New Bankruptcy Opinion: IN RE LYONDELL CHEMICAL COMPANY – Bankr. Court, SD New York, 2015





In re: LYONDELL CHEMICAL COMPANY, et al., Chapter 11 Debtors.

EDWARD S. WEISFELNER, AS TRUSTEE OF THE LB CREDITOR TRUST, Plaintiff,

v.

FUND 1, et al., Defendants.

EDWARD S. WEISFELNER, AS TRUSTEE OF THE LB CREDITOR TRUST, Plaintiff,

v.

REICHMAN, et al., Defendants.

EDWARD S. WEISFELNER, AS LITIGATION TRUSTEE OF THE LB LITIGATION TRUST, Plaintiff,

v.

HOFMANN, et al., Defendants.

Case No. 09-10023 (REG) Jointly Administered, Adversary Proceeding Case No. 10-04609 (REG)., 12-01570 (REG), Adversary proceeding Case No. 10-05525 (REG).

United States Bankruptcy Court, S.D. New York.

November 18, 2015.

DECISION ON MOTIONS TO DISMISS AMENDED INTENTIONAL FRAUDULENT TRANSFER CLAIMS, ET AL.

ROBERT E. GERBER, Bankruptcy Judge.

In late December 2007, Basell AF S.C.A. (“Basell”), a Luxembourg entity controlled by Leonard Blavatnik (“Blavatnik”), acquired Lyondell Chemical Company (“Lyondell”), a Delaware corporation headquartered in Houston—forming a new company after a merger (the “Merger”), LyondellBasell Industries AF S.C.A. (as used by the parties, “LBI,” or here, the “Resulting Company”), [1] Lyondell’s parent—by means of a leveraged buyout (“LBO”). The LBO was 100% financed by debt, which, as is typical in LBOs, was secured not by the acquiring company’s assets, but rather by the assets of the company to be acquired. Lyondell took on approximately $21 billion of secured indebtedness in the LBO, of which $12.5 billion was paid out to Lyondell stockholders.

In the first week of January 2009, less than 13 months later, a financially strapped Lyondell filed a petition for chapter 11 relief in this Court. [2] Lyondell’s unsecured creditors then found themselves behind that $21 billion in secured debt, with Lyondell’s assets effectively having been depleted by payments of $12.5 billion in loan proceeds to stockholders. [3] That led to the filing of these three adversary proceedings, each brought against shareholder recipients of that $12.5 billion by Edward Weisfelner (the “Trustee”), the trustee of two trusts formed to pursue claims on behalf of Lyondell and its creditors. [4] The Trustee brought constructive fraudulent transfer claims in the Fund 1 and Reichman actions, and intentional fraudulent transfer claims in all three.

In an earlier published decision, [5] the Court ruled on 12(b)(6) motions attacking the Trustee’s constructive and intentional fraudulent transfer claims. The Court denied defendants’ motion to dismiss the constructive fraudulent transfer claims, but dismissed the claims for intentional fraudulent transfer—for deficiencies in alleging facts to support the requisite intent on the part of Lyondell’s Board of Directors (the “Board”), the ultimate decision maker as to the Merger and LBO. But the Court did so with leave to replead, and the Trustee availed himself of that opportunity—filing a Third Amended Complaint (the “Revised Complaint”) in Fund 1 and similarly amended complaints in Reichman and Hofmann (together with the Revised Complaint, the “Amended Complaints”) in efforts to address the Court’s concerns. [6]

Now shareholder defendants (the “Movants”) in Fund 1 Reichman, and Hofmann have moved once again to dismiss the intentional fraudulent transfer claims, [7] asserting that the deficiencies identified in the First 12(b)(6) Decision were not cured. The Movants also seek to dismiss the state law constructive fraudulent transfer claims (asserted only in Fund 1 and Reichman) for a number of other reasons as well—principally arguing that the Trustee lacks the standing to bring the suits.

Upon review of the Amended Complaints, the Court determines that the earlier deficiencies identified in the First 12(b)(6) Decision were not satisfactorily cured, and that plausible claims of intent on the part of Lyondell’s Board to put assets beyond the reach of Lyondell creditors still have not been sufficiently alleged. Thus the intentional fraudulent transfer claims will be dismissed. The Movants’ constructive fraudulent transfer claims contentions are rejected, and those claims survive.

Facts [8]

1. Lyondell Corporate Governance Background

Before the events that are the subject of these actions, Lyondell was a publicly traded chemicals company based in the United States. Lyondell’s Board consisted of 10 elected outside directors (the “Outside Directors”) and one additional director, Dan Smith (“Smith”), Lyondell’s CEO.

As alleged in the Revised Complaint, Smith was CFO of Lyondell from 1988-1994; President of Lyondell from 1994 to an unstated date; CEO from 1996 until the time of the Merger, and a director of Lyondell from 1988 until

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