Relevant Document:
Invesco Response
In a response brief filed Monday night, April 8, former Robertshaw controlling lender Invesco argues that equity sponsor One Rock’s
early motion for judgment on Invesco’s
December 2023 payoff transaction tortious interference claims is “procedurally improper and substantively deficient.” The bankruptcy court “does not have subject matter jurisdiction to hear One Rock’s request for relief,” Invesco asserts, and “even if it did, One Rock has failed to meet the high bar for dismissal on the pleadings.”
Invesco accuses One Rock of conspiring with the company and
ad hoc lender group members Bain, Canyon and Eaton Vance to wrest control of the company’s
restructuring away from Invesco by undertaking a “sham transaction” that allowed the debtors to prepay Invesco’s first-out loans and recreate those loans in the hands of the ad hoc group. One Rock maintains that Invesco’s tortious interference claims are barred as a matter of law by the “economic interest” defense - as recognized in three earlier
uptier/
liability management suits.
According to One Rock, the economic interest defense applies “where an equity sponsor’s alleged actions were to protect both its portfolio company and, by the same token, its economic interest in that company.” Invesco argues, however, that the “sham transaction” actually injured One Rock’s preexisting equity position - its “economic interest” - in Robertshaw (emphasis added).
One Rock knew the December 2023 transaction would not benefit Robertshaw or its equity interest in the company, Invesco says, because One Rock knew the company was insolvent and the $100 million in new financing (including $40 million in senior debt from One Rock) from the deal would drive its equity position further “out of the money.” One Rock still participated in the transaction, Invesco argues, to secure a $40 million senior debt position “it could recover in a Chapter 11 filing” that wiped out its equity.
Invesco asserts that One Rock’s economic interest defense “is based on a
false narrative” that “One Rock, of noble heart, altruistically entered into a conventional transaction to provide a lifeline to Robertshaw.” To the contrary, Invesco says, “One Rock pursued the Sham Transaction to strip Invesco of its Required Lenders status and for the purpose of improving One Rock’s recovery in an inevitable Chapter 11 filing to the detriment of Invesco
and Robertshaw.”
Invesco points out that One Rock refused to inject $10 million of equity capital into the company in November 2023, presumably because that equity investment would not be recovered in a bankruptcy. “Plainly, injecting capital into Robertshaw was not the driving force for One Rock’s conduct,” Invesco suggests.
Invesco alternatively argues that even if the economic interest defense applies, it has sufficiently pleaded exceptions to the defense to escape judgment in favor of One Rock at the pleading stage. For example, the “fraud and illegality” exception applies, Invesco says, because of the conspirators’ “outright lies about the Administrative Agent’s participation in the Sham Transaction” and concealment of the deal from Invesco.
Invesco insists it has also adequately pleaded the “malice” exception to the economic interest defense. One Rock “maliciously and in bad faith caused Robertshaw and the [Ad Hoc Group] to pursue the Sham Transaction with knowledge that it violated Invesco’s rights under the Credit Agreement,” Invesco says, and “courts have regularly found such allegations to be sufficient” to survive dismissal.
Invesco points to the fact that the conspirators agreed to bar Invesco, “and no other party,” from providing alternative financing to the company, “even if Invesco offered the Debtors better terms.”
“There is no conceivable economic justification for this Invesco-specific prohibition; it was done out of spite,” Invesco concludes.
Whatever the merits, Invesco further argues, the bankruptcy court lacks jurisdiction to issue a declaration that One Rock is not liable for tortious interference under the federal Declaratory Judgment Act because an early declaration of nonliability in favor of a defendant on a tort claim “is inappropriate as a matter of law.”
“A motion for declaratory judgment that merely restates a party’s defenses is insufficient unless the party can prove that there are issues of greater ramification to be resolved,” Invesco asserts.