contribution Agreement is the basis of the Plan, and is essential
to confirmation of the Plan.
C. THE EXIT FINANCING COMMITMENT LETTER, AND WINGET'S TERMINATION OF THE
CONTRIBUTION AGREEMENT.
On May 25, 2004, the date of the hearing on the Disclosure Statement,
about one hour before the hearing, Debtors delivered to Winget a commitment
letter for exit financing, executed by Black Diamond Commercial Finance, LLC.
("Black Diamond") and by Venture Holdings ("Commitment Letter").(7) The
Commitment Letter provided for exit financing in the amount of $125 million, and
included numerous terms and conditions.(8) The Debtors also delivered to
Winget's counsel an "Exit Facility Fee Letter," also dated May 25, 2004, which
was incorporated by reference into the
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(6)(...continued)
WINGET.
(Ex. LL at 33-34 (bold emphasis added).)
(7) (Ex. W.)
(8) (See Tr. 9/10/04 at 210; Tr. 9/14/04 at 62-63; Ex. W; Ex. 69 P.3.)
4
Commitment Letter, and which included certain fees payable to Black Diamond,
related to the exit financing.(9)
In a letter dated and delivered May 25, 2004, Winget purported to
terminate the Contribution Agreement because the Commitment Letter did not
satisfy the requirements contained in Section 9.1(d) of the Contribution
Agreement.(10)
D. THE ADVERSARY PROCEEDING.
On June 8, 2004, Winget and the other Transferors under the Contribution
Agreement filed a "Complaint for Declaratory Judgment" against Debtors. (Adv.
Pro. No. 04-4564.) Count 1 of the adversary complaint seeks a declaration that
Winget validly terminated the Contribution Agreement by his May 25, 2004 letter,
based on Debtors' failure to satisfy Section 9.1(d) of the Contribution
Agreement. On June 14, 2004, Debtors filed an Answer and a Counterclaim seeking
specific performance by Winget and the other Transferors under the Contribution
Agreement. Although not originally a party to the adversary proceeding, Bank
One, as Agent for the Pre-Petition Senior Lenders
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(9) (Ex. 74.)
(10) The termination letter also alluded to other possible grounds for
termination of the Contribution Agreement:
I note, however, that under Michigan law, other grounds for
termination or rescission exist based on, among other things, both
actual and anticipatory breach of the Contribution Agreement, breach
of the implied covenant of good faith and fair dealing,
impossibility of condition and frustration of purpose.
During trial, Winget argued other claimed breaches of the Contribution Agreement
as additional grounds for terminating the Contribution Agreement and denying
confirmation of Debtors' Plan. The Court finds it unnecessary to decide those
disputed issues, however, because of its disposition of this case based on
Section 9.1(d).
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to Debtors, intervened as a defendant, and also seeks specific performance of
the Contribution Agreement.
E. WINGET'S OBJECTIONS TO CONFIRMATION.
On June 14, 2004, Winget filed objections to confirmation of the Plan.
Winget filed a "supplement" to his objections on September 14, 2004.(11)
F. COURT PROCEEDINGS.
The Court approved Debtors' Disclosure Statement on May 26, 2004.(12) All
creditor classes entitled to vote accepted the Plan.(13) On June 25, 2004, the
Court entered an Order consolidating the confirmation hearing on Debtors' Plan
with the adversary proceeding "for purposes of discovery and trial."(14) The
Court jointly held an evidentiary hearing on confirmation and a trial of the
adversary proceeding, which concluded on October 8, 2004. At trial, Debtors and
Debtors' Pre-Petition
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(11) (See "Objection of Larry J. Winget To Confirmation of the Debtors'
Second Amended Joint Plan of Reorganization" (Docket No. 2114); "Supplement to
Objection of Larry J. Winget To Confirmation of the Debtors' Second Amended
Joint Plan of Reorganization" (Docket No. 2510).)
(12) (See "Order (I) Approving Disclosure Statement; (II) Establishing
Procedures for Filing Objections to Confirmation of the Debtors' Plan; (III)
Approving the Solicitation Package; (IV) Approving the Form and Manner of Notice
of Hearing on Confirmation and Procedures for Distribution of the Solicitation
Packages; (V) Setting Record Date; (VI) Approving Forms of Ballots; (VII)
Establishing Voting Deadline; (VIII) Approving Procedures for Vote Tabulation;
and (IX) Establishing a Deadline for Procedures for Temporary Allowance of
Claims for Voting Purposes," filed May 26, 2004.)
(13) ("Amended Declaration of David K. Leininger Certifying Vote on and
Tabulation of Ballots Accepting and Rejecting the Debtors' Joint Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code," filed June 22, 2004.)
(14) ("Order Consolidating Plan Confirmation and Adversarial Proceeding,
and Setting Schedule for Evidentiary Hearing.")
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Lenders (collectively, "Plan Proponents") actively advocated confirmation of the
Plan. The Creditor's Committee also supported confirmation of the Plan.
II. JURISDICTION.
This Court has subject matter jurisdiction over both the matter of
confirmation and the adversary proceeding, under 28 U.S.C. Sections 1334(b),
157(a) and (b)(1), and Local Rule 83.50(a) (E.D. Mich.). Both matters are core
proceedings under 28 U.S.C. Section 157(b)(2)(A) and (L).
III. SUMMARY OF THE COURT'S DECISION.
Debtors' Plan is based upon the Contribution Agreement, and as the parties
all acknowledge, the Plan cannot be confirmed if Winget's purported termination
of the Contribution Agreement is valid. Phrased in terms of the Bankruptcy
Code's requirements for confirmation of a plan, the Plan could not be
implemented if the Contribution Agreement is unenforceable against Winget and
the other Transferors, and thus the Plan could not satisfy the confirmation
requirements under 11 U.S.C. Sections 1129(a)(1) and 1123(a)(5).(15)
The first issue in this case, then, is whether Winget validly
terminated the Contribution Agreement. The Court concludes that he did, for the
reasons stated in this Opinion. As a result, confirmation of Debtors' Plan must
be denied, and the Transferors are entitled to judgment in the adversary
proceeding, both on Count 1 of their complaint and on the Plan Proponents'
counterclaims.
The Court finds and concludes that when Winget delivered his letter on May
25, 2004 terminating the Contribution Agreement, he had a right to terminate
that agreement under Section 10.1(f)(v),
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(15) Section 1123(a)(5) requires that a plan "provide adequate means for
the plan's implementation." A plan that does not comply with this requirement of
Section 1123(a) cannot be confirmed under Section 1129(a)(1), which requires
that the plan "compl[y] with the applicable provisions of this title."
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for failure of the Debtors to comply with the conditions stated in
Section 9.1(d) of the Agreement. Specifically, Debtors did not meet Section
9.1(d)'s requirement that:
[n]ot later than the date of the hearing on the Disclosure
Statement, Debtors shall have obtained, and executed and delivered,
a commitment letter. . . for the Exit Financing, having a committed
amount of $85.0 million (or such other amount mutually agreed upon
by Venture Holdings, Larry J. Winget, and the Agent), which Exit
Financing. . . shall be. . . otherwise on market terms acceptable to
the Bank Steering Committee[,] Venture Holdings[,] and Larry J.
Winget.
The only commitment letter Debtors "obtained, executed and delivered," on or
before the date of the Disclosure Statement hearing (May 25, 2004), was the
Black Diamond Commitment Letter, which had a committed amount of exit financing
of $125 million. There is a substantial dispute between the parties about
whether Winget "agreed upon" the $125 million amount, as required by
Section 9.1(d). But quite apart from that issue is the equally important issue
whether the exit financing was "otherwise on . . . terms acceptable to . . .
Larry J. Winget," also as required by Section 9.1(d). The Court finds that it
was not. As a result, Winget had a right to terminate the Contribution Agreement
under Section 10.1(f)(v), and in fact did so on May 25, 2004.
Because these findings and conclusions are dispositive, it is not
necessary for the Court to reach Winget's other arguments or his many other
objections to confirmation, including his objection that Debtors' Plan is not
feasible.(16)
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(16) "Feasibility" refers to the confirmation requirement found in
Section 1129(a)(11), that:
Confirmation of the plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of
the debtor or any successor to the debtor under the plan, unless
such liquidation or reorganization is proposed in the plan.
(continued...)
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IV. ISSUES OF CONTRACT INTERPRETATION.
The Court's decision on the validity of Winget's termination of the
Contribution Agreement requires discussion of several issues. We begin with a
discussion of contract interpretation issues. The Plan Proponents argue that
certain provisions of the Contribution Agreement limit Winget's rights under
Sections 9.1(d) and 10.1(f)(v).
A. THE "BEST EFFORTS OBLIGATION" IN SECTION 6.2(b) OF THE CONTRIBUTION
AGREEMENT.
First, Plan Proponents point to Section 6.2(b) of the Contribution
Agreement, the so called "best efforts obligation," which obligates Winget and
the other Transferors to use their "best efforts" to support Debtors' Plan. Plan
Proponents contend that Section 6.2(b) limits any discretion and right that
Winget might otherwise have (1) under Section 9.1(d) to refuse to agree to an
exit financing amount other than $85 million; (2) under Section 9.1(d) to refuse
to accept (or find "acceptable") the other "terms" of the exit financing
commitment; and (3) under Section 10.1(f)(v) to terminate the Contribution
Agreement based on Debtors' failure to meet the requirements of Section 9.1(d).
Section 6.2(b) of the Contribution Agreement states, in relevant part:
(b) Support of Plan. The Transferors hereby covenant and agree
to use their respective best efforts (subject to their rights under
this Agreement, including, without limitation, their rights under
Section 9.2(e)), to support, and cause each of the Winget Entities
to support, the Plan[.]
(Ex. LL at 25 Section 6.2(b).)
- -----------------------------
(16)(...continued)
11 U.S.C. Section 1129(a)(11).
9
Plan Proponents acknowledge that Section 6.2(b)'s best efforts obligation
is not unlimited. They acknowledge, for example, that Winget's obligation to use
his best efforts to support the Plan under Section 6.2(b) is subject to his
express right under Section 9.2(e) to challenge the feasibility of the Plan, and
to seek denial of confirmation on that basis.(17) But they argue that Winget's
"best efforts" duty under Section 6.2(b) obligates him to agree upon any exit
financing amount greater than $85 million that is necessary to make the Plan
feasible. Because, according to Plan Proponents, that amount is $125 million,
Plan Proponents argue that Winget may not refuse to agree to the exit financing
amount of $125 million under Section 9.1(d). Plan Proponents put it this way:
Debtors require financing to exit bankruptcy successfully. This exit
financing must be sufficient to meet the needs of the Debtors upon
exit from bankruptcy as discussed above; absent such financing, a
plan of reorganization could not be confirmed. The Best Efforts
Obligation therefore obligated the Transferors, subject to their
other rights under the Contribution Agreement, to agree to an exit
financing facility
- --------------------------
(17) Section 9.2(e) provides:
Section 9.2 Conditions to Obligations of the Transferors. In
addition to the satisfaction or waiver of each of the conditions set
forth in Section 9.1, the obligation of the Transferors to
consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date, of each
of the following conditions unless waived by the Transferors:
. . .
(e) Feasibility. The Bankruptcy Court shall have entered the
Confirmation Order over any objections under 11 U.S.C. Section
1129(a)(11). NOTWITHSTANDING WINGET'S AGREEMENT TO SUPPORT THE PLAN
UNDER SECTION 6.2(b), WINGET MAY RAISE AN OBJECTION UNDER 11 U.S.C.
SECTION 1129(a)(11) (IT BEING UNDERSTOOD THAT WINGET'S SO DOING
SHALL NOT PRECLUDE HIM FROM TERMINATING THIS AGREEMENT PURSUANT TO
SECTION 10.1(h)).
(Ex. LL at 34 Section 9.2(e) (emphasis added).)
10
necessary to make the Plan feasible, and thus confirmable. That is
the essence of the Best Efforts Obligation.
([Plan Proponents'] Joint Memorandum, filed October 18, 2004, at 34 P.75.) Thus,
Plan Proponents argue, Winget's rights under Section 9.1(d) (and
Section 10.1(f)(v)), are subject to his best efforts obligation under
Section 6.2(b).
Plan Proponents make a similar argument with respect to Section 9.1(d)'s
requirement that the exit financing in the Commitment Letter be "on market terms
acceptable to the Bank's Steering Committee[,] Venture Holdings [,] and Larry J.
Winget." Plan Proponents argue that Winget may not refuse to accept (or find
"acceptable") any of the terms of the exit financing, as long as they are
"market" terms. They base this argument, in large part, on the best efforts
obligation of Section 6.2(b). (Id. at 36 P.80.)
The Court rejects Plan Proponents' arguments based on Section 6.2(b)'s
best efforts obligation, because they are contrary to the plain meaning of the
contract. The contract provisions unambiguously mean that Winget's best efforts
obligation to support the Plan under Section 6.2(b) is subject to all of his
rights under the Contribution Agreement, including his rights under
Sections 9.1(d) and 10.1(f)(v), not just his right under Section 9.2(e)
to challenge feasibility of the Plan. This is clear from the following language
in Section 6.2(b) itself:
The Transferors hereby covenant and agree to use their respective
best efforts (SUBJECT TO THEIR RIGHTS UNDER THIS AGREEMENT,
INCLUDING, WITHOUT LIMITATION, their rights under Section 9.2(e)),
to support, and cause each of the Winget Entities to support, the
Plan . . .
(emphasis added.)
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Under Michigan law,(18) the question whether terms of a contract are
ambiguous is a question of law for the court. See Henderson v. State Farm Fire
and Cas. Co., 596 N.W.2d 190, 193 (Mich. 1999)(citing Port Huron Ed. Ass'n v.
Port Huron Area School Dist., 550 N.W.2d 228 (Mich. 1996)). If a contract is
unambiguous, its meaning is a question of law for the court. If the language is
ambiguous, however, its interpretation is a question of fact. See UAW-GM Human
Res. Ctr. v. KSL Recreation Corp., 579 N.W.2d 411, 414 (Mich. Ct. App.
1998)(quoting Port Huron Ed. Ass'n v. Port Huron Area School Dist., 550 N.W.2d
228, 237 (Mich. 1996)). A contract is ambiguous only if "its words may
reasonably be understood in different ways." Raska v. Farm Bureau Mutual Ins.
Co. of Mich., 314 N.W.2d 440, 441 (Mich. 1982); see also Rossow v. Brentwood
Farms Dev. Inc., 651 N.W.2d 458, 462 (Mich. Ct. App. 2002).
The only reasonable reading of the language in Section 6.2(b) is that
Winget's best efforts obligation is limited by, among other things, his rights
under Sections 9.1(d) and 10.1(f)(v). This is the unambiguous meaning of
the "subject to" clause in Section 6.2(b), quoted above.(19) It is true, as Plan
Proponents point out, that Section 6.2(b) refers specifically to Winget's right
to challenge feasibility under Section 9.2(e) as an example --
(18) The parties agreed, in Section 12.4 of the Contribution Agreement,
that "[t]his Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of Michigan applicable to contracts executed and
fully performed within the State of Michigan." (Ex. LL at 42 Section 12.4.) The
parties agree that Michigan law governs the contract and its interpretation and
enforcement. (See [Plan Proponents'] Joint Memorandum, filed October 18, 2004,
at 32 n.37; [Winget Corrected Proposed Findings, etc.], filed October 21, 2004,
at 18-19P. P.6-8.)
(19) See, e.g., Weems v. Chrysler Corporation, 533 N.W.2d 287, 297 (Mich.
1995) (reviewing plain language of a statute and recognizing that the phrase
"subject to . . ." connotes "limiting language."), partially overruled on other
grounds by Lesner v. Liquid Disposal, Inc ., 534 N.W.2d 553, 554 (Mich. 2002);
BLACK'S LAW DICTIONARY 1278 (5th ed. 1979)(defining "subject to" as "[l]iable,
subordinate, subservient, inferior, obedient to; governed or affected by;
provided that; provided; answerable for."(citing Homan v. Employers Reinsurance
Corp ., 136 S.W.2d 289, 302 (Mo. 1940)).
12
and as the only example -- of the rights to which his best efforts obligation is
subject. But the words "including without limitation" in Section 6.2(b) make
clear that this specific reference to Section 9.2(e) does not exclude any of
Winget's other rights under the Contribution Agreement.
This conclusion is reinforced by Section 9.2. The opening words of
Section 9.2, of which Section 9.2(e) is a part, reiterates that the condition in
Section 9.2(e), i.e., the Bankruptcy Court's entering a confirmation order
"over" any feasibility objections, is "in addition to" the requirement that each
of the conditions set forth in Section 9.1, and thus Section 9.1(d), must be
satisfied or waived before the Transferors are obligated to "consummate the
transactions contemplated by this Agreement." (See Section 9.2, quoted supra
note 17 (emphasis added).)
Plan Proponents' interpretation of the "market terms acceptable to . . .
Winget" provision in Section 9.1(d) suffers from a further flaw. They argue that
Winget may not refuse to accept (or find "acceptable,") any of the terms of the
exit financing in the Commitment Letter, as long as they are "market" terms. But
this argument is contrary to the unambiguous language of Section 9.1(d), which
clearly requires that the exit financing terms be both "market terms" and
"acceptable to" the parties named, including Winget. Accepting Plan Proponents'
view would impermissibly ignore the "acceptable to . . ." phrase of
Section 9.1(d).(20)
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(20) To accept Plan Proponents' interpretation of Section 9.1(d), that
provision in effect would end with the words "and otherwise on market terms."
The actual contract language, however, is "and otherwise on market terms
acceptable to the Bank's Steering Committee[,] Venture Holdings[,] and Larry J.
Winget."
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B. PLAN PROPONENTS' "ILLUSORINESS" ARGUMENT.
Plan Proponents argue that unless the best efforts obligation of Section
6.2(b), or some other language in the Contribution Agreement, such as
Section 9.1(d) itself, is interpreted to impose some limit on Winget's right and
discretion to find "acceptable" the terms of the exit financing commitment under
Section 9.1(d), the entire agreement is illusory. This is so, Plan Proponents
argue, because the contract would mean that Winget can terminate the contract
and walk away at his whim, by arbitrarily refusing to find any exit financing
terms "acceptable." ([Plan Proponents'] Joint Memorandum at 37 P.81.)(21)
Implicitly, at least, Plan Proponents argue that the Court should read the
contract, if possible, to avoid a meaning that would render it illusory. Plan
Proponents cite no authority for such a rule of contract construction.(22) But
even if such a rule does exist under Michigan law, it does not change the
outcome here, for several reasons.
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(21) This argument highlights the question: why would the other parties
to the Contribution Agreement agree to a provision that in effect gave Winget
complete discretion to simply terminate the agreement and walk away? How does
this view of the contract make any sense?
Part of the answer may lie in the fact that Section 9.1(d) did not give
Winget alone the right to refuse to accept the terms of any exit financing and
thereby terminate the agreement. It also gave that right to Debtors and the
"Bank Steering Committee," because Section 9.1(d) required that the terms of the
exit financing be "acceptable" to the "Bank Steering Committee[,] Venture
Holdings and Larry J. Winget." And Section 10.1(f)(v), the termination provision
relied upon by Winget, also gave Debtors a right to terminate the Contribution
Agreement. It provides that the Contribution Agreement may be terminated "by
Winget or Venture Holdings (with the consent of the Agent), if" Debtors failed
to deliver a commitment letter for exit financing in accordance with
Section 9.1(d) on or prior to the date of the Disclosure Statement hearing.
Thus, the contract gave each of the two presently-contending sides the right to
refuse to find acceptable the terms of the exit financing commitment, and to
terminate the Contribution Agreement for that reason.
(22) Elsewhere in their briefs, Plan Proponents cite a somewhat
different, but arguably analogous rule, followed in Michigan, that the court
must construe a contract as a whole, "giving harmonious effect, if possible, to
each word and phrase." See discussion infra, Part IV-C.
14
First, as discussed in more detail below, Winget's discretion to refuse to
find the terms of the exit financing commitment "acceptable" under Section
9.1(d) is limited by the implied covenant of good faith and fair dealing imposed
under Michigan law. To that extent, Winget did not have truly unlimited
discretion to simply walk away from the contract based on this provision in
Section 9.1(d). Even though this limitation on Winget's discretion is imposed by
Michigan law rather than by the terms of the contract itself, it does prevent
the contract, as interpreted by the Court, from being illusory.
Second, this illusoriness argued by Plan Proponents, to the extent it does
exist, is the direct result of the unambiguous language the parties chose to put
in their written agreement when they executed the Contribution Agreement. This
problem does not make unambiguous language ambiguous, and it does not permit the
Court to ignore the unambiguous language the parties chose for their agreement.
The unambiguous wording of Sections 9.1(d) and 6.2(b) simply will not bear
the meaning that Plan Proponents urge. To adopt Plan Proponents' interpretation
of these sections would read out of each of those sections unambiguous wording
that the parties put there, such as the phrase "subject to their rights under
this Agreement, including, without limitation" in Section 6.2(b).
The Court's task in contract interpretation "is to ascertain the intent of
the parties." Zurich Ins. Co. v. CCR and Co., 576 N.W.2d 392, 395 (Mich. Ct.
App. 1997)(quoting McIntosh v. Groomes, 198 N.W. 954, 955 (Mich. 1924)). But the
Court "must look for the intent of the parties in the words used in the
instrument" and must construe an agreement "according to the intentions therein
expressed, when those intentions are clear from the face of the instrument." Id.
at 395 (citations omitted). Under Michigan law, unambiguous contracts "must be
enforced as written." See, e.g., United Rentals (North
15
America) Inc. v. Keizer, 355 F.3d 399, 407 (6th Cir. 2004)(citing Britton v.
John Hancock Mutual Life Ins. Co., 186 N.W.2d 781, 782 (Mich. Ct. App. 1971));
see also Farm Bureau Mutual Ins. Co. of Michigan v. Nikkel, 596 N.W.2d 915, 919
(Mich. 1999)(citing Morley v. Automobile Club of Michigan, 581 N.W.2d 237 (Mich.
1998)). The Court "does not have the right to make a different contract for the
parties . . . when the words used by them are clear and unambiguous and have a
definite meaning." Zurich Ins. Co., 576 N.W.2d at 395 (quoting McIntosh v.
Groomes, 198 N.W. 954, 955 (Mich. 1924)); see also UAW-GM Human Res. Ctr., 579
N.W.2d at 414 (citations omitted).
These principles are based on what the Michigan Supreme Court has
described as:
. . . the bedrock principle of American contract law that
parties are free to contract as they see fit, and the courts are to
enforce the agreement as written absent some highly unusual
circumstance, such as a contract in violation of law or public
policy.
Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776, 782 (Mich. 2003). These
principles are particularly appropriate in a case like this one. Here, the
contract is very detailed and lengthy, and was carefully negotiated among
several sophisticated parties, all of whom were represented by highly competent
counsel. In the negotiation of the Contribution Agreement, at least nine lawyers
representing Debtors, the Senior Lenders, and the Transferors circulated
numerous drafts, participated in numerous lengthy conference calls, and engaged
in what one characterized as "hard bargaining" to draft and
16
ultimately finalize the agreement.(23) Approximately 500 to 750 attorney
billable hours were devoted to drafting the Contribution Agreement.(24)
C. PLAN PROPONENTS' ARGUMENT THAT THE SECTION 6.2 (b) BEST EFFORTS
OBLIGATION IS RENDERED MEANINGLESS.
Plan Proponents further argue that the Court's interpretation, that the
best efforts obligation of Section 6.2(b) is subject to Winget's rights under
Section 9.1(d) rather than vice versa, would render the best efforts obligation
in Section 6.2(b) meaningless.
Plan Proponents' argument focuses on the Section 9.1(d) provision
regarding the exit financing amount. The argument is rather complex, and can be
described as follows. Plan Proponents allege that before the parties executed
the Contribution Agreement, on or about September 22, 2003, Winget and Debtors
each had taken the position in negotiations that $85 million in exit financing
was inadequate to enable Debtors to successfully exit from bankruptcy and to
fund Debtors' needs thereafter. They each took the position that an amount
significantly higher than $85 million would be necessary. Yet in the
Contribution Agreement, Winget and Debtors agreed that Winget could object to
confirmation by challenging the feasibility of the Plan. Thus, Plan Proponents
argue, Winget's right in Section 9.1(d) to agree or not agree to an exit
financing amount greater than $85 million must be limited, by his best efforts
obligation in Section 6.2(b), so as to require that he agree to an exit
financing amount "necessary to make the Plan feasible, and thus confirmable." If
Winget's right in Section 9.1(d) is not so limited, Plan Proponents say, that
"would mean that the parties agreed to the Contribution Agreement knowing that
Winget
- ------------------------
(23) (See Tr. 6/25/04 at 154 (MacKenzie); Tr. 9/14/04 at 58-59
(Schoenberg).)
(24) (See Tr. 9/14/04 at 58-59 (Schoenberg).)
17
could simply refuse to agree to an adequate amount of exit financing and walk
away from his obligations under the Contribution Agreement." (See [Plan
Proponents'] Joint Memorandum at 31 P.69, 34 P.75.) In that situation, Plan
Proponents argue, the best efforts obligation in Section 6.2(b) and the explicit
exception to that best efforts obligation noted in Section 6.2(b) and set forth
in Section 9.2(e), allowing Winget to challenge plan feasibility, would be
rendered meaningless.
Plan Proponents cite the rule, followed in Michigan and acknowledged by
Winget, that the Court must construe a contract as a whole, "giving harmonious
effect, if possible, to each word and phrase." Wilkie v. Auto-Owners Ins. Co.,
664 N.W.2d 776, 781 n.11 (Mich. 2003)(citing Singer v. Goff, 54 N.W.2d 290, 292
(Mich. 1952)); Klapp v. United Ins. Group Agency, Inc., 663 N.W.2d 447, 453
(Mich. 2003)("[C]ontracts must be `construed so as to give effect to every word
or phrase as far as practicable.'")(citing Hunter v. Pearl Assurance Co., Ltd.,
291 N.W. 58 (Mich. 1940)); Lichnovsky v. Ziebart Int'l. Corp., 324 N.W.2d 732,
737 n.15 (Mich. 1982)("`Every word in the agreement must be taken to have been
used for a purpose, and no word should be rejected as mere surplusage if the
court can discover any reasonable purpose thereof which can be gathered from the
whole instrument.'")(citation omitted); see also Central Jersey Dodge Truck Ctr.
v. Sightseer Corp., 608 F.2d 1106, 1109 (6th Cir. 1979)("It is a cardinal
principle of construction that a contract is to be construed as a whole; that
all its parts are to be harmonized so far as reasonably possible; ... and that
no part is to be taken as eliminated or stricken by some other part unless such
a result is fairly inescapable.")(citing Associated Truck Lines v. Baer, 77
N.W.2d 384, 386 (Mich. 1956))(citations omitted)(applying Michigan law).
18
Plan Proponents' argument is without merit, for several reasons. First,
the contract-construction rule they cite is a qualified one. The rule of
construing a contract as a whole, discussed above, requires courts to give
"harmonious effect, IF POSSIBLE, to each word or phrase" in a contract. Wilke,
664 N.W.2d at 781 n.11 (emphasis added). For the reasons discussed in Parts IV-A
and IV-B above, the unambiguous wording of the contract, including the language
in Sections 9.1(d) and 6.2(b), simply does not permit the interpretation that
Plan Proponents urge, and the Court must enforce the contract as written.
Second, the problem Plan Proponents pose does not arise from the terms
of the Contribution Agreement itself. There is no inherent conflict between any
terms of the Contribution Agreement that is evident from the face of that
agreement. Rather, the problem flows from the premise that the parties to the
Contribution Agreement shared an understanding, when they executed that
agreement, that the $85 million exit financing amount that they placed in
Section 9.1(d) was inadequate to make the Plan feasible; and that the exit
financing amount would have to be significantly higher. (That premise is not
entirely accurate, as discussed below.) But even if the parties to the
Contribution Agreement did have such a shared understanding when they executed
the Contribution Agreement, that understanding is not expressed anywhere in the
words the parties chose in the Contribution Agreement. It is, therefore, not
part of the Contribution Agreement.(25)
- ------------------------
(25) Section 12.13 of the Contribution Agreement contains an integration
clause. It provides, in relevant part: "Except as specifically stated otherwise
herein, this Agreement sets forth the entire understanding of the parties
relating to the subject matter hereof, and all prior understandings, written or
oral, are superseded by this Agreement." (Ex. LL at 45 Section 12.13.)
19
A third flaw in Plan Proponents' argument is that it is based on a false
premise. The premise is that in September 2003 when the Contribution Agreement
was executed, the parties to that agreement shared an understanding that the $85
million exit financing amount they placed in Section 9.1(d) would not be
adequate. Assuming for discussion purposes that extrinsic evidence of such a
shared understanding is not barred by the parol evidence rule, the premise is
false. Bank One, N.A. was the administrative agent for Debtors' Pre-Petition
Lenders ("Bank One"). In that capacity, Bank One, though not a signatory to the
Contribution Agreement, was an express third-party beneficiary under that
agreement.(26) And the Bank Steering Committee, formed by Bank One, was one of
the three named parties, along with Venture Holdings and Winget, that would have
to "mutually agree upon" an exit financing amount other than $85 million under
Section 9.1(d). The Court finds, based upon evidence presented by the Plan
Proponents at trial, that before and at the time when the Contribution Agreement
was executed in September 2003, Bank One both believed and took the position
with the other parties that the $85 million exit financing amount would be
adequate.
Not only did Bank One believe this, and express this in negotiations, but
also, during the negotiations Bank One repeatedly and successfully resisted
efforts by Debtors and Winget to add language that would allow an exit financing
amount higher than $85 million, without the need for any party's further
agreement. Bank One rejected, for example, Debtors' proposal, supported by
Winget at the time, that the exit financing amount be $105 million. Bank One
also rejected Debtors' proposal that the $85 million exit financing amount in
Section 9.1(d) be stated as a minimum - i.e., as "at least $85
- ------------------------
(26) Section 12.12 of the Contribution Agreement provides, in pertinent
part, that Bank One "shall be deemed a third-party beneficiary of this entire
Agreement with the ability to enforce the obligations herein." (Ex. LL at 45
Section 12.12.)
20
million" rather than simply "$85 million." Under that proposal, any exit
financing amount equal to or greater than $85 million would have satisfied this
provision in Section 9.1(d). In rejecting that proposal, Bank One proposed the
language that now appears in Section 9.1(d). Debtors and Winget conceded the
point, by agreeing to that language.(27)
Thus one of the Plan Proponents -- Bank One, as agent for the Pre-Petition
Lenders --insisted that the exit financing amount in Section 9.1(d) be $85
million "or such other amount mutually agreed upon" by Debtors, Winget, and Bank
One. The other Plan Proponents (Debtors) accepted this position, and agreed to
this language in Section 9.1(d). As a result, none of the Plan Proponents may
now be heard to complain that when they executed the Contribution Agreement,
this provision in Section 9.1(d) (as interpreted by the Court) made Section
6.2(b) meaningless.
If one assumes that $85 million would be sufficient exit financing to make
the plan feasible, then the Court's interpretation of the unambiguous language
in Sections 9.1(d) and 6.2(b) of the Contribution Agreement does not make
Section 6.2(b) or Section 9.2(e) meaningless. If the commitment letter for exit
financing were for $85 million, Winget could not terminate the Contribution
Agreement and escape his obligations under that Agreement by refusing to agree
to that exit financing amount; Section 9.1(d) would bind him to that amount, in
the absence of a mutual agreement by Winget, Debtors, and the Bank Steering
Committee to some other amount.
- ------------------------
(27) (See Tr. 8/6/04 at 69-71 (Babcock); Ex. KK.; Tr. 8/24/04 at 91, 94-97
(Reynertson); Tr. 8/6/04 at 24-28 (Babcock); Tr. 8/6/04 at 23-25; Ex. GGG; Tr.
8/6/04 at 26-27, 82-83; Tr. 8/3/04 at 36-37; Ex. OO; Tr. 8/3/04 at 36, 134; Ex.
QQ; compare Ex. KK at 5 with Ex. LL at 5 and 33-34; Ex. QQ at 5, 35; Tr. 8/3/04
at 29, 37.)
21
D. OTHER CONTRACT-INTERPRETATION ARGUMENTS.
For these reasons, the best efforts obligation in Section 6.2(b) of the
Contribution Agreement does not limit Winget's rights and discretion under
Section 9.1(d), including his right to refuse to find "acceptable" the terms of
the exit financing commitment. Nor does Section 9.1(d) itself expressly do so.
Plan Proponents argue, however, that the Court should imply such a limitation on
Winget's rights under Section 9.1(d), based on other language in the
Contribution Agreement.
Specifically, Plan Proponents argue that "[w]hen the parties to the
Contribution Agreement intended to grant an unfettered right" or "unfettered
discretion" to a party, "they crafted language that made it explicit that the
applicable right was unfettered." They cite one example of this, contained in
Section 6.2(g), which gives Debtors discretion, under certain circumstances, not
to consummate the transactions contemplated by the Contribution Agreement and
instead to terminate the agreement. They cite this language in Section 6.2(g):
If Venture Holdings, in the exercise of its SOLE AND ABSOLUTE
DISCRETION, determines, . . . that it does not wish to consummate
the transactions contemplated by this Agreement for any reason,
Venture Holdings shall have the right (with the consent of the
Agent) . . . to terminate this Agreement[.]
(Ex. LL at 26 Section 6.2(g)(emphasis added).) According to Plan Proponents,
this language in Section 6.2(g) "explicitly indicates the intent of the parties
to confer complete discretion on the Debtors," and "the absence of similar
language in" Section 9.1(d) "leads to the inescapable conclusion that Winget
does not have an unfettered or absolute veto power under" Section 9.1(d)'s exit
financing provision. ([Plan Proponents'] Joint Memorandum at 30 P.68.)
22
But this argument, based on the contrast between Sections 9.1(d) and
6.2(g), is counterbalanced by other provisions in the Contribution Agreement.
Those provisions strongly suggest that when the parties intended to limit a
party's discretion in the exercise of a contract right, they made such a
limitation explicit.
There are at least three provisions in the Contribution Agreement, for
example, requiring a party's "prior written consent" under certain
circumstances, which explicitly limit the party's discretion and right to
withhold such consent. They do so by use of the phrase "which consent shall not
be UNREASONABLY withheld or delayed" or by stating that the party "may
REASONABLY withhold consent." (See Ex. LL at 26 Section 6.2(h), 41 Section
11.6(b)(iii) (bold emphasis added).) These provisions suggest that when the
contracting parties intended to limit a party's discretion (in these examples,
to grant or withhold a required written consent), the parties did so explicitly,
by including an express "reasonableness" limitation on that right. By contrast,
no such limiting language appears in Section 9.1(d). Given this, Plan
Proponents' contrasting example of Section 6.2(g) does not imply any contractual
limitation on Winget's discretion and rights under Section 9.1(d), including his
right to refuse to find "acceptable" the terms of an exit financing commitment.
V. WINGET'S REFUSAL TO ACCEPT THE OTHER "TERMS" OF THE EXIT FINANCING
CONTAINED IN THE COMMITMENT LETTER.
Plan Proponents have presented much evidence and argument to support their
claim that Winget "agreed" to the $125 million exit financing amount contained
in the Commitment Letter, as required by Section 9.1(d). Winget's agreement to
this amount is demonstrated by his words and conduct, according to Plan
Proponents, under both "express contract" and an "implied-in-fact contract"
theories.
23
But Plan Proponents do not allege that Winget ever agreed to, accepted, or found
"acceptable" the other exit financing terms contained in the Commitment Letter,
as required by Section 9.1(d).(28) To the contrary, the Court finds and
concludes that those terms were not and are not "acceptable" to Winget. This is
evidenced by, among other things, (1) Winget's delivery of his letter
terminating the Contribution Agreement based upon Section 9.1(d), promptly after
receiving the Commitment Letter on May 25, 2004; (2) Winget's objections to
confirmation, filed on June 14, 2004;(29)(3) Winget's objections to several of
the particular terms of the exit financing during trial; (4) Winget's filing and
prosecution of the related adversary proceeding; and (5) Winget's objection to
the so-called Arranger's Fee, a component of the fees associated with the exit
financing. Winget objected to the Arranger's Fee during trial, and also during a
hearing held June 10, 2004 on a related motion filed by Debtors, and in a motion
for reconsideration filed June 21, 2004.(30) Winget's objections to particular
terms of exit financing are discussed further below, in connection with the
implied covenant of good faith and fair dealing.
- ----------
(28) Nor did Plan Proponents argue or present any evidence that Winget
ever accepted, agreed to, or found "acceptable" the terms contained in the
original draft of the exit financing agreement dated June 30, 2004 (Ex. X) or
the amended exit financing agreement dated September 30, 2004 (Ex. JJJJJ).
(29) (See "Objection of Larry J. Winget to Confirmation of the Debtors'
Second Amended Joint Plan of Reorganization," filed June 14, 2004, at 2-3.)
(30) The motion was "Debtors' Motion for an Order Pursuant to 11 U.S.C.
Sections 105 and 363 Authorizing and Approving the Debtors' Payment of Fees for
Exit Financing and Granting Related Relief" (Docket #2004), filed June 2, 2004.
After the Court granted that motion in an Order filed June 10, 2004 (Docket #
2127), Winget filed a motion for reconsideration on June 21, 2004 (Docket #
2216). The Court has not yet ruled on the motion for reconsideration.
24
VI. PLAN PROPONENTS' ESTOPPEL ARGUMENT.
Plan Proponents argue that Winget is estopped from denying that he agreed
to an exit financing amount of $125 million. Plan Proponents presented
substantial evidence at trial in support of this argument, which is strenuously
contested by Winget. It is unnecessary for the Court to decide the many factual
and legal issues involved in the Plan Proponents' estoppel argument, however,
given the Court's disposition of this case.
Plan Proponents do not make any estoppel argument regarding the other
requirement of Section 9.1(d), that the exit financing Commitment Letter's terms
be "market terms" acceptable to the Bank Steering Committee [,] Venture Holdings
and Larry J. Winget."(31) And Plan Proponents did not present evidence that
would meet their burden of proving such an estoppel argument.
VII. PLAN PROPONENTS' ARGUMENT BASED ON THE IMPLIED COVENANT OF GOOD FAITH AND
FAIR DEALING.
Plan Proponents argue, in addition to their other arguments discussed
above, that Winget is subject to an implied covenant of good faith and fair
dealing that limits his right and discretion (1) under Section 9.1(d) to refuse
to agree to an exit financing amount other than $85 million (and to refuse to
agree to the Commitment Letter's exit financing amount of $125 million); and (2)
under Section 9.1(d) to refuse to accept (or find "acceptable") the terms of the
exit financing commitment if those terms are "market." According to Plan
Proponents, this implied covenant requires Winget to agree to the $125
- ----------
(31) Nor do Plan Proponents make any argument, relating to this
requirement under Section 9.1(d), in support of the other affirmative defenses
stated in their answers filed in the adversary proceeding -- waiver, laches, and
unclean hands. And in their post-trial briefs, Plan Proponents expressly
disclaimed any waiver argument. (See [Plan Proponents'] Joint Memorandum, filed
October 18, 2004, at 63 P.140.) Nor did Plan Proponents present evidence that
would meet their burden of proving any of these defenses.
25
million exit financing amount, and to accept the other terms of the exit
financing commitment. At least with respect to the second component (market
terms acceptable to Winget), the Court rejects Plan Proponents' argument.
Rather, the Court finds and concludes (1) that the implied covenant of good
faith and fair dealing does apply to Winget in this context; but (2) Plan
Proponents have not proven a breach of that covenant by Winget; and (3) Winget
has not breached that covenant.
Under certain circumstances, "[a]n implied covenant of good faith and fair
dealing is recognized by Michigan common law in the performance [and
enforcement] of contracts." Stephenson v. Allstate Ins. Co., 328 F.3d 822, 826
(6th Cir. 2003)(citing Hubbard Chevrolet Co., v. General Motors Corp., 873 F.2d
873, 876 (5th Cir. 1989))(applying Michigan law). This implied covenant applies
only in cases where a party to a contract "makes its performance a matter of its
own discretion." Id.; see also Burkhardt v. City Nat'l Bank of Detroit, 226
N.W.2d 678, 680 (Mich. Ct. App. 1975)(citations omitted). Such discretion arises
when the parties have agreed to "defer decision on a particular term of the
contract." Stephenson, 328 F.3d at 826. It may also arise "from a lack of
clarity or from an omission in the express contract." Id. at 826 (quoting
Hubbard Chevrolet Co., 873 F.2d at 877 n.2).
But Plan Proponents concede,(32) and Michigan law is clear, that this
implied covenant cannot be applied in a way that would "override [or contradict]
express contract terms." Id. at 826-27 (quoting Cook v. Little Caesar Enter.,
Inc., 210 F.3d 653, 657 (6th Cir. 2000)); see also General Aviation,
- ----------
(32) (See [Plan Proponents'] Joint Memorandum, filed October 18, 2004, at
35 n.9.)
26
Inc. v. Cessna Aircraft Co., 915 F.2d 1038, 1041 (6th Cir. 1990)(construing
Michigan law); Clark Bros. Sales Co. v. Dana Corp., 77 F. Supp. 2d 837, 852
(E.D. Mich. 1999).
The implied covenant of good faith and fair dealing does apply, in this
case, to Winget's decision whether to accept the exit financing terms contained
in the Commitment Letter under Section 9.1(d) of the Contribution Agreement.
Winget concedes this in one of his post-trial briefs.(33) As Winget correctly
acknowledges, "the `market terms acceptable to' prong of Section 9.1(d) gives
Winget, Debtors, and Senior Lenders each the unilateral right to accept the
terms" of the exit financing, so that "the exercise of such unilateral
discretion must be taken consistent with the implied covenant" of good faith and
fair dealing.(34)
Under Section 9.1(d), the exit financing in the Commitment Letter must be,
among other things, "on market terms acceptable to the Bank Steering
Committee[,] Venture Holdings [,] and Larry J. Winget." Plan Proponents argue
that the implied covenant of good faith and fair dealing requires Winget to
accept (or find "acceptable,") all of the terms of the exit financing in the
Commitment Letter, as long as they are "market" terms.
Plan Proponents made a similar argument as a matter of contract
interpretation, based on the terms of the Contribution Agreement, including the
"best efforts obligation" in Section 6.2(b). The Court rejected those
contract-based arguments.(35) The Court also rejects Plan Proponents' argument
based
- ----------
(33) (See Transferors' and Plaintiffs' Reply to Plan Proponents' Joint
Memorandum, filed October 25, 2004, at 37-38 P.87.)
(34) Id.
(35) See discussion in Part IV of this Opinion, above.
27
on the implied covenant of good faith and fair dealing. To accept Plan
Proponents' view of that implied covenant would impermissibly "override" and
contradict an express contract term, namely the last phrase of Section 9.1(d)
itself. As the Court noted above, Section 9.1(d) expressly and unambiguously
requires that the exit financing terms be both "market terms" and "acceptable
to" the parties named, including Winget. If the implied covenant were held to
require Winget to accept any exit financing terms so long as they are "market,"
it would override and contradict the last phrase of Section 9.1(d), in effect
reading that phrase out of the agreement entirely.(36)
Michigan law precludes such a result. Thus, even if the exit financing
terms all are "market" terms, as Plan Proponents contend, the implied covenant
of good faith and fair dealing does not require Winget to accept those terms
under Section 9.1(d), for that reason alone.
Plan Proponents have not articulated any other theory to establish a
breach of the implied covenant of good faith and fair dealing by Winget in
refusing to accept the exit financing terms under Section 9.1(d). And Plan
Proponents have failed to prove any such breach by Winget. Moreover, the
evidence establishes that Winget has not breached that implied covenant in
refusing to accept the exit financing terms. At trial, Winget presented
substantial evidence that several of the terms of the exit financing contained
in the May 25, 2004 Commitment Letter, were not "market" terms, and were
excessive and unreasonable.(37) These terms include the interest rates for the
exit financing; and the
- ----------
(36) See discussion in Part IV-A above.
(37) The evidence presented by Winget during the confirmation hearing
showed, at a minimum, that Winget had a substantial, good faith basis for
believing that (1) the Arranger's Fee; (2) the Term Loan interest rate; (3) the
Revolver Loan interest rates; and (4) other terms and conditions of the Exit
Facility were not on "market" terms and were excessive. Robert Rusk, an expert
witness presented by Winget, testified that:
(1) the Arranger's Fee is double the market rate. (See Tr. 9/14//4
at 137 lns. 19-22, 139 lns. 16-17, 153 lns. 17-24, 154 lns. 1-2, 178
lns. 17-21; Ex. 14 at 2
(continued...)
28
3.5% ($4.375 million) Arranger's Fee, one of the fees to be paid to Black
Diamond for the exit financing. The Plan Proponents strenuously disputed this
evidence, in cross-examination and with substantial contrary evidence of their
own. But the Court need not resolve that dispute on the merits --i.e., determine
whether Winget is actually correct in charging that these terms are not "market"
and are unreasonable. Rather, it is enough to determine, as the Court does, that
Winget had a substantial, good faith basis for concluding that these terms were
not market and were excessive and unreasonable. This, in turn, is sufficient on
this record for the Court to find and conclude, as the Court does, that Winget's
refusal to accept these terms was not a breach of the implied covenant of good
faith and fair dealing.
VIII. CONCLUSION.
For the reasons stated in this Opinion, the Court has entered, by separate
documents, an order denying confirmation of Debtors' Second Amended Plan and an
appropriate judgment for Winget in the related adversary proceeding.
Date: January 26, 2005 /s/ Thomas J. Tucker
--------------------------------
Thomas J. Tucker
United States Bankruptcy Judge
- ----------
(37) (...continued)
(unnumbered) ("Venture Holdings Company LLC Exit Financing
Comparison"); Ex. 72 at 2 ("Arranger Fees Comparison"));
(2) the Term Loan interest rate is approximately double the market
rate. (See Tr. 9/14/04 at 184 lns. 9-25, 185 lns. 1-4, 191 lns. 1-5,
203 lns. 2-6, 207 lns. 9-14; Ex. 72; Ex. 73 at 3);
(3) the Revolver Loan Interest rates "substantially exceed the
median" interest rates of those exit facilities to which they were
compared (approximately 140 basis points higher than the median for
revolving credit), with the sole exception of one outlier exit
facility, which was an anomaly. (See Tr. 9/14/04 at 189 lns. 2-9,
203 lns. 2-6, 207 lns. 1-8; Ex. 73 at 4 ("Exit Revolver Loan
Interest Rates")); and
(4) several other terms and conditions of the Black Diamond Exit Facility
are not on market terms. (See Tr. 9/14/04 at 209 lns. 13-15 through 222
lns. 1-16; Ex. 73 at 15-17.)
29
cc: Judy A. O'Neill
Ralph R. McKee
William T. Burgess
Joel Applebaum
Timothy R. Pohl
Claretta Evans
[For Publication]
30