Twin River Worldwide Holdings, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh
Docket: C.A. No. 17-008-JJM-PAS
Court: District Court, D. Rhode Island; August 1, 2018; Federal District Court
Twin River's tender offer to Contingent Value Rights Holders (CVRs) post-bankruptcy sparked a dispute over fiduciary duties. Twin River believed it owed the CVRs fair value before their shares expired, while Stockholders argued Twin River had no duty to the CVRs and a superior fiduciary duty to them not to make payments to the CVRs. Ultimately, Twin River settled the dispute with Stockholders for $5.6 million and sought reimbursement from National Union Fire Insurance Company under its insurance policy. National Union denied coverage, asserting the payment was not for a covered claim. Both parties moved for summary judgment, with Twin River seeking coverage and National Union opposing it. The key issue was whether the payment to settle the dispute constituted a covered claim. The Court ruled in favor of Twin River, confirming the $5.6 million settlement was a covered claim under the policy and that proper notice was given. Twin River’s motion for summary judgment was granted, while National Union's was denied.
Following its bankruptcy filing on June 23, 2009, Twin River established two classes of stockholders: first lien lenders received 100% of common stock and $300 million in new debt, while second lien lenders received the CVRs. The CVRs were entitled to a portion of any consideration from fundamental transactions by a deadline of November 5, 2017. In June 2014, Twin River indicated a potential buyback of the CVRs, prompting Stockholders Solus and Wingspan to assert that Twin River had a duty to delay any transactions until after the CVRs' expiration and to threaten legal action. Twin River notified National Union of these claims, which were recognized as potential breach of fiduciary duty issues. In response to the Stockholders' threats, Twin River returned to Bankruptcy Court to clarify its obligations to the CVRs, leading to a declaratory judgment action against the complaining Stockholders, affirming its belief in its duty towards the CVRs.
The Bankruptcy Court determined that Twin River had obligations to the CVRs, which led to an appeal by the Stockholders on November 13, 2015. On the same day, Solus' counsel issued a warning, termed the Second Salvo, indicating that proceeding with a tender offer to the CVRs would breach Twin River's fiduciary duties, stemming from an earlier breach related to filing the Adversary Proceeding. After receiving court approval, Twin River announced its tender offer. Subsequently, Apollo initiated a lawsuit in Delaware against Twin River's Board and CFO, claiming that the tender offer violated fiduciary duties, seeking rescissory damages due to falling stock prices. In light of lawsuits in Rhode Island and Delaware, Twin River, with consent from National Union, engaged in discussions with CVR and Stockholder representatives to settle the value dispute. A draft Memorandum of Understanding (MOU) was created, stating that Stockholders would withdraw their appeal in exchange for a $5.6 million payment from Twin River for legal expenses and releases of claims. On January 21, 2016, the Stockholders reiterated their claims in a Settlement Demand Letter, demanding the same $5.6 million reimbursement and a cap of $425 per share for CVRs. National Union expressed doubts about coverage for the proposed settlement but did not contest consent issues. Twin River ultimately settled with the Stockholders and CVRs in February 2016 for $5.6 million, which was approved by the Delaware Court. National Union later denied coverage for this settlement, prompting Twin River to file a suit for coverage under its policy. National Union contended that Twin River failed to assert a valid claim. The case will be evaluated under Rule 56(a) of the Federal Rules of Civil Procedure regarding summary judgment, applying Rhode Island law to interpret the insurance contract, as Rhode Island courts follow established rules for contract interpretation.
When a contract is clear and unambiguous, courts utilize a de novo review of its terms, evaluating the document in its entirety and interpreting its language according to its plain and ordinary meaning. If no ambiguity exists, the contract's terms are applied as written. The court will analyze the relevant provisions of Twin River's National Union insurance policy to determine coverage for a $5.6 million settlement. Specifically, the policy's Endorsement 21 for Directors and Officers Coverage includes key terms: "Loss," defined as damages and settlements; "Company," which refers to Twin River; "Claim," defined as a written demand for relief; and "Wrongful Act," encompassing various breaches of duty or errors by the Company. The policy mandates that the insured must notify National Union of any claim or potential claim, detailing the circumstances, allegations, and involved parties. Clause 6(c) stipulates that if the insured becomes aware of circumstances that could give rise to a claim and provides written notice to the insurer, any subsequent claims related to those circumstances will be deemed made at the time of the original notice.
The court must establish that Twin River notified National Union of a claim involving allegations of wrongful acts. In a notice dated October 22, 2014, Twin River informed National Union of stockholders' objections regarding the company's handling of Contingent Value Rights (CVRs), including concerns about fair pricing. This notice referenced communication from the stockholders' attorney, asserting that Twin River's officers and directors have fiduciary duties to act in the stockholders' best interest in transactions involving the CVRs.
Concerns were raised regarding Twin River's overvaluation of contingent value rights (CVRs), suggesting that this inflated valuation conflicted with the Bankruptcy Reorganization Plan's terms. National Union acknowledges receiving notice of a potential claim related to a wrongful act but disputes whether this notice evolved into the claim Twin River asserts warrants coverage. Twin River claims that its Settlement Demand Letter articulates a breach of fiduciary duty to the Stockholders, asserting that it favored the CVRs' interests over those of the Stockholders. The demand includes a proposed CVR price cap of $425 per share and a payment of $5.6 million to cover legal fees related to the dispute.
National Union counters that the $5.6 million settlement was not directly between Twin River and the Stockholders but rather involved disputes between the CVRs and Stockholders, arguing that Twin River had no obligation to settle since it had no stake in the outcome. National Union also argues that the breach of fiduciary duty claims in the Second Salvo do not substantiate the Settlement Demand Letter's ambiguous references to the claim, particularly since they were unaware of the letter until after Twin River had already settled.
The Court emphasizes that Twin River must clearly define its case, starting with the Settlement Demand Letter, which details negotiations between the Stockholders and Twin River, setting the CVR price at $400 and agreeing to the $5.6 million payment for the Stockholders' expenses. The letter expresses dissatisfaction from the Stockholders regarding Twin River's actions that allegedly favored the CVRs, including a lawsuit against the Stockholders, which they argue constitutes a breach of fiduciary duty. Ultimately, the Court concludes that the Settlement Demand Letter represents the culmination of the claim identified in the notice of circumstance, with the Stockholders seeking reimbursement for expenses incurred in response to Twin River's support for the CVRs, which they view as a breach of fiduciary duty.
Twin River was actively involved in a dispute regarding Contingent Value Rights (CVRs) payments, with Stockholders asserting that Twin River had a fiduciary duty to prioritize their interests under the Bankruptcy Plan of Reorganization. The Stockholders contended that Twin River's plan to pay CVRs before their expiration and at an inflated share price constituted a breach of this duty. Despite this, the Stockholders sought monetary relief to resolve the CVR issue, which the Court identified as a wrongful act claim under the relevant insurance policy.
Allocation of the settlement amount between covered and uncovered claims was also raised by National Union, which argued that Twin River failed to meet its burden. However, the Court determined that since there was only one claim—breach of fiduciary duty—allocation was not necessary. The Court concluded that Twin River's claim is covered under the National Union policy, denying National Union's motion for summary judgment and granting Twin River's motion for partial summary judgment.
Twin River's motion was partially characterized as it believed a jury should determine the damages. The Stockholders subsequently appealed this decision in the District Court for Rhode Island but later dismissed the appeal after reaching a settlement. The Bankruptcy Court required the dispute to be addressed through an adversary proceeding. The $5.6 million settlement was split equally between Apollo and the other parties involved. National Union's claims of changing theories by Twin River were noted; however, the Court found the key facts undisputed and applicable to the insurance policy's terms. Rhode Island law governs the dispute due to the policy's issuance in the state and Twin River's status as a Rhode Island corporation. The Court acknowledged that the fiduciary duties referenced in subsequent correspondence were consistent with those outlined in the initial claim notice.
In November 2015, Twin River was advised by the Bankruptcy Court to make a tender offer for the CVRs, which led Stockholders to claim that Twin River was violating its fiduciary duty. The Second Salvo asserted more explicitly than the First Salvo and Settlement Demand Letter regarding the alleged Wrongful Act, though the overall message was similar to earlier communications received by National Union prior to settlement. The insurance policy did not specify how to allocate losses between covered and uncovered claims. National Union had a responsibility to inform Twin River about the necessity of allocating any potential settlement claims, particularly after being made aware of negotiations and the settlement terms. However, National Union failed to advise Twin River to allocate before finalizing the settlement. Twin River did not seek summary judgment concerning the settlement's reasonableness, which is now the remaining issue in the case. The Court plans to contact the parties to discuss the next steps.
