ADDITIONAL CASES Fifth Third Bank, Plaintiff, v. Franklin Advisers, Inc., et al., Defendants; 19-01105 DECISION ON DEFENDANTS’ MOTION TO DISMISS KeyBank National Association (“KeyBank”) was one of many lenders to Appvion, Inc. both before and during Appvion’s chapter 11 bankruptcy case in Delaware. KeyBank claims that other lenders (the “Franklin Lenders”), together with Franklin Advisers, Inc. (“Franklin Advisers”), took certain actions during Appvion’s bankruptcy case that violated KeyBank’s contractual and other rights. KeyBank and another lender, Fifth Third Bank, sued the Franklin Lenders and Franklin Advisers in the New York State Supreme Court. The defendants removed the actions to the United States District Court for the Southern District of New York, which denied motions to remand them to state court. The District Court also denied a motion to transfer the actions to the District of Delaware, and then referred the actions to this Court. Fifth Third Bank has since settled its claims. KeyBank has filed a First Amended Complaint, and the defendants have moved to dismiss all claims asserted in the First Amended Complaint pursuant to Fed. R. Civ. P. 12, which is made applicable by Fed. R. Bankr. P. 7012. Jurisdiction, Venue and Power to Render a Final Decision The District Court has held that jurisdiction and venue are proper in the Southern District of New York. See Keybank Nat’l Ass’n v. Franklin Advisers, Inc., 600 B.R. 214, 224-36 (S.D.N.Y. 2019). The parties disagree as to whether the asserted claims are within this Court’s “core” jurisdiction but each party has consented to the entry of a final decision by this Court. In light of the parties’ consent this Court has the power to enter a final decision. See 28 U.S.C. §157(d); Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015). Applicable Pleading Standards In reviewing a motion to dismiss a court must accept the factual allegations of the complaint as true and draw all reasonable inferences in the plaintiff’s favor. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007); E.E.O.C. v. Staten Island Sav. Bank, 207 F.3d 144, 148 (2d Cir. 2000). However, the factual allegations in a complaint must be supported by more than mere conclusory statements. Twombly, 550 U.S. at 555. The allegations must be sufficient “to raise a right to relief above the speculative level” and provide more than a “formulaic recitation of the elements of a cause of action.” Id. (citations omitted). “[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss.” Iqbal, 556 U.S. at 679 (citing Twombly, 550 U.S. at 556). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). The plausibility standard is not a “probability requirement,” but it “asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct,” a complaint is insufficient under Fed. R. Civ. P. 8(a) because it has merely “alleged” but not “show[n]…that the pleader is entitled to relief.” Id. at 679; see also id. at 682 (allegations are rejected where there is an “obvious alternative explanation” for the conduct alleged that is more “likely”) (internal quotation marks and citations omitted). Various agreements, orders and other documents were attached to the First Amended Complaint and were referred to in the First Amended Complaint, and it is proper for the Court to consider those documents in ruling on the motion to dismiss. See Grant v. Cnty. of Erie, 542 F. App’x 21, 23 (2d Cir. 2013) (summary order) (in its review of a motion to dismiss “the court is entitled to consider facts alleged in the complaint and documents attached to it or incorporated in it by reference, documents ‘integral’ to the complaint and relied upon in it, and facts of which judicial notice may properly be taken under Rule 201 of the Federal Rules of Evidence”); Rothman v. Gregor, 220 F.3d 81, 88-89 (2d. Cir. 2000) (it is proper to consider documents that are quoted in, attached to or incorporated by reference into a complaint, or that plaintiff relied upon in bringing suit); I. Meyer Pincus & Assocs., P.C. v. Oppenheimer & Co., Inc., 936 F.2d 759, 762 (2d Cir. 1991) (it is proper to consider a document upon which allegations are based, whether or not it is attached to the complaint). If an allegation is belied by the terms of the documents, the documents are controlling. Id.; see also Alexander v. Bd. of Educ. of City of New York, 648 F. App’x 118 (2d Cir. 2016) (summary order) (dismissing complaint where documents contradicted allegations). Background Appvion Inc. and its affiliates were parties to three secured financings that preceded their October 1, 2017 bankruptcy filings. One financing (the “Prepetition First Lien Financing”) was secured by first-priority liens and security interests in substantially all of the borrowers’ assets. KeyBank and the Franklin Lenders were among the 44 lenders who made loans under the Prepetition First Lien Financing. KeyBank acted as the “documentation agent” for that financing. See Am. Compl. 17 [ECF No. 22]. About $253.3 million of loans were outstanding under the Prepetition First Lien Financing at the time of the bankruptcy filings. Id. 18. A second financing (the “Prepetition Second Lien Financing”) was secured by liens and security interests that with certain exceptions were junior only to the liens under the Prepetition First Lien Financing. See Ex. A to Am. Compl. E.(viii). More than $257 million was outstanding under the Prepetition Second Lien Financing at the time of the bankruptcy filings. Id. E.(iv). A third financing (the “Prepetition Receivables Facility”) was secured by various receivables. Id. E.(vi). Appvion arranged debtor-in-possession financing (“DIP Financing”) to sustain its operations during its bankruptcy case. The Delaware Bankruptcy Court entered an interim order on October 3, 2017 that tentatively approved some terms of the DIP Financing. KeyBank alleges that it was not involved in the discussions that led to the initial financing that was the subject of the interim order but that KeyBank participated in subsequent discussions, and those discussions led to modifications that were incorporated into a credit agreement that governed the DIP Financing (the “DIP Credit Agreement”). KeyBank also negotiated modifications to the form of order that approved the DIP Financing and that was entered by the Delaware Bankruptcy Court on October 31, 2017 (the “2017 DIP Order”). See Am. Compl.
19, 23 and Ex. A. A. The Terms of the 2017 DIP Financing The approved 2017 DIP Financing contained the following features. 1. Roll-Up of Prepetition First Lien Debts. The outstanding loans under the Prepetition First Lien Financing were “rolled up” as part of the 2017 DIP Financing. The “roll-up” meant that the pre-bankruptcy first-lien secured loans were converted into post-bankruptcy loans, with the result that the pre-bankruptcy first-lien lenders became DIP lenders. Five million dollars of letter of credit obligations under the Prepetition First Lien Financing were not included in the “Roll-Up Loans” but instead were cash-collateralized. 2017 DIP Order 5(a). The Prepetition Second Lien Financing and the Prepetition Receivables Facility were left in place. The 2017 DIP Order approved the roll-up and provided that it would be effective no later than October 31, 2017. The holders of the Roll-Up Loans were entitled to “all of the rights and obligations of a Lender and Roll-Up Lender (each as defined in the DIP Facility Agreement) under the DIP Facility Documents.” Id. 2. New Money DIP Loans. The new DIP Financing was $85 million larger than the amount of the Roll-Up Loans and thereby made “new money” available for use by Appvion (the “New Money Loans”). The pre-bankruptcy first-lien lenders had the option of participating in the new money portion of the DIP financing but were not required to do so, and KeyBank elected not to do so. Id.
