WaveDivision Holdings LLC v. Highland Capital Management, L.P., et al., No. 649,2011 (Del. Supr., July 19, 2012).
Whether the Superior Court properly granted summary judgment in favor of defendant note holders and senior lenders on the issue of whether defendants tortiously interfered with plaintiff WaveDivision Holdings’ contract with third-party Millennium Digital Media Systems, LLC (“Millennium”) to purchase cable television systems from Millennium.
Short Answer: Yes. Appeal affirmed.
Millennium obtained financing by selling $70 million of unsecured high-yield senior increasing rate notes (the “IRNs”). Millennium also had first-tier senior secured creditors (the “Senior Lenders”), which gave the Senior Lenders a first priority lien on substantially all of Millennium’s assets. Like the IRN Agreement, this credit agreement gave the Senior Lenders disclosure and consent rights. When Millennium faced financial problems, it sought covenant relief from the Senior Lenders in order to avoid defaults. The parties executed an agreement which required Millennium to sell all or substantially all of its assets to repay the Senior Lenders. In connection with that sale, Wave submitted an offer to purchase the Michigan and Northwest cable systems from Millennium for $157 million. Despite the IRN Holders believing that the price was inadequate, Millennium and Wave entered into an Asset Purchase Agreement (the “APA”) for the Michigan system and a Unit Purchase Agreement (the “UPA”) for the Northwest System. Both agreements required the consent of the IRN Holders and the Senior Lenders, unless Wave and Millennium reasonably believed that such consent was not necessary. Around this time, Highland Capital purchased additional senior debt in order to protect its stake in Millennium. At the same time, Highland Financial Corporation submitted a refinancing proposal to Millennium which called for a full debt-for-equity swap of the IRNs and was contingent on the termination of the agreements.
Wave subsequently informed Millennium that it had reviewed the IRN Agreement and had concluded that the IRN Holders’ consent to the APA and UPA was not required. Highland Capital, however, sent a letter to Wave on behalf of seven Senior Lenders, informing Millennium that those Senior Lenders did not consent to the APA and UPA. Millennium then notified Wave of its decision to terminate the agreements and at the same time, Millennium accepted the refinancing proposal from Highland Capital, Trimaran and the other IRN Holders, pursuant to which the IRN Holders’ interests were converted into equity interests.
Wave filed suit in the Superior Court against certain creditors of Millennium seeking damages for tortious interference with the Wave-Millennium contract. The Superior Court granted summary judgment to defendants on this claim, concluding that any interference was justified under Delaware law. Note, there is a companion decision from the Court of Chancery dated Sept. 17, 2010 awarding damages for breach of the “no solicitation” and “reasonable best efforts” clauses of the APA, which is available here.
On appeal, Wave argued that the Superior Court erred in determining that any interference was justified and that the Superior Court ignored evidence in the record of improper conduct, which raised at least a triable issue of fact on the tortious interference claim. Wave argued that courts must evaluate any improper motive together with any proper motive, to determine which motive predominates for assessing a tortious interference claim. Because Delaware courts follow Section 766 of the Restatement (Second) of Torts, Wave had to show that : “(1) there was a contract, (2) about which the particular defendant knew, (3) an intentional act that was a significant factor in causing the breach of contract, (4) the act was without justification, and (5) it caused injury.” Section 767 of the Restatement contains a number of factors to consider in determining if intentional interference with another’s contract is improper or without justification, such as: (i) the nature of the actor’s conduct; (ii) the actor’s motive; (iii) the interests sought to be advanced by the actor; and (iv) the relations between the parties.
In rejecting Wave’s argument, the Court stated that “[t]he defense of justification does not require that the defendant’s proper motive be its sole or even its predominate motive for interfering with the contract. Only if the defendant’s sole motive was to interfere with the contract will this factor support a finding of improper interference.” The Superior Court had recognized that the IRN Holders and Senior Lenders were motivated at least in part by a desire to protect their investment in Millennium, and not solely by a desire to interfere with a Wave-Millennium deal. Thus, the Supreme Court found that the Superior Court properly concluded that the motive factor weighed in favor of justification.
Wave also argued that the defendants used improper means to interfere with the Wave-Millennium deal by making false representations and that they used inside information and exerted economic pressure. Under Delaware law, “[a] representation is fraudulent when, to the knowledge or belief of its utterer, it is false in the sense in which it is intended to be understood by its recipient.” Here, however, the Court found that Wave produced no evidence that Highland Capital made any such representations. Moreover, the Court found that Wave’s arguments regarding the use of inside information and economic pressure also lack adequate support in the record. Finally, the Supreme Court stated that:
[t]he Superior Court concluded that four of the seven Restatement factors — the nature of the actor’s conduct; the actor’s motive; the interests sought to be advanced by the actor; and the relations between the parties — weighed against a finding of improper interference. We find no error in the Superior Court’s analysis….