CrossingBridge Advisors, LLC v. Cargill International Trading Pte Ltd.

Background

CrossingBridge Advisors LLC sued Cargill International Trading Pte Ltd. (CIPTL) for breach of contract. The dispute concerned an intercreditor agreement (ICA) governing the priority and sharing of certain claims involving Tacora Resources, Inc., which operated an iron ore mine in Canada.

Under an offtake agreement, Tacora was required to sell iron ore concentrate to CIPTL, and CIPTL was required to buy it. CIPTL also advanced money to Tacora under an advance payment facility and later provided margin advances. Tacora issued several classes of notes, including Senior Priority Notes held in part by CrossingBridge. The ICA provided that certain proceeds or payments from “Shared Collateral” would be applied on an equal-priority basis among specified creditors and facilities.

Tacora later entered a Canadian insolvency proceeding. The resulting restructuring transferred the Senior Priority and Senior Secured Notes, among other obligations, to a newly created entity called ResidualCo. A Canadian court approved the transaction.

As part of the restructuring, the transaction included two matters at issue in this case. First, Tacora was to make a payment benefiting Cargill, later structured as a discount to CIPTL under a new offtake agreement. Second, Cargill set off $12.5 million that Tacora owed CIPTL under the advance payment facility against money CIPTL owed Tacora under the prior offtake agreement. CrossingBridge alleged that CIPTL had to share the value of both transactions under the ICA.

Motion and legal standard

CIPTL moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim. The court accepted the complaint’s factual allegations as true for purposes of the motion but did not have to accept legal conclusions presented as facts.

The court stated that New York law governed the ICA. To plead breach of contract, a plaintiff must allege a contract, its own performance, the other party’s breach, and resulting damages. The court also noted that a clear written agreement is enforced according to its plain meaning. CIPTL also moved for judgment on the pleadings under Rule 12(c), but the court did not consider that motion because CIPTL had not yet filed an answer and the pleadings were not closed.

Cargill Consideration Payment

The court rejected CrossingBridge’s claim concerning the Cargill Consideration Payment. Under the ICA, “Shared Collateral” consisted, as relevant here, of Tacora’s assets and property subject to liens created under the Senior Priority Notes.

The Subscription Agreement approved by the Canadian court provided that claims under the Senior Priority Notes would be transferred to ResidualCo and that Tacora and its assets would be discharged from those notes. The agreement’s closing sequence placed that transfer before the Cargill Consideration Payment took effect. Applying the agreement’s terms and giving effect to the Canadian court’s approval, the court concluded that the notes were held by ResidualCo, not Tacora, when the payment took effect. Tacora’s assets therefore were not “Collateral” or “Shared Collateral” under the ICA at that time.

The court held that CrossingBridge was not entitled to share in the Cargill Consideration Payment and had failed to state a breach-of-contract claim based on that transaction.

The Setoff

The court also rejected CrossingBridge’s claim concerning the $12.5 million Setoff. Under New York law, setoff permits parties that owe each other money to apply their mutual debts against each other. The court explained that a setoff is generally not a payment or distribution because it nets mutual obligations rather than transferring money.

The court further held that setoff was a background principle of New York law. Because the ICA did not expressly exclude or otherwise limit setoff, the court concluded that the parties understood that Tacora could engage in a setoff with a creditor during insolvency and that the setoff would not violate the ICA’s priority rules or qualify as a payment or distribution under the agreement.

The court therefore held that CrossingBridge had failed to state a breach-of-contract claim based on the Setoff.

Disposition

The court concluded that any amendment would be futile because the governing contracts unambiguously defeated both theories. The motion to dismiss was granted. The complaint was dismissed with prejudice, and the Clerk of Court was directed to terminate the motion at ECF No. 19 and close the case.

Effect of the ruling

The ruling ended CrossingBridge’s breach-of-contract action against CIPTL. It determined that neither the Cargill Consideration Payment nor the Setoff was subject to the ICA’s sharing provisions as alleged in the complaint.