AM General Holdings LLC v. The Renco Group, Inc. -and ( 2015 )

EFiled: May 29 2015 12:40PM EDT
Transaction ID 57309270
Case No. Multi-Case
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JOHN W. NOBLE 417 SOUTH STATE STREET
VICE CHANCELLOR DOVER, DELAWARE 19901
TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179
May 29, 2015
Stephen P. Lamb, Esquire Kevin G. Abrams, Esquire
Meghan M. Dougherty, Esquire J. Peter Shindel, Jr., Esquire
Paul, Weiss, Rifkind, Wharton Abrams & Bayliss LLP
& Garrison LLP 20 Montchanin Road, Suite 200
500 Delaware Avenue, Suite 200 Wilmington, DE 19807
Wilmington, DE 19801
Re: AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
Date Submitted: February 13, 2015
Dear Counsel:
The Renco Group, Inc. (“Renco”) and MacAndrews AMG Holdings LLC
(“MacAndrews AMG”) ask the Court to intervene once more regarding selection
of the Third Appraiser to value AM General Holdings LLC (“Holdco”).1 In
1
MacAndrews AMG Holdings LLC’s Mot. to Order Compliance with Ct.’s Order
for Appointment of Third Appraiser; Pl. The Renco Group, Inc.’s Second Renewed
Mot. for Appointment of Third Appraiser. The Court focuses on the current
dispute over valuation professionals’ conflicts and will not delve into background
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 2
November 2014, the Court selected Valuation Research Corporation (“Valuation
Research”) as the Third Appraiser, “subject to a conflicts check.”2 The Court
reasoned that Valuation Research “appears to be the firm most closely meeting the
standards agreed to by the parties.”3 For purposes of the conflicts check, the Court
relied on a test that was elaborated in Renco’s Renewed Application for
Appointment of a Third Appraiser4:
A conflict shall exist and Valuation Research shall not proceed as
Third Appraiser if, at any time within the last five years, Valuation
Research has performed work for or otherwise been engaged in any
that has been discussed elsewhere. See, e.g., Renco Gp., Inc. v. MacAndrews AMG
Hldgs. LLC, 2013 WL 3369318, at *2 (Del. Ch. June 19, 2013).
2
AM Gen. Hldgs. LLC v. Renco Gp., Inc., 2014 WL 6734850, at *1 (Del. Ch.
Nov. 28, 2014).
3
Id. According to Holdco’s operating agreement, a “Qualified Appraiser” is “a
firm with a national reputation for appraising businesses engaged in activities such
as those engaged in by the relevant Person or for appraising assets that are
comparable to the assets of the relevant Person.” Aff. of Steven C. Herzog,
Esquire (“Herzog Aff.”) Ex. A § 1.1, Jan. 23, 2015.
4
Herzog Aff. Ex. B ¶ 6 (“Renco’s view is that the Third Appraiser should be fully
neutral, without even the appearance of a conflict of interest—meaning the person
and his or her firm should have no current or past relationship with Renco,
MacAndrews AMG, or their respective affiliates.”).
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 3
capacity by Renco, MacAndrews AMG, or any of their affiliates listed
for purpose of the conflict check.5
After Valuation Research disclosed that it has performed work for clients of
Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul, Weiss”), MacAndrews
AMG’s counsel, Renco “refuse[d] to go forward with Valuation Research.”6
MacAndrews AMG filed its motion to order compliance with the Court’s
November 2014 order on January 22, 2015. Renco filed its own motion in
connection with its opposition to MacAndrews AMG’s motion. Renco is
concerned that Valuation Research has worked with Paul, Weiss for mutual clients
numerous times over the past five years and has received approximately $3-
$5 million from related engagements (over an undefined period), representing
work “‘orders of magnitude’ greater than [Valuation Research’s] work with any
other law firm.”7 Some work for mutual clients is ongoing, and Valuation
5
AM Gen. Hldgs. LLC v. Renco Gp., Inc., C.A. Nos. 7639 & 7668, at 2 (Del. Ch.
Nov. 28, 2014) (ORDER). It is the Court’s understanding that counsel were not
listed as (or considered) affiliates.
6
Herzog Aff. ¶¶ 14, 18.
7
Renco’s Br. in Supp. of Its Second Renewed Appl. to Appoint Third Appraiser
and in Opp’n to M&F Parties’ Mot. to Require Parties to Proceed with VRC as
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 4
Research’s president has received thousands of emails from Paul, Weiss.8
Furthermore, Renco faults MacAndrews AMG (and related parties9) for not
disclosing these ties earlier. There is no issue about engagement by the parties and
their affiliates, as set forth in the November 2014 order, over the last five years.10
Renco argues that Valuation Research cannot serve as the Third Appraiser
because of its relationship with Paul, Weiss and MacAndrews AMG’s non-
disclosure. Under the evident partiality standard, an arbitrator’s failure “to disclose
a substantial personal or financial relationship with a party, a party’s agent, or a
party’s attorney that a reasonable person would conclude was powerfully
Third Appraiser (“Renco Opp’n Br.”) 6-7 (citing Decl. of Joshua R. Weiss in Supp.
of Renco’s Second Renewed Mot. to Appoint Third Appraiser (“Weiss Aff.”) ¶¶ 8-
10).
8
Weiss Aff. ¶¶ 8, 11. It should be noted that Valuation Research has also
performed work for clients of Renco’s Delaware counsel, including directly
working with one of the attorneys involved in this action. Herzog Aff. ¶¶ 14, 16.
Renco’s Delaware counsel does not believe that this presents a conflict. Renco
Opp’n Br. 7 n.4.
9
For the purposes of the pending motions, the Court does not distinguish among
MacAndrews AMG and two of its affiliates, MacAndrews & Forbes Inc. and
Ronald O. Perelman, who are parties to this action.
10
Herzog Aff. ¶ 13.
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 5
suggestive of bias” is reason to invalidate an arbitrator’s award.11 It is the burden
of the party seeking vacatur to establish that an undisclosed relationship “is so
intimate—personally, socially, professionally or financially—as to cast serious
doubt on [the arbitrator’s] impartiality.”12 The fact of non-disclosure of such
relationships is enough to require vacatur, protecting courts from engaging in
inefficient and unfruitful analysis of actual bias.13 This formulation of a standard is
obviously framed for application after an award; here, Valuation Research has not
formally commenced its valuation work. Yet, the nature of the relationship that
makes serving as an arbitrator (or appraiser) inappropriate is well-described.
The current situation is distinguishable from those in the authority Renco
cites, however, because the alleged conflict is not so serious as to be
11
Del. Transit Corp. v. Amalgamated Transit Union Local 842, 34 A.3d 1064,
1072 (Del. 2011). Arbitration is not the same as appraisal, but Renco relies on
arbitration cases, and the reasoning is persuasive because the role of the Third
Appraiser is similar to that of an arbitrator.
12
Id. at 1073 (alteration in original) (internal quotation marks omitted).
13
See Beebe Med. Ctr., Inc. v. InSight Health Servs. Corp., 751 A.2d 426, 436-37
& n.33 (Del. Ch. 1999).
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 6
disqualifying,14 and Valuation Research disclosed its relationship with clients of
Paul, Weiss before it began its work.15 Instead, the reasoning in Anadarko
Petroleum Corp. v. Panhandle Eastern Corp.16 (though addressing a dispute over a
representative selected by one party to negotiate with the other party’s
representative) respecting the discretion of an arbitrator is more on point. In
Anadarko, the Court explained that it should not, at the outset, interfere with an
arbitrator’s judgment of his ability to serve once he has disclosed possible
conflicts.17 All too aptly, the Court cautioned that “[a]ny other rule might spawn
endless applications and indefinite delay.”18
On the other hand, the Court does not intend to suggest that the
independence of an appraiser can never be challenged or that the standard used in
its November 2014 order is a definitive test for conflicts. There may be cases
14
See infra. Of course, the Court’s conclusion on this limited record should not
influence Valuation Research’s own assessment of its ability to serve impartially.
15
That an inquiry by Renco might have prompted the disclosure, see Weiss Aff.
¶ 4, does not change the efficacy of the disclosure.
16
1987 WL 17445 (Del. Ch. Sept. 21, 1987).
17
Id. at *1-2.
18
Id. at *2 (internal quotation marks omitted).
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 7
where ex ante disqualification is appropriate. For example, actual misconduct19 or
close relationships could clearly render the Third Appraiser conflicted although not
technically captured by the order.20 One could also argue that ordering the parties
to continue with Valuation Research would deprive them of the opportunity to
make their own informed choices, flouting a major policy goal of disclosure
requirements.21 The situation in front of the Court, though, is that the parties have
been attempting to select an appraiser for roughly one year and have ruled out
many otherwise qualified firms based on real or perceived conflicts. Renco alleges
that Valuation Research cannot serve because MacAndrews AMG did not inform
Renco of the significant work Valuation Research does for clients shared with
19
See Metro. Prop. & Cas. Ins. Co. v. J.C. Penney Cas. Ins. Co., 780 F. Supp. 885,
894 (D. Conn. 1991) (reasoning, in a case involving sufficient allegations of
misconduct by an arbitrator, that “[t]he ‘just’ and ‘expeditious’ policy . . . would be
to evaluate [the plaintiff’s] claims on the merits of its action for injunctive relief
prior to arbitration rather than have the parties waste their time, energy, and money
by participating in a potentially tainted process”).
20
On the extreme end, if one of the attorneys involved in this action owned
Valuation Research, there would be no doubt about a conflict. See Oral Arg. on
MacAndrews AMG Holdings LLC’s Mot. to Order Compliance with Ct.’s Order
for Appointment of Third Appraiser and Pl. The Renco Group, Inc.’s Second
Renewed Mot. for Appointment of Third Appraiser (“Oral Arg. Tr.”) 29-30.
21
See Beebe Med. Ctr., 751 A.2d at 437.
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 8
Paul, Weiss. Nonetheless, Valuation Research has disclosed this information.
Paul, Weiss has represented that it “did not select, hire, retain, or pay” 22 (or
recommend23) Valuation Research to the clients24 whose engagement of Paul,
Weiss and Valuation Research is at issue.25 Perhaps most importantly, the Court
does not conclude that Valuation Research has failed to make material disclosures
or engaged in any misconduct.26
22
Reply Aff. of Steven C. Herzog (“Herzog Reply Aff.”) ¶ 3, Feb. 10, 2015.
23
Oral Arg. Tr. 31. Valuation Research may have appeared on a list of
professionals for clients to consider, but there is no reason to believe that Valuation
Research was chosen or designated by Paul, Weiss.
24
There is a discrepancy in the number of mutual clients alleged, but this
difference can be explained by the fact that “one” client has various affiliates and
subsidiaries. Id. at 31-32.
25
The Court does not fault MacAndrews AMG for not disclosing the ties between
its counsel and Valuation Research. MacAndrews AMG represents that
discussions about conflicts focused on whether the individual attorneys in this
action, the parties, or the parties’ affiliates had ever worked with particular
valuation firms. Herzog Reply Aff. ¶¶ 8-9. Under the circumstances,
MacAndrews AMG’s conduct was neither unreasonable nor disingenuous.
26
At oral argument, Renco implied that Valuation Research should have made its
disclosures before the Court appointed the Third Appraiser. See Oral Arg. Tr. 37.
The Court notes, however, that its selection of Valuation Research was conditioned
on a conflicts check.
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 9
Renco suggests that the Court should give the parties more time to select a
Third Appraiser and, if that effort is unsuccessful, choose between one more firm
proposed by each side. Unfortunately, this path is not promising: MacAndrews
AMG takes issue with all of Renco’s alternative appraisers,27 and (even if
alternative tests are not as limited as MacAndrews AMG suggests) there does not
seem to be a principled way to resolve the deadlock.28 Again, Paul, Weiss has
represented that none of its attorneys working on the current matter has worked
with Valuation Research29 and that it has “no personal or financial relationship or
27
Herzog Aff. ¶ 20.
28
This analysis is fact-specific. If Paul, Weiss’s actions materially affected its
clients’ decisions to retain Valuation Research, Valuation Research had not made
its disclosures, or the parties suggested an alternative with a reasonable chance of
success, the Court might be persuaded to refrain from enforcing its November
2014 order.
Here, the parties have not questioned the Court’s authority to select an appraiser,
and the Court sees no reason for further delay. See Emp’rs Ins. of Wausau v.
Jackson, 505 N.W.2d 147, 152 (Wis. Ct. App. 1993) (“The policy underlying the
case law is that courts should stay out of agreed-on arbitrable disputes whenever
possible. We agree. However, here the stalemate between the parties requires
court action.”), aff’d, 527 N.W.2d 681 (Wis. 1995).
29
See Herzog Reply Aff. ¶ 7.
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 10
arrangement” with Valuation Research.30 It is hard to believe that major law firms
and valuation firms, to whom clients turn for their broad experience and
professionalism, would not have common clients.31 The conflicts test that Renco
offered and the Court found reasonable in November 2014 continues to operate
reasonably, and there is the safeguard of judicial review ex post.32 The Court, thus,
will not interfere with Valuation Research’s professional assessment about whether
it can and should serve as the Third Appraiser.
*****
For the reasons above, Renco’s motion to designate another appraiser is
denied and MacAndrews AMG’s motion to confirm Valuation Research’s
30
Id. ¶ 3.
31
Given the size and reach of the parties and the law firms representing them, one
wonders if there is a valuation firm both qualified for the complex work to be done
and without a tinge of any prior relationship with any of them.
32
See Anadarko, 1987 WL 17445, at *2 (“The arbitrator must of course be aware
that such a decision [about ability to serve] would be subject to judicial review
after the award had been made.” (internal quotation marks omitted)). The fact of
disclosure will also assist review, if necessary. See Beebe Med. Ctr., 751 A.2d at439 n.38 (noting that it does not reach discovery in a situation where an arbitrator
timely discloses a conflict but that disclosure could create a record that facilitates
judicial review).
AM General Holdings LLC v. The Renco Group, Inc.
C.A. No. 7639-VCN
The Renco Group, Inc. v. MacAndrews AMG Holdings LLC
C.A. No. 7668-VCN
May 29, 2015
Page 11
designation is granted subject to Valuation Research’s determination of its ability
to serve as a neutral appraiser.33
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap
cc: Thad J. Bracegirdle, Esquire
Joel Friedlander, Esquire
Register in Chancery-K
33
To be clear, the Court is not dealing with a violation of its November 2014 order.
By granting MacAndrews AMG’s motion, the Court simply confirms its choice for
the Third Appraiser, notwithstanding the subsequent disclosures, assuming that
Valuation Research has disclosed all relevant conflicts and remains willing and
able to serve.