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Darby Emerging Markets Fund, L.P. v. Ryan

Court of Chancery of Delaware

November 27, 2013

DARBY EMERGING MARKETS FUND, L.P., Plaintiff,
v.
GREGORY J. RYAN, BIH LIMITED and PAULO DE BRITO, Defendants BIH LIMITED, Plaintiff,
v.
DARBY EMERGING MARKETS FUND, L.P., Defendant

Submitted: August 27, 2013

Paul J. Lockwood, Esq., Ronald N. Brown, III, Esq., SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Attorneys for Plaintiff Darby Emerging Markets Fund, L.P.

Michael J. Maimone, Esq., Gregory E. Stuhlman, Esq., Eve H. Ormerod, Esq., E. Chaney Hall, Esq., GREENBERG TRAURIG, LLP, Wilmington, Delaware; Jeffrey S. Torosian, Esq., Paul A. Del Aguila, Esq., GREENBERG TRAURIG, LLP, Chicago, Illinois; Attorneys for Defendants BIH Limited and Gregory J. Ryan.

MEMORANDUM OPINION

PARSONS, Vice Chancellor.

This action relates to a minority shareholder's assertion of rights under the terms of a shareholders' agreement and the Articles of Association of a Cayman Islands company. Under the terms of the shareholders' agreement and the Articles of Association, the minority shareholder has the right to "put" its shares in the company to the entity's controlling shareholders in the event there is a "fundamental dispute" between the minority and controlling shareholders. The plaintiff minority shareholder alleges that a fundamental dispute exists between it and the defendant controlling shareholders regarding the timing and structure of the company's sale, and that the dispute has not been resolved within the time and manner prescribed by the shareholders' agreement and the Articles of Association. Because there is a fundamental dispute and because the controlling shareholders allegedly have repudiated the minority shareholder's right to put its shares, the minority shareholder claims the controlling shareholders have breached the shareholders' agreement and the Articles of Association. The plaintiff seeks, among other relief, a declaration that it has properly invoked its right to put its shares and an order compelling the controlling shareholders to specifically perform their obligations pertaining to the put right.

The defendants have moved to dismiss the complaint in its entirety on the grounds that this Court lacks subject matter jurisdiction over the plaintiff's claims and that the plaintiff has failed to state a claim upon which relief can be granted.

Having considered the parties' briefs and arguments on the motion, I conclude that the defendants' motion to dismiss should be denied in its entirety.

I. BACKGROUND

A. The Parties

Non-party Atlantica Hotels International, Ltd. ("AHI" or the "Company") is a privately held company incorporated under the laws of the Cayman Islands. AHI, through its subsidiaries, operates the second largest hotel management company in Brazil.

Plaintiff, Darby Emerging Markets Fund, L.P. ("Darby"), is a limited partnership organized under the laws of the Cayman Islands. Darby owns 30, 000 shares, or approximately 26%, of AHI's stock.

Defendants Gregory J. Ryan and Paulo de Brito[1] are stockholders of AHI and parties to the Shareholders' Agreement (defined below). Ryan and de Brito are "Controlling Shareholders" under the Shareholders' Agreement.

Defendant BIH Limited ("BIH" and together with Ryan and de Brito, "Defendants")[2] is a company incorporated under the laws of the Cayman Islands. BIH controls AHI, and is a party to the Shareholders' Agreement along with AHI, Darby, Ryan, and de Brito.

B. Facts[3]

1. The Shareholders' Agreement and AHI's Articles of Association

On March 31, 1998, AHI, Darby, BIH, Ryan, and de Brito entered into an agreement (the "Shareholders' Agreement") prescribing, among other things, AHI's management structure and Darby's rights as a minority shareholder of AHI.[4] With respect to AHI's management structure, Section 8 of the Shareholders' Agreement states that, "[d]uring the term of this Agreement or until such time as [AHI] completes a Qualifying Public Offering, Ryan and De Brito, collectively, shall directly or indirectly Control BIH and BIH shall Control [AHI]."[5]

The Shareholders' Agreement also specifies certain rights that Darby has, including a "Put Right, " in the event of a fundamental dispute concerning the management, business, or strategic direction of AHI. The scope of the Put Right is outlined in two related sections of the Shareholders' Agreement. The first, Section 5.7.1, states that:

In the event of a fundamental dispute concerning the management, business, or strategic direction of the Company (including, without limitation, a dispute concerning any of the matters outlined in paragraph 5.5 or 5.6 of this Agreement) Darby may, at its option, convene the Board of Directors of the Company with the objective of achieving a resolution of the dispute that is satisfactory to the Shareholders. If the Shareholders acting in good faith are unable to reach a resolution within (10) Business Days, and Darby reasonably believes that its differences with BIH are irreconcilable, then Darby may, at its option and by written notice to BIH and the Controlling Shareholders, declare the existence of a deadlock.[6]

Section 5.5 includes "any merger or consolidation of [AHI] with or into any other entity"[7] and "any sale, lease or conveyance of all or substantially all of the assets of [AHI]."[8]

The second relevant section of the Shareholders' Agreement, Section 5.7.2, entitled "Put of Shares by Darby, " states in relevant part that:

[i]n the event that Darby declares a deadlock pursuant to Section 5.7.1, Darby shall have the right, but not the duty, to sell all, but not less than all, of its Shares to BIH and the Controlling Shareholders, and if Darby exercises such right BIH and the Controlling Shareholders shall have the joint and several obligation to purchase all, and not less than all, of Darby's Shares as provided herein. If Darby chooses to exercise such right it shall give thirty (30) Business Days' written notice to BIH and the Controlling Shareholders. The date of the notice shall be deemed the "Trigger Date" and the date following one hundred eighty (180) days thereafter shall be deemed the "Closing Date" . . . . The purchase price hereunder shall be paid by BIH and/or the Controlling Shareholders, as the case may be, to Darby on the Closing Date.[9]

The same day that the parties entered into the Shareholders' Agreement, AHI also adopted its Memorandum of Association and the Articles. Section 128(a) and 128(b) of the Articles are identical to Sections 5.7.1 and 5.7.2 of the Shareholders' Agreement, respectively. [10]

2. AHI fails to consummate an acquisition with a strategic buyer

In 2011, AHI began exploring strategic alternatives, including a sale of the Company or its assets. In early February 2012, AHI had identified a strategic buyer that was interested in acquiring the Company. After the strategic buyer had been identified, BIH and Ryan: (1) placed various non-customary restrictions on the prospective buyer's due diligence, making it difficult for the prospective buyer to value AHI; and (2) refused to consider the prospective buyer's preferred deal structure - a sale of AHI's Brazilian assets - instead of a sale of AHI's Cayman holding ...


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