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In Roseton OL, LLC v. Dynegy Holdings
Inc., C.A. No. 6689-VCP (Del. Ch. July 29, 2011), read opinion here,
the Delaware Court of Chancery refused to grant injunctive relief requested by
PSEG to block a restructuring by Dynegy that transferred assets to "bankruptcy
remote" entities. The business press has written three articles about
this decision since it was issued yesterday and those reports by Reuters,
Bloomberg and The Wall Street Journal are available here,
Many practical guidelines for those who make their living practicing
corporate and business litigation in Delaware are contained in this
57-page opinion that was written within 4 days of an expedited hearing on a TRO
request. For example, there are nuanced differences between the standard for a
TRO and the prerequisites that must be satisfied for a preliminary injunction
("PI"), and this opinion gingerly glides between them-and explains why the
Court applied the PI standard even though it was a TRO that was sought by the
As is common in opinions from the Court of Chancery, the
beginning of the decision devotes many pages to an exhaustive description of
the many factual details that form the complex context and background of this
matter, before the legal issues are "teed up" for analysis. However, in a short
blog post, we focus on the legal principles and refer the reader to the link
above for the whole decision to satisfy one's appetite for minutiae that are
not generally applicable in future cases.
The named plaintiffs, Roseton OL, LLC and Danskammer OL,
LLC, are Delaware LLCs that are indirect subsidiaries of Public Service
Enterprise Group Incorporated ("PSEG"), a company engaged in various aspects of
the electric power business. In a "bare bones" summary of the facts, a
subsidiary of Dynegy sold two power plants to PSEG and then entered into a
leaseback transaction which included a guarantee agreement executed by Dynegy's
subsidiary, DHI. PSEG argued that the guaranty provisions were designed to
protect against the risk that the cash flow from the two plants did not create
sufficient cash to cover the lease payments payable to PSEG. A related
provision prohibited the transfer of assets that would make the guarantee less
This action was filed on Friday, July 22, along with an
opening brief in support of a TRO to enjoin the closing of a restructuring
transaction in which assets related to the above-referenced sale-leaseback
would be transferred to "bankruptcy remote" entities. The TRO was sought based
on the argument that the restructuring would violate "successor-obligor" and
related provisions of the guarantees, and would also constitute a
fraudulent transfer. On Monday morning, July 25, an Answering Brief was filed,
and on Monday afternoon, July 25, the Court held a hearing on the TRO that
lasted about two hours. Supplemental briefing by each side was submitted the
following day and this 57-page opinion followed a few short days later.
Whether the criteria for either a TRO or a Preliminary
Injunction were satisfied based on the arguments and evidence presented on a
very expedited schedule, claiming that the challenged transaction was: (i) a
breach of the guarantee provisions; and (ii) a fraudulent transfer.
Bullet Points on Court's Analysis of the Law
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Eckert Seamans.
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