TORONTO – Lionsgate on Wednesday scored a major victory when the New York Supreme Court threw out Carl Icahn’s complaint against the indie studio over a controversial July 2010 debt-for-equity swap.
“We are pleased that the New York Supreme Court has joined with the British Columbia Supreme Court for dismissing Mr. Icahn’s complaint and affirming the validity of our July 20, 2010 deleveraging transaction,” a Lionsgate spokesman said.
The New York court, in a 20 page decision, ruled on a bid by the Icahn Group to unwind a July 20, 2010 debt-for-equity transaction that eventually sank the billionaire investor’s proxy fight with Lionsgate.
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That transaction gave Mark Rachesky, a major Lionsgate investment and a senior management ally, a key voting block that was eventually used to defeat Icahn at the indie studio’s December 2010 annual shareholders meeting.
Despite that loss, Icahn vowed to carry on his legal fight to reverse the debt-for-equity swap with separate suits brought in Vancouver, British Columbia, where Lionsgate is domiciled, and in New York state.
In the end, the New York court followed British Columbia’s lead and sided with Lionsgate.
The British Columbia court judgement is under appeal by Icahn.
The latest New York court decision only underlines the long-standing bad blood between Lionsgate and Icahn, it’s biggest shareholder, complete with hostile takeover bids and an uneasy ten-day truce in July 2010 based on a standstill agreement.
What the New York court terms a “de-leveraging transaction” between Rachesky and Lionsgate sparked off the final rupture with Icahn.
The activist shareholder unsuccessfully argued before the British Columbia and New York courts that, under an “oppression” statute, his business expectations had been violated by the debt-for-equity swap, and that the “sham transaction”, as Icahn’s lawyers put it, should be rescinded.
In the end, the New York court dismissed four motions against Lionsgate, including a breach of contract claim.
The U.S. court also looked to the earlier Canadian court ruling to confirm its conclusions.
“The evidence in the B.C. action demonstrates that the standstill agreement was a contract of limited scope and duration,” the court found.
The truce was also struck while Icahn was attempting to take control of Lionsgate, the decision added.
The court also found that Icahn’s claim that Lionsgate engaged in tortuous interference with a contract and a business relationship “stands at odds with prevailing law.”
The court instead ruled that Icahn had a “mere hope of establishing a business relationship in environment that was already strife-filled and tenuous.”
In the end, Icahn, having not apparently established a reasonable and valid business expectation with Lionsgate, failed to convince the court that the indie studio had been unlawful in its July 2010 dealings.
