Citations
- 237 F. Supp. 2d 558
Full opinion text
MEMORANDUM OF DECISION
RUETER, United States Magistrate Judge.
Presently before the court are defendant’s motion for partial summary judgment (Document No. 30), and plaintiffs motion for summary judgment (Document No. 31). Each party filed numerous briefs, reply briefs, exhibits and affidavits in support of its own motion and in opposition to the other party’s motion. The motions with respect to the reformation issue only were referred to the undersigned for disposition by the Honorable J. Curtis Joyner by order dated July 31, 2002. For the reasons stated below, defendant’s motion for partial summary judgment is GRANTED, and plaintiffs motion for summary judgment is DENIED.
I. BACKGROUND
The basic facts are undisputed and the court will summarize them briefly here. Defendant, Forcenergy, Inc., was an independent oil and gas company engaged in exploring for and producing oil and natural gas. Plaintiff, OTA, is a Delaware limited partnership and is an arbitrageur in the business of investing and trading securities for its own account. (Pl.’s Mem. of Law Supp. Summ. J. at 4.) In June and July, 2000, plaintiff bought approximately 10,000 warrants convertible into common shares of defendant (the “Warrants”). OTA did not purchase the Warrants directly from defendant, but bought them on the seeond-ary market from another seller. Id. at 14. Defendant had issued the Warrants approximately three months earlier as part of its Chapter 11 bankruptcy reorganization. Under defendant’s Chapter 11 plan of reorganization, defendant sold its unsecured creditors 40,000 “Units,” each Unit consisting of one share of defendant’s preferred stock and forty-five warrants, each warrant convertible into one share of defendant’s common stock at the price of $10.00 per share. (Def.’s Appendix Supp. Summ. J. Exs. 1 and 3.)
Defendant and American Stock Transfer & Trust Company (the “Warrant Agent”) entered into a Warrant Agreement dated March 20, 2000. The parties agree that the Warrant Agreement provides that each Warrant may be converted into one share of defendant’s common stock, a one to one ratio. The parties agree that the Warrant Agreement contains no errors at the time it was drafted, and accurately reflects the intent of the parties to that agreement. (PL’s Mem. of Law Supp. Summ. J. at 16.)
Plaintiff claims that it purchased the Warrants because it believed that each Warrant was “ convertible into forty-five shares of defendant’s common stock, a one to forty-five ratio. Id. at 13-14. Plaintiff contends that it beiieved that only 40,000 Warrants had been issued. Plaintiff asserts that it formed these beliefs after reviewing certain documents including defendant’s filings with the United States Securities and Exchange Commission (“SEC”), and defendant’s Chapter 11 bankruptcy plan and disclosure statement. Id. at 10-14. Plaintiff also claims that it confirmed this conversion ratio in two telephone calls to defendant’s employees before purchasing the first batch of Warrants. Id. at 13-14. Two of plaintiffs employees, Neil Weiner and David Tatter-sall, conducted the due diligence on behalf of the plaintiff. Id. at 10-14.
The issue before this court is very narrow and discrete: is plaintiff entitled to reformation of the Warrant Agreement to reflect that the Warrants are exercisable at the ratio of one to forty-five, i.e., one Warrant for forty-five shares of common stock. In Count I of the Complaint, plaintiff asked the court to reform the Warrant Agreement to give plaintiff forty-five shares of defendant’s common stock for each Warrant it owns, rather than the one share per Warrant as provided in the Warrant Agreement. Defendant seeks the entry of summary judgment on Count I of the Complaint arguing that plaintiff is not entitled to the equitable relief of reformation because: (1) the Warrant Agreement contains .no mistakes; (2) innocent third parties, defendant’s other shareholders, will be harmed by the dilution of their stock; and (3) plaintiff has an adequate remedy at law by means of the other claims it raised in its complaint. (Def.’s Br. Supp. Mot. Summ. J. at 2-3.)
Plaintiff also seeks summary judgment and asserts that defendant’s motion for summary judgment should be denied because: (1) it is not' seeking to amend the Warrant Agreement, but rather the specific individual agreement between plaintiff and defendant created when, plaintiff first purchased Warrants; (2) the value of defendant’s stock will not be diluted because defendant no longer has any common stock after its merger with Forest Oil, alternatively, the court may award plaintiff money damages rather than stock; and (3) plaintiffs other claims offer only a partial remedy, reliance damages rather than expectancy damages. (Pl.’s Br. Opp. Mot. Summ. J. at 2-4.)
Plaintiff acknowledges that Delaware law governs the reformation issue. (Pl.’s Br. Opp. Mot. Summ. J. at 16-18.) Defendant also acknowledged that Delaware law applies, citing to Section 11 of the Warrant Agreement which provides that it is governed by Delaware law. (Def.’s Br. Supp. Mot. Summ. J. at 23 n. 12.) This court concludes that the issue of reformation is governed by Delaware law.
II. STANDARD OF REVIEW
Summary Judgment Standard. Pursuant to Fed.R.Civ.P. 56(c), summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admission on file, together with- the affidavits, if any, show that there