Fidus Mezzanine Capital, L.P. v. Fibers Plus, LLC

Background

Fidus Mezzanine Capital, L.P. sued Fibers Plus, LLC, formerly known as United Fibers, LLC, for breach of contract and declaratory judgment. The dispute concerns an Intercreditor Agreement between Fidus and United Fibers. That agreement addressed the priority of the lenders’ security interests and United Fibers’ interests in collateral connected to United Fibers’ sale of assets to SW Fibers, LLC.

Fidus alleged that it and other lenders made an initial $10 million loan and later extended more than $28 million in additional loans. The agreement generally subordinated the lenders’ interests in certain seller collateral to United Fibers, but restricted United Fibers from exercising rights or remedies concerning other collateral or seller debt until the first-lien debt was paid in full. Fidus alleged that the first-lien debt was not fully paid when United Fibers pursued relief in Arizona proceedings, including enforcement of a judgment against entities covered by the agreement.

Arguments on the Motion

Fibers Plus moved to dismiss the amended complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). It argued that:

Court’s Analysis

The court treated the amended complaint’s factual allegations as true for purposes of the motion. It rejected the termination argument because the complaint alleged that more than $10 million in first-lien debt remained unpaid after the 2021 asset sale. The court also rejected the argument that the lenders’ credit commitments had ended, noting the alleged amendments providing for additional loans.

The court concluded that the agreement was supported by consideration. United Fibers received the benefit of the lenders’ agreement to subordinate their priority rights in seller collateral, and Fidus’s loan helped finance part of the asset purchase. The court also held that Fidus’s promises were not illusory because Fidus was bound by the agreement’s restrictions and by the implied duty of good faith and fair dealing.

The court rejected Fibers Plus’s good-faith argument because the agreement expressly allowed the lenders to amend, increase, or otherwise alter the first-lien debt without United Fibers’ consent or notice. On the alleged breach, the court explained that the agreement barred United Fibers from seeking remedies concerning seller debt before the lenders were paid in full. Because the entities sued in the Arizona action were covered as grantors and obligations under the Supply Agreement would fall within the agreement’s definition of seller debt, Fibers Plus had not shown that no breach occurred.

Disposition

Judge J. Paul Oetken denied Fibers Plus’s motion to dismiss. The court held that Fidus stated claims for breach of contract and declaratory judgment; it did not enter a final judgment deciding whether Fibers Plus ultimately breached the agreement. Fibers Plus was ordered to file an answer to the amended complaint within fourteen days, and the clerk was directed to close the motion at Docket Number 22.