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GoldenTree Asset Management LP v. BNP Paribas S.A.

United States District Court, N.D. Illinois, Eastern Division

August 20, 2014

GOLDENTREE ASSET MANAGEMENT LP, Plaintiff,
v.
BNP PARIBAS S.A.; SCHMOLZ BICKENBACH LUXEMBOURG S.A.; SCHMOLZ BICKENBACH AG, Defendants

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[Copyrighted Material Omitted]

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For Goldentree Asset Management LP, Plaintiff: Christopher M Ellis, Bolen Robinson & Ellis, LLP, Decatur, IL; Mark P Ressler, Michael Hanin, PRO HAC VICE, Kasowitz, Benson, Torres & Friedman LLP, New York, NY.

For BNP Paribas S.A., Defendant: Charles F. Smith, Jr., LEAD ATTORNEY, Skadden Arps Slate Meagher & Flom, LLP CH, Chicago, IL; Mairead Jane Schwab, PRO HAC VICE, Skadden Arps Slate Meagher & Flom Llp, Chicago, IL.

For Schmolzا⑺盚 Luxembourg S.A., Schmolzا⑺盚 AG, Defendants: Michael R. Dockterman, LEAD ATTORNEY, William R Lee, Edwards Wildman Palmer LLP, Chicago, IL; Brian H. Polovoy, Stuart J. Baskin, PRO HAC VICE, Shearman & Sterling Llp, New York, NY; Joanna Shally, Shearman & Sterling, New York, NY.

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MEMORANDUM OPINION AND ORDER

John J. Tharp, Jr., United States District Judge.

In 2012, GoldenTree Asset Management LP (" GoldenTree" ) purchased more than

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$50 million in bonds from the defendants in this case, Swiss company Schmolz Bickenbach AG (" S AG" ), Luxembourg company Schmolz Bickenbach Luxembourg (" S Luxembourg" ) (collectively referred to herein as " S" ), and French company BNP Paribas S.A. (" BNP" ), the underwriter of the bonds. GoldenTree now accuses the defendants of fraud, alleging that while marketing the bonds for sale, they trumpeted the expertise and track record of the issuer's management team while concealing the intention to fire that very team. According to GoldenTree, S followed through on that intention and fired the team less than two months after the bond offering closed, triggering a loss of as much as 10 percent of the bonds' market value. The defendants move to dismiss the case on several grounds. The Court concludes that it lacks personal jurisdiction over the S defendants and that in any event the case should be dismissed on the basis of forum non conveniens.

I. Background

A. Factual Background[1]

The plaintiff, GoldenTree, is an investment management limited partnership organized under Delaware law with its primary place of business in New York. It also has offices in other cities around the globe, including London. This case arises from GoldenTree's purchase of more than $50 million in bonds based on the representations of the three defendants. The first defendant, S AG, is a global steel manufacturer that is incorporated in and has its primary place of business in Switzerland. In the spring of 2012, S AG owed creditors nearly ∉ 875,000,000 repayable in full no later than April 30, 2015. At the time, Europe was experiencing a debt crisis in which European banks were reluctant to lend to underperforming European companies experiencing debt. This posed a significant challenge to S AG when it came to raising money or refinancing its existing debt, which, in turn, motivated S AG to initiate an offering of ∉ 300,000,000 in Senior Secured Notes (the " Notes" ) to exchange a portion of its short-term debt for debt of a longer duration.

The second defendant, S Luxembourg, is a wholly owned subsidiary of S AG formed for the sole purpose of issuing the Notes. It is incorporated in and maintains its primary place of business in Luxembourg. With no alternative revenue streams or assets outside the Notes proceeds, S Luxembourg is wholly dependent on S AG and its subsidiaries to generate the funds needed to service the Notes' principal and interest payments.

The third defendant, BNP, is incorporated in and maintains its primary place of business in France. It provides global retail, commercial, and investment banking services, including via a branch office in Chicago, Illinois. BNP was the primary agent that marketed the Notes to investors and was one of S AG's largest creditors prior to the offering. The offering was structured so that BNP initially purchased the Notes as an underwriter and then resold them to investors.

Offering and roadshow materials used to market the sale of Notes to potential investors described the purpose of the offering as diversifying S AG's funding structure and extending its maturity profile. The materials emphasized S AG's

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strong senior management team, consisting of Chief Executive Officer (" CEO" ) Benedict Niemeyer and Chief Financial Officer (" CFO" ) Axel Euchner. They described the talent and experience of this leadership team as a key business asset; the materials included multiple detailed statements regarding their individual and collective years of industry experience, prior track record implementing strategy, and previous experience responding to periods of global economic crisis. The team was touted as one of four " key investment highlights" ; the risk of losing Niemeyer and Euchner was identified, in turn, as a potential investment risk. The materials did not disclose any intention to terminate the CEO and CFO of S AG, or even the possibility that such a termination was imminent. They also did not disclose how much of S AG's debt was held by BNP or the extent to which BNP stood to benefit from the offering as a result of the proceeds being used to retire a portion of S AG's existing debt.

On April 24, 2012, BNP contacted GoldenTree in London to gauge GoldenTree's interest in participating in the offering. Shortly thereafter, GoldenTree's London representatives contacted GoldenTree's U.S.-based portfolio manager in the New York office, Jeffrey Burke, to evaluate the potential deal. Burke and others in the New York office commenced their due diligence on S AG's financial condition, business prospects, and proposed financial terms. On April 25, 2012, BNP arranged a meeting between potential investors and S AG's management team (including the CEO and CFO); GoldenTree was represented by Burke, who participated from New York via telephone. In advance of the April 25 meeting, GoldenTree representatives in the United States were given access to the aforementioned roadshow materials summarizing the offering and the company. During the meeting, the CEO and CFO personally presented on S AG's business model and global leadership position, including describing more than $400 million in revenue from North American operations.

Burke requested, and BNP arranged, a follow-up call between GoldenTree and S AG's CEO, CFO, and Chief Operating Officer on April 30, 2012. During the call, which lasted approximately one hour, they discussed a range of issues including S AG's historical performance, financial reporting, future financial projections, and details concerning the financial terms of the offering. Neither BNP nor S AG disclosed any issues between S AG's leadership team and its board of directors, nor did they provide any indication that the CEO and CFO did not intend to remain with S AG through the duration of their contracts (through 2014) and beyond.

On May 11, 2012, GoldenTree purchased ∉ 40m in Notes. The decision to purchase was made in GoldenTree's New York office and was authorized by Burke. The trade was also executed and recorded in the New York office. GoldenTree based its decision to purchase the Notes on the track record and experience of S AG's management team as it was described in the marketing materials and other communications.

Less than two months later, on June 18, 2012, S AG issued a press release announcing that its board of directors had unanimously agreed to terminate the CEO and CFO. It stated:

Since [S AG] . . . carried out its capital increase in May 2010, public shareholders have held the majority of the company's capital. In the meantime the Board of Directors, under the chairmanship of Hans-Peter Zehnder since the beginning of the year, has introduced

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changes to corporate governance in order to take account of these shareholders' rights to transparency and codetermination. This includes a reorientation of the management structure and the corporate culture. Against this background the Board of Directors has unanimously agreed to transfer management of the company to a new generation of managers.
It has therefore decided not to extend the employment contracts of [the CEO and CFO].

The release stated that no permanent replacement had been identified for either terminated individual; the Chief Operating Officer would act as CEO on an interim basis. Market reaction to the press release was " immediate and categorically negative." ...


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