Wilmington Savings Fund Society, FSB v. Caesars Entertainment ( 2015 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
WILMINGTON SAVINGS FUND
SOCIETY, FSB, solely in its capacity as
successor Indenture Trustee for the 10%
Second Priority Senior Secured Notes
due 2018, on behalf of itself and
derivatively on behalf of CAESARS
ENTERTAINMENT OPERATING
COMPANY, INC,
Plaintiff,
V. CA. No. 10004~VCG
CAESARS ENTERTAINMENT
CORPORATION, CAESARS GROWTH
PARTNERS, LLC, CAESARS
ACQUISITION COMPANY, CAESARS
ENTERTAINMENT RESORT
PROPERTIES, LLC, CAESARS
ENTERTAINMENT OPERATING
COMPANY, INC, CAESARS
ENTERPRISE SERVICES, LLC, ERIC
HESSION, GARY LOVEMAN,
JEFFREY D. BENJAMIN, DAVID
BONDERMAN, KELVIN L. DAVIS,
MARC C. ROWAN, DAVID B.
SAMBUR, and ERIC PRESS,
Defendants,
and
CAESARS ENTERTAINMENT
OPERATING COMPANY, INC,
Nominal Defendant.
vvvvwxxx/vvvvvvvvvvvvvvvvvvvvvvvvvvvvv
MEMORANDUM OPINION
Date Submitted: March 10, 2015
Date Decided: March 18, 2015
Martin S. Lessner, Richard J. Thomas, and Nicholas J. Rohrer, of YOUNG
CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; OF
COUNSEL: Bruce Bennett, Sidley P. Levinson, and Joshua M. Mester, of JONES
DAY, Los Angeles, California; Geoffrey Stewart, of JONES DAY, Washington,
DC; Philip Le B. Douglas, Todd R. Geremia, and Rajeev Muttreja, of JONES
DAY, New York, New York; and James Carr, Eric R. Wilson, and David Zalman,
Of KELLEY DRYE & WARREN LLP, New York, New York, Attorneys for
Plaintifi’ Wilmington Savings Fund Society, FSB, solely in its capacity as successor
Indenture T rastee for the 10% Second Priority Senior Secured Notes due 2018.
Kenneth J. Nachbar, William M. Lafferty, John P. DiTomo, and Lindsay M.
Kwoka, of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington,
Delaware; OF COUNSEL: Eric Seiler, Philippe Adler, Emily A. Stubbs, and Jason
C. Rubinstein, of FRIEDMAN KAPLAN SEILER & ADELMAN LLP, New York,
New York, Attorneys for Defendants Caesars Entertainment Corporation, Caesars
Entertainment Resort Properties, LLC, Caesars Entertainment Operating
Company, Inc, Caesars Enterprise Services, LLC, Eric Hession, Gary Loveman,
Jefley D. Benjamin, Marc C. Rowan, David B. Sambar, and Eric Press.
Kenneth J. Nachbar, William M. Lafferty, John P. DiTomo, and Lindsay M.
Kwoka, of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington,
Delaware; OF COUNSEL: Marc E. Kasowitz, David S. Rosner, Andrew K. Glenn,
and Joshua M. Greenblatt, of KASOWITZ BENSON TORRES & FRIEDMAN
LLP, New York, New York, Attorneys for David Bonderman and Kelvin L. Davis.
Andrew D. Cordo and Marie M. Degnan, of ASHBY & GEDDES, PA,
Wilmington, Delaware; OF COUNSEL: Christopher Harris and Daniel D. Adams,
of LATHAM & WATKINS LLP, New York, New York, Attorneys for Defendants
Caesars Growth Partners, LLC and Caesars Acquisition Company.
GLASSCOCK, Vice Chancellor
2015, during which the Defendants represented that, though it still intended to do
so, CBOC had not yet moved to enjoin this action in the Bankruptcy Court.20 At
that time, I informed the parties that I would proceed with my consideration of the
Defendants’ pending Motions.
D. The Contract Provisions
The 2009 Indenture, which governs the relationship between the Plaintiff
and the Caesars Defendants, selects New York law as the applicable law but does
not include a forum selection clause.21 The 2009 indenture does in multiple places,
however, indicate that the parties’ rights and obligations under the 2009 Indenture
are subject to another agreement—the Intercreditor Agreementeewhich does
include an exclusive forum selection clause. In detailing the Plaintiff’s right to
bring legal action to protect its interest under the debt arrangement, for instance,
the 2009 Indenture states that:
Subject to the Intercreditor Agreement, the Trustee is authorized and
empowered to institute and maintain, or direct the Collateral Agent to
institute and maintain, such suits and proceedings as it may deem
expedient to protect or enforce the Second Priority Liens or the
Security Documents to which the Collateral Agent or Trustee is a
party or to prevent any impairment of Coilateral by any acts that may
be unlawful or in violation of the Security Documents to which the
Collateral Agent or Trustee is a party or this Indenture, and such suits
and proceedings as the Trustee or the Collateral Agent may deem
2” In a letter dated March 12, 2015, the Defendants notified me that CEOC had fried an
application in the Bankruptcy Court the previous day to stay or enjoin this actiOn in its entirety.
21 DiTomo Aff. Ex. A (2009 lndenture) § 13.09.
9
expedient to preserve or protect its interests and the interests of the
holders of Notes in the Collateral . . . .22
In addition, in the miscellaneous provisions of the 2009 Indenture, Section 13.16
provides, without elaboration, that “[t]he terms of this Indenture are subject to the
terms of the Intercreditor Agreement.”23
The lntercreditor Agreement, in turn, expressly includes a forum selection
clause, which is bifurcated into exclusive and nonexclusive clauses. In Section 8.7,
the Intercreditor Agreement provides:
The parties hereto consent to the nonexclusive jurisdiction of any state
or federal court located in New York County, New York (the “New
York Courts”) . . . . Nothing in this Agreement shall afiect any right
that any party may otherwise have to bring any action or proceeding
relating to this agreement in the courts of any jurisdiction, except that
each Second Priority Secured Party and each Second Priority Agent
agrees that (a) it will not bring any such action or proceeding in any
court other than New York Courts, and (b) in any such action or
proceeding brought against any Second Priority Agent or any
Grantor or any Second Priority Secured Party in any other court, it
will not assert any cross-claim, counterclaim or set‘ofl, or seek any
other afiirmative relief, except to the extent that the failure to assert
the same will preclude such Second Priority Secured Party from
asserting or seeking the same in New York Courts.24
The Intercreditor Agreement, by its terms, and as its name suggests, is an
agreement among CEOC’s creditors, solely to establish priority among those
22 Id. § 11.03 (emphasis added).
23 id. § 13.16.
24 DiTomo Aff. Ex. B (Intercreditor Agreement) § 8.7 (emphasis added).
10
creditors;25 neither CEOC nor CEC is a party to the Intercreditor Agreement.
Section 8.i6 of the lntercreditor Agreement explicitly states that, besides
signatories and their successors and assigns, “[n]o other Person. shall have or be
entitled to assert rights or benefits hereunder,” but that “[n]otwithstanding the
foregoing, [CEOC] is an intended beneficiary and third party beneficiary hereof
with the right and power to enforce with respect to Sections 5.1, 5.3, 5.7, 8.3, 8.16
and 8.22 and Article VI hereof and as otherwise provided herein.”26 Notably,
CEOC’S rights under Section 8.16 do not include the right to enforce the forum
selection clause, Section 8.7. Both CEOC and CEO executed a consent and
acknowledgement of their limited rights with regards to the Intercreditor
Agreement contemporaneous with that agreement’s execution.27
II. STANDARD OF REVIEW
“Courts traditionally dismiss a matter under Rule 12(b)(3) when the contract
underlying the dispute contains an explicit forum selection clause or when,
applying the doctrine of forum non conveniens, Delaware is clearly not the
appropriate forum for litigation.”28
25 See, eg, id. § 2.4 (“The provisions of this Agreement are intended solely to govern the
respective Lien priorities as between the Senior Lenders and the Second Priority Secured
7'!
Parties. . . . ).
26 Id. § 8.16.
27 See id., Acknowledgement of Intercreditor Agreement (following signature pages).
2" Leflmwitz v. HWF Holdings, LLC, 2009 WL 3806299, at *3 (Del. Ch. Nov. 13, 2009) (footnote
omitted).
11
Ill. ANALYSIS
A. Forum. Selection Clause
1 first turn to the issue of whether the Plaintiff is prevented from bringing
this action in Delaware by the operation of an exclusive forum selection clause. In
order to dismiss the Plaintiffs Complaint due to a forum selection clause, 1 must
find that the Plaintiff, in the contract at issue, clearly and unambiguously agreed. to
bring its claims exclusively in a foreign jurisdiction.”
As mentioned above, the 2009 indenturewthe agreement governing the
debtor/creditor relationship between WSFS and Caesarswdoes not include a forum
selection clause.30 Nevertheless, the Defendants argue that the Plaintiff clearly
29 As a preliminary matter, I note that there is an underlying issue of whether Delaware or New
York law applies to the question of whether the parties have eschewed litigation in this forum by
contract. In briefing, the parties cite Delaware cases concerning the enforceability of an
exclusive forum selection clause, but the contract itself—the 2009 Indenturewnselects New York
law as the law governing the contract. It is not necessary for me to resolve this choice-of—law
question, though, as the Defendants represented at oral argument that the standard governing the
enforceability of an exclusive forum selection clause is the same in Delaware and New Yorkw
the exclusive forum selection clause must be clear and unambiguous. See Oral Arg. Tr. 17:9—
19:12. Compare, e.g., British W Indies Guar. Trust Co., Ltd. V. Banqne Internationale a
Luxembourg, 567 N.Y.S.2d 731, 732 (NY. App, Div. 1991) (enforcing an exclusive forum
selection clause where “[t]he contractual provision in this case, designating Luxembourg as the
venue for any disputes, is clear and unambiguous”), with Scanbuy, Inc. v. NeoMedia Tech, Inc,
2014 WL 5500245, at *2 (Del. Ch. 0c. 31, 2014) (“‘The courts of Delaware defer to forum
selection clauses’ and grant Rule 12(b)(3) motions to dismiss ‘where the parties use express
language clearly indicating that the forum selection clause excludes all other courts before which
those parties could otherwise properly bring an action.” (internal quotation marks omitted)
(quoting Ashail Homes Ltd. v. ROK Enrm ’t Grp. Inc., 992 A.2d 1239, 1245 (Del. Ch. 2010))),
and T my Corp. v. Schoon, 2007 WL 949441, at *2 (Del. Ch. Mar. 26, 2007) (“If the contractual
language is not crystalline, a court will not interpret a forum selection clause to indicate the
parties intended to make jurisdiction exclusive.” (internal quotation marks omitted)).
0 As noted above, however, the 2009 lndenture does include a choice-of—law provision. See
DiTomo Aff. Ex. A (2009 Indenture) § 1309 (providing that New York law governs).
l2
chose New York as the exclusive forum for hearing disputes arising out of the
2009 lndenture because the 2009 indenture incorporates the terms of the
Intercreditor Agreement, including the exclusive forum selection clause found in
Section 8.7 of. the Intercreditor Agreement. The Defendants point to two
provisions of the 2009 Indenture in support of this contention. First, Section 13.16
of the 2009 Indenture generally states that “[t]he terms of this Indenture are subject
to the terms of the Intercreditor Agreement.”31 Second, Section 11.03 specifically
provides that the Plaintiff‘s ability to bring actions to enforce the Second Priority
Lien or remedy violations of the 2009 lndenture is “[s]ubject to the Intercreditor
Agreement.”32
The Defendants argue that these provisions incorporate into the
2009 Indenture the Plaintiff’s Obligations under the forum selection clause in
Section 8.7 of the Intercreditor Agreement, which states in relevant part that “each
Second Priority Secured Party and each Second Priority Agent agrees that . . . it
will not bring any such action or proceeding’hwthat is, an action or proceeding
“relating to” the Intercreditor Agreement~———“in any court other than New York
33
Courts.”
1 do not find that the provisions of the 2009 Indenture and the Intercreditor
Agreement, taken together, indicate a clear and unambiguous choice by the
311d. §13.16.
32 Id. §11.03.
33 DiTomo Affi Ex. B (lntercreditor Agreement) § 8.7.
13
Plaintiff to exclusively litigate this action in New York. Even assuming that
Section 13.16 of the 2009 Indenture was intended to incorporate all the provisions
of the Intercreditor Agreement into the 2009 lndenture, and not just resolve any
conflicting provisions between the two agreements, the forum selection clause
found in Section 8.7 of the intercreditor Agreement does not clearly cover the
dispute here. The forum selection clause in the lntercreditor Agreement is limited
by its terms to actions “relating to” the Intercreditor Agreementeea contract that
establishes rights and obligations among the various priority level creditors.” This
action does not concern the priority rights and obligations among CEOC’s
creditors, but rather WSFS’s direct recourse against entities and individuals
connected to Caesars charged with shifting CEOC’s assets out of WSFS’s reach.
in an attempt to demonstrate that a broad universe of claims falls under the
lntercreditor Agreement’s forum selection clause, a universe that includes this
action, the Defendants cite the language “relating to” as evidence that the parties
intended this to be a broad jurisdictional provision, but upon a careful reading 1 do
not agree. The forum selection clause in Section 8.7 operates first by establishing
the parties’ rights to bring an. action relating to the Agreement in any
jurisdiction,” and then restricts those rights in the limited circumstance where a
34 See, cg, id. § 2.4 (“The provisions of this Agreement are intended solely to govern the
respective Lien priorities as between the Senior Lenders and the Second Priority Secured
Parties . . . .” (emphasis added)); id. at l (recitals to Intercreditor Agreement).
14
Second Priority Secured Party or Second Priority Secured Agent initiates the
action. I read this provision as a narrow, not broad, clause. Such a narrow
interpretation finds additional support in the broader context of the Intercreditor
Agreement, which is an agreement that is largely meant to establish protections of
the Senior Lenders against the Second Priority Secured Parties. The narrow forum
selection clause in Section 8.7 is meant as a further protection for the Senior
Lenders by limiting to New York the venues in which they are subject to litigation
concerning priority by the Second Priority Secured Parties. Thus, while the
Defendants may be correct that the phrase “relating to” is broad enough to bring
under the forum selection clause non-contractual claims, the universe of those non—
contractual claims is limited to related disputes between the various creditors and
does not clearly extend in this situation to parties and contracts outside the
Intercreditor rilgreement.35 In other words, the language of the Intercreditor
Agreement, even if imported into the 2009 lndenture, does not amount to a clear
35 In a footnote to their Opening Brief, and more plainly at Oral Argument, the Defendants
contended that Section 3.1(a) of the Intercreditor Agreement limits the ability of Second Priority
Secured Parties or Agents to exercise rights or remedies relating to “Common Collateral” when
the Senior Lenders’ claims have not yet been discharged. See Defs.’ Br. in Supp. of Mot. to
Dismiss or Stay at 19 n.14; Oral Arg. Tr. 26:9m29:7. The Defendants therefore argue that this
suit is in breach of that provision of the Intercreditor Agreement, and thus must “relate to” the
Intercreditor Agreement, thereby invoking the New York forum selection clause of that contract,
which in turn is imported into the 2009 Indenture by its ‘governed-by” provisions. This is an
interesting and lawyerly argument, and demonstrates why, to be an enforceable waiver by a
contracting party plaintiff of her right to choose a forum, the contact language must be clear and
unambiguous.
15
selection in the latter of an exclusive New York forum for litigation of the claims
here.
Similarly, while Section 11.03 of the 2009 Indenturewrelating specifically
to the trustee’s right to bring an action to protect the collateral—Wis also made
“subject to” the Intercreditor Agreement, it does not clearly invoke the exclusive
forum selection clause; rather, Section 11.03 operates such that the trustee’s right
to sue to enforce the terms of the 2.009 Indenture is subject to the superior creditor
6
status of the first priority lienholders.3 This provision does not clearly indicate
that the Defendants can bind the Plaintiff to the exclusive forum selection clause in
the Intercreditor Agreement. In fact, the lntercreditor Agreement expressly
provides that Caesars holds the right and power to enforce certain provisions
only—~the exclusive forum selection clause is not among those.37
36 See, e.g., DiTorno Aff. Ex. B (Intercreditor Agreement) § 2.2 (“Each Second Priority Agent,
for itself and on behalf of each applicable Second Priority Secured Party, and each First Lien
Agent, for itself and on behalf of each Senior Lender in respect of which it serves as First Lien
Agent, agrees that it shall not (and hereby waives any right to) take any action to challenge,
contest or support any other Person in contesting or challenging, directly or indirectly, in any
proceeding . . . , the validity, perfection, priority or enforceability of (a) a Lien securing any
Senior Lender Claim . . . or (b) a Lien securing any Second Priority Claims . . . ; provided,
however, that nothing in this Agreement shall be construed to prevent or impair the rights of any
First Lien Agent or any Senior Lender to enforce this Agreement . . . or any of the Senior Lender
Documents”).
37 Id. § 8.16. Additionally, in the Acknowledgement of Intercreditor Agreement, CEOC
expressly stated that it
understands that it is not an intended beneficiary or third party beneficiary of the
foregoing Agreement except that it is an intended beneficiary and third party
beneficiary thereof with the right and power to enforce with respect to Sections
5.1, 5.3, 5.7, 8.3, 8.16 and 8.22 and Article VI thereof and as otherwise provided
therein.
16
B. Forum Non Conveniens
i turn next to the Defendants” argument that this dispute should be heard in
New York under the doctrine offorum non conveniens. The Plaintiff urges me to
find this action first-filed, and to analyze it under the doctrine set forth in MC Wane
Cast Iron Pipe Corp. v. McDowell— Wellman Engineering Co., known as the “first-
filed rule,” under which “as a general rule, litigation should be confined to the
forum in which it is first commenced.”38 When, instead, actions are filed in
different courts contemporaneously, this Court instead undertakes a traditional
forum non conveniens analysis.39 In this case, the New York Action was filed
approximately 12 hours after the Complaint 1 have before me, and arises from the
same nucleus of fact as the present action. Although the complaint in the New
York Action was not amended until five weeks later to include WSFS, which is the
Plaintiff in this action, I will assume for the purposes of this analysis that the
actions were contemporaneous, and thus, a traditional forum non conveniens
analysis applies.
The doctrine of forum non conveniens, prOperly applied, involves a
wholesome balancing between the strong interest of a plaintiff in choosing the
appropriate forum in which to bring her action, and the interest of the other
See id, Acknowledgement of Intercreditor Agreement (following signature pages).
3" 263 A.2d 281,283 (Del. 1970).
39 See, e.g., In re Bear Stearns Cos, Inc. S’nolder Ling, 2008 WL 959992, at *5 (Del. Ch. Apr.
9, 2008).
17
litigants and the court in an efficient and just resolution of the issues, together with
principals of comity.40 Courts in this State have traditionally applied the doctrine
1
sparingly, with due regard for the Plaintiff’s right to choose.4 Recently, our
Supreme Court in Martinez v. E1. Dupont de Nemours and C0,, Inc. emphasized
that the concerns of justice, efficiency, and cornity were also not to be regarded
42
lightly. My consideration of the Motions to Dismiss or Stay on forum non
conveniens grounds is made in light of that teaching.
40 See, e.g., Sinochem Intern. Co. Ltd. v. Malaysia Intern. Shtpptng Corp, 549 US. 422, 429
(2007) (“Dismissal for forum non conveniens reflects a court’s assessment of a range of
considerations, most notably the convenience to the parties and the practical difficulties that can
attend the adjudication of a dispute in a certain locality.” (internal quotation marks and citation
omitted»; General Foods Corp. v. Cryo—Maid, Inc, 198 A.2d 681, 685 (Del. 1964) (“The matter
[of dismissal based onforurn non conveniens} is one to be determined as a discretionary act in
the light of all the facts and circumstances and in the interest of expeditious and economic
administration of justice”); Hamilton Partners, LP. 12. Englard, 11 A.3d 1180, 1212 (Del. Ch.
2010) (“‘When a state court with little legitimate interest in a matter purports to speak on a
subject of importance to a sister state, the reliability of state law is undermined and a
counterproductive incentive is created for all State courts to afford less than ideal respect to each
other.’ The doctrine of forum non conveniens provides the primary vehicle through which courts
apply the doctrine of comity.” (quoting Third Ave. Trust v. MBIA Ins. Corp, 2009 WL 3465985,
at *1 (Del. Ch. Oct. 28, 2009)».
4' See, e.g., Friedman v. Ale-ate! Alsthom, 752 A.2d 544, 552 (Del. Ch. 1999) (interpreting our
Supreme Court’s preceding jurisprudence on fbrum non conveniens, including the Court’s
guidance that “only in a rare case should a plaintiff’s choice of forum be defeated in favor of a
lateruflled action in another jurisdiction,” to indicate that, “[d]espite occasional references to the
trial courts’ discretion, little room for exercising that discretion exists” (quoting Chrysler First
Bus. Credit Corp. v. 1500 Locust Ltd. P’sht’p, 669 A.2d 104, 107 (Del. l995))).
42 See 86 A.3d 1102, 1106—11 (Del. 2014) (“[A]lthough the overwhelming hardship standard is
stringent, it is not preclusive. Accordingly, in deciding forum non conveniens motions to
dismiss, Delaware trial judges must decide whether the defendants have shown that the forum
non conventens factors weigh so overwhelmingly in their favor that dismissal of the Delaware
litigation is required to avoid undue hardship and inconvenience to them. . . . [W]e conclude,
based on the evolution of our case law and insights gleaned from that experience, that some prior
decisions gave inadequate weight to the discretionary power of the trial courts to recognize the
Cryo~Matd factor implicated here—the importance of the right of all parties (not only plaintiffs)
to have important, uncertain questions of law decided by the courts whose law is at stake; and to
18
On December 5, 2014, I heard oral argument on and took under advisement
the Defendants’ Motions to Dismiss or Stay the Verified Complaint in this action.
Due to the Defendants” representations that they would imminently seek to enjoin
this action by application in the related, parallel bankruptcy proceedings in the
Northern District of Illinois Bankruptcy Court, i thought it most efficient to
withhold consideration of the Defendants” Motions. However, as the Defendants
had not yet sought application in the Bankruptcy Court to enjoin this action at the
time of a status conference on March 10, 2015, l informed the parties that I would
proceed with my consideration of the pending Motions.1 For the reasons set forth
below, I deny the Defendants” Motions to Dismiss or Stay.
1. BACKGROUND FACTS
A. Buyout and Debt Financing of Caesars
The facts underlying this dispute are extensive and complex, but, at this
stage in the litigation, a brief adumbration is sufficient to resolve the Defendants"
Motions.2 Defendant Caesars Entertainment Corporation (“CBC”) is “a Delaware
corporation that, through subsidiaries, joint ventures and other arrangements, owns,
operates, and manages gambling casinos and prOperties in the United States and
1 Subsequently, the Defendants have informed me that Defendant Caesars Entertainment
Operating Company, inc. has filed an injunction motion in the Bankruptcy Court on March 1 l,
2015.
2 Unless otherwise indicated, the facts provided herein are taken from the Plaintiffs Verified
Complaint.
The forum non conveniens factors, often referred to as the “Cryo-Maid
factors”43 are:
(l) the applicability of Delaware law, (2) the relative ease of access to
proof, (3) the availability of compulsory process for witnesses, (4) the
pendency or non»pendency of a similar action or actions in another
jurisdiction, (5) the possibility of a need to View the premises, and (6)
all other practical considerations that would make the trial easy,
expeditious, and inexpensive.44
Delaware courts are deferential to a plaintiff‘s choice of forum. In the case
of a motion to dismiss on grounds of forum non. conveniens, our Supreme Court
has held that a moving defendant, in light of all the factors above, must show an
“overwhelming hardship” if the case were to be litigated in Delaware.‘45 Martinez
makes clear that, despite its preciusive-sounding appellation, the “overwhelming
hardship” standard is not insurmountable; it is more properly perceived as
requiring a finding that, on balance, litigation in Delaware would represent a
manifest hardship to the defendants, “a stringent standard that holds defendants
who seek to deprive a plaintiff of her chosen forum to an appropriately high
9346
burden. Given this rather formidable standard, it is rare for this Court to dismiss
the reality that plaintiffs who are not residents of Delaware, whose injuries did not take place in
Delaware, and whose claims are not governed by Delaware law have a less substantial interest in
having their claims adjudicated in Delaware.” (footnotes omitted)).
43 See Cryo—Maz'd, I98 A.2d at 684 (setting forth forum non conveniens factors).
4“ In re Bear Stearns Cos, Inc. S'holder Ling, 2008 WL 959992, at *5 (Del. Ch. Apr. 9, 2008).
45 See, ag, Berger v. Intelident Solutions, Inc, 906 A.2d 134, 135 (Del. 2006); [son v. E}.
DuPont de Nemours and Co, Inc, 729 A.2d 832, 838 (Del. 1999).
“6 Martinez, 86 A.3d at 1105.
19
or stay an action on the grounds of forum non crmvem‘ensn47 I now consider the
Cryo—Maid factors in light of the standard.
I turn first to the applicability of Delaware law. While the 2009 Indenture is
governed by New York law, the Plaintiff has also brought claims for breach of
fiduciary duty, aiding and abetting breach of fiduciary duty, and corporate waste,
which the parties agree are all governed by Delaware law.48 The Plaintiff has also
invoked Delaware law for its two fraudulent transfer claims. The Defendants
argue that the fiduciary—duty claims are makeweights, and that New York law will
predominate in this action.49 Assuming for purposes of these Motions that such is
the case, 1 nonetheless do not find the applicability of New York law particularly
persuasive here. This Court is often called upon to apply New York law to resolve
commercial disputes. If it could be persuasively argued that novel issues of New
York law, properly within the purview of the courts of that State, were presented,
considerations of comity between the jurisdictions might lend this factor more
weight, but that does not appear to be the case here.
47 See. eg, [son v. E]. DuPont de Nemours and Co, Inc, 729 A.2d 832, 838 (Del. 1999) (“A
plaintiff’s choice of forum should not be defeated except in the rare case where the defendant
establishes, through the Cryo—Maid factors, overwhelming hardship and inconvenience.”
(quoting Chrysler First Bus. Credit Corp. v. 1500 Locust Ltd. P’shz'p, 669 A.2d 104, 105 (Del.
1995)»; Taylor v. LSI Logic Corp, 689 A.2d 1196, 1198 (Del. 1997) (“Delaware courts
consistently uphold a plaintiffs choice of forum except in rare cases”).
48 See Oral Arg. Tr. 20:843; Defs.’ Opening Br. in Supp. of Mot. to Dismiss or Stay at 27.
49 See Oral Arg. Tr. 20:14—16; Defs.’ Opening Br. in Supp. of Mot. to Dismiss or Stay at 27.
20
Next, the Defendants do not dispute the availability of compulsory process
for witnesses, but, overlapping with the ease of access to proof factor, point out
that the individual parties do not live and work in Delaware and that the corporate
entities all maintain their principal place of business outside of Delaware, with the
exception of the Plaintiff.50 The Plaintiff responds that it has subpoenaed at least
six witnesses who may be subject to New York jurisdiction, each of whom can be
compelled to testify here as well.51 I find that the second and third Cryo-Maid
factors do not weigh heavily in favor of granting the Motions on grounds of forum
non. conveniens.
As to pendency of similar actions in another jurisdiction, 1 note that there is
the pending, near-contemporaneously filed New York Action arising from the
same nucleus of facts as this dispute. it is ciear, though, that both the Supreme
Court of the State of New York and this Court can provide complete relief here.
While two parallel actions are not ideal, and raise typical concerns of inefficiency
and inconsistent judgments, there is no doubt that a resolution of the issues here
would result in a final judgment enforceable against the parties, and the pendency
of the New York Action is not highly persuasive on forum non conveniens
grounds.
50 Defs.’ Opening Br. in Supp. ofMot. to Dismiss or Stay at 28.
51 Pl.’s Opposition to Defs.’ Mots. to Dismiss or Stay the Verified Compl. at 35.
21
Finally,52 under Cryo-Maz’d, I am to consider “all other practical
considerations that would make the trial easy, expeditious, and inexpensive.”53
The Defendants argue that this factor weighs in favor of New York; they assert that
the majority of relevant parties and witnesses are located in that jurisdiction. I
assume that is the case. I take judicial notice, however, that the Courthouse in
Wilmington is separated from Pennsylvania Station in Manhattan by a five—minute
walk and 125 miles of shiny steel rails, which may be traversed in the comfort of
the business section of an Acela train in an hour and a half. In that light, litigation
in Delaware is less manifest hardship than inconvenience. The Cryo~Maid factors,
taken together, do not support dismissal or stay of this matter.
IV. CONCLUSION
For the foregoing reasons, the Defendants’ Motions to Dismiss or Stay are
denied. An appropriate order accompanies this Memorandum Opinion.
52 The parties do not suggest that the fifth Cryo—Maid factor—the ability to View the premises——
is a relevant factor in this case.
53 In re Bear Sreams Cos, Inc. S’holder Litig, 2008 WL 959992, at *5 (Del. Ch. Apr. 9, 2008).
22
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
WILMINGTON SAVINGS FUND
SOCIETY, FSB, solely in its capacity as
successor Indenture Trustee for the 10%
Second Priority Senior Secured Notes
due 2018, on behalf of itself and
derivatively on behalf of CAESARS
ENTERTAINMENT OPERATING
COMPANY, INC,
Plaintiff,
V. CA. No. 10004-VCG
CAESARS ENTERTAINMENT
CORPORATION, CAESARS GROWTH
PARTNERS, LLC, CAESARS
ACQUISITION COMPANY, CAESARS
ENTERTAINMENT RESORT
PROPERTIES, LLC, CAESARS
ENTERTAINMENT OPERATING
COMPANY, INC., CAESARS
ENTERPRISE SERVICES, LLC, ERIC
HESSION, GARY LOVEMAN,
JEFFREY D. BENJAMIN, DAVID
BONDERMAN, KELVIN L. DAVIS,
MARC C. ROWAN, DAVID B.
SAMBUR, and ERIC PRESS,
Defendants,
and
CAESARS ENTERTAINMENT
OPERATING COMPANY, INC,
Nominal Defendant.
vvvvvvvvvvvvvvvvvvvvwvvvvvvvvvvvvvvv
ORDER
AND NOW, this 18th day of March, 2015,
The Court having considered the Defendants” Motions to Dismiss or Stay,
and for the reasons set forth in the Memorandum Opinion dated March 18, 2015,
IT IS HEREBY ORDERED that the Defendants’ Motions are DENIED.
SO ORDERED:
/s/ Sam Giasscock 1H
Vice Chancellor
foreign countries.”3 In January 2008, Defendants Apollo Global Management, Inc.
(“Apollo”) and TPG Capital, LP (“TPG”), along with other co—investors, acquired
)3
CBC, including its then-“principal operating subsidiary Defendant Caesars
Entertainment Operating Company, Inc. (“CEOC,” and together with CBC,
“Caesars”), in a leveraged buyout priced at $30 billion.4 CEOC “incurred most of
the debt used to fund the buyout,” and still owes approximately $19.3 billion of
Caesar’s total $25.3 billion outstanding long~term debt issued in the transaction.5
Following the buyout, CEOC engaged. in a series of additional debt
offerings. On December 24, 2008, CEOC issued, and CEC guaranteed, $214.8
million aggregate principal amount of 10.00% second priority senior secured notes
due 2015 and $847.6 million aggregate principal amount of 10.00% second priority
senior secured notes due 2018, pursuant to an indenture between CEC, CEOC, and
US. Bank National Association (“US Bank”) as trustee (the “2008 lndenture”).
That same day, two other agreements relevant to the parties’ diSpute were
executed: CEOC and its subsidiaries entered into a collateral agreement (“the
Second Lien Collateral Agreement”) granting liens on “substantially all of their
assets” to secure their obligations under the 2008 lndenture;6 and US Bank and
3 Compl. 11 19.
4 At the time of the merger, CBC and CEOC were known as “l-larrah’s Entertainment Inc.” and
“Harrah’s Operating Company, lnc.,” respectively. 1d. W 2—3. For the sake of clarity, I refer to
these parties in past events by their present names.
5 Idaho 1111 3, 37.
6 Id. 1; 44.
Bank of America, NA. entered into an agreement defining “the relative rights of
the Note-Holders and holders of more senior CEOC notes [(the “Senior Lenders”)]
with respect to the assets securing the Notes” (the “lntercreditor Agreen‘ient”).7
On April 15, 2009, CEOC additionain issued, and CEC guaranteed, $3.71
billion aggregate principal amount of 10.00% second priority senior secured notes
due 2018, pursuant to an indenture between CEC, CEOC, and US Bank (the “2009
Indenture”); these notes were secured by liens on “substantially all of CEOC’s
assets and certain of its subsidiaries” assets pursuant to the Second Lien Collateral
3:8
Agreement. That same day, US Bank executed the Joinder and Supplement to
lntercreditor Agreement, subjecting its rights under the 2009 Indenture to the
Intercreditor Agreementg Plaintiff Wilmington Savings Fund. Society, rss
(“WSFS”) is the successor trustee of US Bank; WSFS has not asserted. that it is not
bound by the 2009 Indenture and the Intercreditor Agreement, and I assume for
purposes of this Memorandum Opinion that it is so bound.10
On April 16, 2010, CEOC additionally issued, and CEC guaranteed, $750
miliion aggregate principal amount of 12.75% second priority senior secured notes
due 2018, pursuant to an indenture between CEC, CEOC, and US Bank (the “2010
7 Defs.’ Opening Br. in Supp. of Mot. to Dismiss or Stay at 13—14.
8 Cornpl. 1} 45.
9 See DiTomo Aff. Ex. E (Joinder and Supplement to intercreditor Agreement).
10 Both the 2009 Indenture and the Intercreditor Agreement provide that the parties’ successors
are bound by the respective agreement and define “Trustee” to include successors. See DiTomo
Aff. Ex. A (2009 Indenture) §§ 1.01, 13.11; DiTomo Aft“. Ex. B (Intercreditor Agreement)
§§ 1.1, 8.11.
lndenture”); these notes “are also secured by liens against substantially ali of
CEOC’s and certain of its subsidiaries” assets pursuant to the Second Lien
Collateral Agreement?“
B. CEOC ’s Insolvency and Asset Sell~0fl
The Plaintiff alleges that in the period from 2008 to 2010, while CEOC was
continuing to burden itself with additional debt, Caesars was simultaneously
experiencing plummeting revenue brought on by the 2008 financial crisis.
Beginning only months after Apollo and TPG’s buyout of Caesars, the financial
crisis had a devastating effect on the gaming industry in general, but its forces were
particularly catastrophic when they reached a debt-ridden CEOC; the Plaintiff
explains that “the global financial crisis and ensuing recession crippled Caesars’
business” and hit CEOC especially hard “as revenues at its casinos needed to
service its debt fell dramatically?!”
In response to CEOC’s “unsustainable capital structure” brought on by the
recession, Apollo and TPG initially attempted to relieve the pressure of CEOC’s
indebtedness through amending credit facility agreements and offering debt
exchanges. However, the Plaintiff alleges that in 2010, when CEOC’s financial
troubles persisted, Apollo and TPG began resorting to selling off CEOC’s assets to
other CEC subsidiaries, “strip[ping] CEOC of valuable assets” such that those
H Compl. fl 46.
‘2 M. {i 5.
assets would be unreachable by CEOC’s creditors.13 The Plaintiff asserts that TPG
and Apollo’s efforts to hide CEOC’s assets continued into 2010, even after the
economy and gaming industry showed signs of recovery, because “CEOC, still
burdened by almost $20 billion of acquisition debt, continued to generate
significant operating losses.”14
In 2013, TPG and Apollo, “[flaced with the prospect that CEOC would be
unable to repay its massive debt,” allegedly upped the ante on their asset-transfer
scheme and began “to remove CEOC’s most valuable assets from the reach of its
creditors, and to transfer them to two affiliates not liable for CEOC’s debt”%
Defendants Caesars Entertainment Resort Properties, LLC (“Resort Properties”)
and Caesars Growth Partners, LLC (“Growth Partners”). The Plaintiff asserts that,
from September 2013 through March 2014, Apollo and TPG caused CEOC to
transfer to Resort Properties and Growth Partners a portfolio of key assets for
belowumarket consideration, including casinos and developments in Las Vegas,
Baltimore, and New Orleans; management fees payable from those properties; and,
CEOC’s most valuable asset, the data and intellectual prOperty that comprises a
“sophisticated customer loyalty and data—gathering/marketing system” known as
‘3 [51.11 6.
‘4 Id. 117.
the Total Rewards Program.15 The Plaintiff describes the outcome of the
Defendants” alleged shell game as follows:
The net effect of the transactions described above has been to divide
Caesars into two segments—one, a “Good Caesars,” consisting of
Growth Partners and Resort Properties that owns the prime assets
formerly belonging to CEOC, and the other, a “Bad Caesars,”
consisting of CEOC which remains burdened by substantial debt . . . .
Only the “Bad Caesars” remains liable for the vast majority of the
debts incurred in the 2008 buyout transaction. Thus, [Apollo, TPG,]
and CEC have sought to deprive CEOC’S lenders and creditors of the
ability to seek recourse against CEOC’s most valuable assets when
csoc inevitably defaults on its debts as they come due.”
C. Procedural History
On August 4, 2014, the Plaintiff, as successor trustee of the 2009 Indenture,
filed its Verified Complaint in this Court against entities and individuals that the
Plaintiff alleges were involved in wrongfully hiding CEOC’s assets from its
creditors, including Apollo, TPG, CEC, Growth Partners, Resort Properties, and
various directors, officers, and partners at CEC, CEOC, Apollo, and TPG. The
Plaintiff alleges that these Defendants” actions violated terms of the 2009 Indenture
as well as fiduciary duties owed to CEOC’s creditors. The Complaint asserts
claims, directly on behalf of Plaintiff and derivativer on behalf of Nominal
Defendant CEOC, for breach of contract, declaratory relief, fraudulent transfer,
‘5 Id. 1m 8—10, 50.
‘6 1d. it 11.
breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and
corporate waste.
On August 5, 2014, Caesars filed a complaint in the Supreme Court of the
State of New York, New York County, against certain holders of CEOC’s second
priority notes and one holder of CEOC’s first priority notes (the “New York
Action”), in which Caesars casts its creditors’ fraud allegations against Caesars as
baseless and part of a nefarious scheme to cash out on credit default swaps by
driving CEOC to default on its loans.17 The Plaintiff was not originally a named
defendant in the New York Action, but Caesars amended and supplemented its
complaint on September 14, 2014 to, among other things, add WSFS as a
defendant.E8 In the New York Action, Caesars seeks, among other things, a
judicial declaration that Caesars has not defaulted under its various indenture
agreements with its creditors, and. that Caesars or its directors have not breached
their fiduciary duties, engaged in any fraudulent transfer, or otherwise engaged in
any violation of law.19
On September 23, 2014, the Defendants moved to dismiss or stay the
Plaintiff‘s Complaint in this action under Court of Chancery Rule 12(b)(3),
alleging that the Plaintiff had contractually agreed to New York as the exclusive
17 See, e.g., DiTorno Aff. Ex. C (original complaint in New York Action) W 1—6.
18 See DiTomo Aff. Ex. D (amended and supplemental complaint in New York Action).
19 1d., Prayer for Relief.
forum for hearing this dispute or, in the alternative, that New York was the
appropriate forum under the forum non conveniens doctrine. I heard oral argument
on the Defendants’ Motions on December 5, 2014.
Following oral argument, the Defendants informed me that CEOC had
entered into a financial restructuring agreement with certain of its first priority
lienholders on December i9, 2014, that CEOC planned to voluntarily commence
Chapter 11 bankruptcy on January 15, 2015, and that such bankruptcy would
automatically stay this action. On January 12, 2015, the Plaintiff informed me that
certain second priority lienholders had filed an involuntary bankruptcy petition
against CEOC in the United States Bankruptcy Court for the District of Delaware,
that such bankruptcy automatically stays this action against CEOC, but that such
bankruptcy did not stay this action against CEO. 1 held a status conference with
the parties on January 13, 2015, during which the Defendants represented that
CEOC would imminently commence its voluntary bankruptcy and move in those
proceedings to enjoin the entirety of this action. On January 15, 2015, the
Defendants informed me that CEOC had voluntarily filed its bankruptcy petition in
the United States Bankruptcy Court for the Northern District of Illinois.
After a series of additional letters from the parties in February and early
March, informing me of updates in the New York Action and. bankruptcy
proceedings, I held an additional status conference with the parties on March 10,