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Securities Regulation, Keyed to Choi
Avenue Capital Management II, L.P. v. Schaden
Citation:
843 F.3d 876 (2016)Facts
Quiznos, a sandwich restaurant franchisor, experienced severe financial decline from 2007 to 2011, losing approximately 3,000 franchise restaurants with plummeting profitability. Unable to satisfy loan covenants, Quiznos faced potential foreclosure, debt acceleration, or collateral calls from creditors. To avoid financial calamity, Quiznos restructured its debt through a transaction with Avenue, Fortress, and other creditors. Through this restructuring, Avenue acquired approximately 70% of the LLC’s membership interests and Fortress acquired approximately 10%, giving them collective control of roughly 80% of the company. In exchange, Avenue invested $150 million and both Avenue and Fortress reduced Quiznos’s outstanding debt. The LLC agreement granted Avenue the power to appoint seven of nine managers (including the board chairperson) and Fortress the power to appoint one manager, with the CEO serving as the ninth manager. Avenue and Fortress collectively possessed the power to amend the LLC agreement, remove appointed managers without cause, and dissolve the LLC. The agreement also provided Avenue and Fortress with quarterly and annual financial statements and inspection rights over Quiznos’s books and records.
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