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January 2017: Bet-the-Company Victory in Delaware Supreme Court

January 2017

Earlier this month, Quinn Emanuel won an appellate victory in Delaware Supreme Court that affirmed a bet-the-company trial victory. In Quadrant Structured Products Company, Inc. v. Vertin, et al. (Case No. 210, 2016), plaintiff Quadrant Structured Products Company, Inc. (“Quadrant”) sued our clients Athilon Capital Corp. and Athilon’s Board of Directors (“Athilon”), seeking an order requiring Athilon not only to pay damages of hundreds of millions of dollars—but also to liquidate its assets and shut its business down entirely. Quadrant, a noteholder, argued that Athilon was insolvent when it made transfers of assets to an affiliated entity and embarked on a business strategy that involved investing in "risky" securities. Quadrant argued that in so doing, Athilon's Board breached the terms of the indenture governing the notes held by Quadrant, engaged in actual and constructive fraudulent transfers, and breached fiduciary duties owed to Athilon’s creditors.

Following a five day bench trial, the Delaware Chancery Court issued a post-trial decision that dismissed all of Quadrant’s claims. Vice Chancellor Laster’s post-trial decision ruled that Athilon's challenged conduct complied with the terms of the indenture, were not actual or constructive fraudulent transfers, and that Quadrant lacked standing to assert the claims for breach of fiduciary duty because when the challenged transactions took place, Athilon was, in fact, solvent. The trial court decision is described in detail in our Firm’s January 2016 Business Litigation Newsletter.

On appeal, Quadrant challenged the trial court's rulings, again seeking to force Athilon to shut its business down.

After an en banc oral argument, the Delaware Supreme Court summarily affirmed the trial court’s decision.

This decision preserved Athilon’s trial success, vindicated Athilon’s business strategy that Quadrant challenged, and finally terminated Quadrant’s five-year long effort to force Athilon to go out of business.