Kirschner v. Jp Morgan Chase Bank, N.A.

Facts

Millennium Health LLC, Inc. was a California-based urine drug testing company. In March 2012, Ds executed a credit agreement providing Millennium with a $310 million term loan and a $20 million revolving loan. Two days before the 2012 Credit Agreement closed, the United States Department of Justice (DOJ) issued a subpoena to Millennium in connection with an investigation into whether Millennium had violated federal health care laws. In March 2012, Ds began to consider ways to refinance the 2012 Credit Agreement. P alleges that 'by the end of February 2014,' the 'only' way to refinance was 'a huge institutional financing that would' eliminate the roughly $300 million that Millennium still owed under the 2012 Credit Agreement. That took the form of a $1.775 billion term loan to Millennium. By letter dated March 16, 2014, Ds agreed to the Term Loan and a $50 million revolving loan. Millennium planned to use the Term Loan to (1) pay the outstanding amount due under the 2012 Credit Agreement ($304 million), (2) pay a shareholder distribution ($1.27 billion), (3) 'redeem outstanding warrants, debentures and stock options' ($196 million) and (4) pay fees and expenses related to the Transaction ($45 million). Ds and Millennium agreed that Ds could 'syndicate the Term Loan to a group of lenders identified by the 'Lead Arrangers,'' JP Morgan Securities and Citigroup Global Markets. The Lead Arrangers agreed to 'commence the syndication promptly,' while Millennium 'agreed actively to assist the Lead Arrangers in completing a syndication satisfactory to [it] and the Lead Arrangers.' D prepared a 'Confidential Information Memorandum' about Millennium refers to its intended audience as potential 'lenders,' although its cover page uses the term 'Public Side Investors.' The relevant documents also consistently employ the term 'lender' and not 'investor.' The court refers to those who purchased Notes as 'lenders.' The Confidential Information Memorandum contains numerous disclaimers. It claimed not to be complete and advised that each potential lender 'should perform its own independent investigation and analysis of the [Term Loan] or the transactions contemplated thereby and the creditworthiness of [Millennium].' Each potential lender 'represent[ed] that it [was] sophisticated and experienced in extending credit to entities similar to [Millennium].' A potential lender had 'to make a final legally binding offer to purchase' the Notes no later than 5 p.m. Eastern Standard Time on April 14, 2014. On April 15, 2014, D notified potential lenders with outstanding legally binding offers of the amount of their allocation. They were then 'irrevocably' bound to purchase their allocation of the Term Loan. These lenders are referred to as 'Parent Lenders' They were free to sub-allocate their allocation to investors in their respective funds-referred to here as 'Child Lenders.' In total, sixty-one Parent Lenders received an allocation of the Term Loan. Of those sixty-one Parent Lenders, fifty-nine were domestic entities and two were foreign entities. Approximately half of the roughly four hundred Child Lenders were foreign entities. The transaction then closed in 3 stages. Each lender executed an 'Assignment and Assumption Agreement' with D. The lenders thereby assumed 'all of D's rights and obligations in its capacity as a Lender under a 'Credit Agreement' dated April 16, 2014. The Credit Agreement established the conditions of the Term Loan. By entering the Credit Agreement, each lender represented that it had independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of [Millennium] and made its own decision to make its Loans and enter into the Credit Agreement. Millennium would pay back the Term Loan over seven years by quarterly payments consisting of a portion of the $1.775 billion principal plus interest. The Credit Agreement also created a legal, valid, and enforceable security interest' in Millennium's collateral. The Credit Agreement facilitated the creation of a secondary market for the Notes, subject to certain assignment restrictions. The restrictions include: A prohibition on assignment to 'a natural person;' A requirement that Millennium and D, acting in its capacity as Administrative Agent, provide written consent to any assignment; and A requirement that any assignment be for more than $1,000,000, unless, among other things, the assignment was to a 'Lender, an affiliate of a Lender, or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender's' allocation. The Notes began trading on a secondary market 'as early as April 15th. The DOJ investigation and Ameritox litigation continued and on June 16, 2014, a jury determined that Millennium had violated federal anti-kickback statutes and awarded Ameritox $2.755 million in compensatory damages and $12 million in punitive damages. The Court of Appeals later vacated the verdict. In December 2014, the DOJ informed Millennium that it would intervene in qui tam litigation involving Millennium's billing practices. It did so on March 19, 2015. On May 22, 2015, Millennium announced that it had reached a preliminary $256 million global settlement with the government related to the qui tam litigation. On October 16, 2015, Millennium completed the $256 million settlement. On November 10, 2015, Millennium filed a voluntary petition for relief under Chapter 11. Kirschner (P) was appointed trustee of the Millennium Lender Claim Trust. The ultimate beneficiaries of the Trust are lenders who purchased Notes and have claims in the bankruptcy proceedings. P filed suit for violations of state securities laws, negligent misrepresentation, breach of fiduciary duty, breach of contract, and breach of the implied contractual duty of good faith and fair dealing. Ds removed the case to federal court. Ds moved to dismiss the complaint. The court granted the motion. The court concluded that P failed to plead facts plausibly suggesting that the Notes are 'securities' under Reves v. Ernst & Young, 494 U.S. 56, 110 S. Ct. 945 (1990). Ps eventually appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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