Our friend Ryan Satin of Pro Wrestling Sheet has posted the entire opinion entered today by Chancellor Ellen Hobbes Lyle in Billy Corgan’s lawsuit against TNA, its parent companies, and its managers, including Dixie Carter. As noted earlier, this opinion dissolved Corgan’s temporary restraining order against TNA (which kept the company from selling off shares and assets, signing contracts, etc.) and denied his request for an injunction. So, according to the honorable Chancellor Lyle, why did TNA prevail?
According to the pledge agreement that Corgan and Carter signed on August 11th, Corgan would get power of attorney for Carter’s 92.5% of TNA if an “event of default” took place. According to Corgan, those “events of default” were not TNA’s non-repayment of the loan (it’s due tomorrow, November 1st), but actually these two issues:
- [T]he LLC has become insolvent.
- [T]he Defendants have breached by not performing their duty of keeping the Plaintiff informed about the financial condition of the LLC, and potential acquisition of the LLC and/or some of its assets.
Chancellor Lyle ruled that the agreement “was not implemented in accordance with Tennessee law and [TNA’s] LLC Operating Agreement,” and as a result, Section 6, the relevant portion, “is, therefore, unenforceable to remove the Defendant LLC Managers.” The managers are Carter, her husband, Serg Salinas, and Chief Financial Officer Dean Broadhead, and they all had to consent for the agreement with Corgan to be valid. Obviously, he was lacking that consent. The court also found that Corgan’s underlying argument, that under the agreement, he was getting a proxy to Carter’s shares and not the actual shares, lacked merit.
Specifically, on the individual issues, even if it was a valid agreement:
“[T]he operative text of the Pledge Agreement, ‘becomes insolvent,’ is ambiguous when applied to the facts of record.” The relevant rules of procedure require “clear proof for issuance of an injunction” and “[t]he existence of an ambiguity does not constitute clear proof.” In addition, “[a]s identified by Defendants’ argument, inclusion of the word ‘becomes’ in the text must be taken into account. Tennessee contract construction rules require every word to be given effect, and none may be ignored, omitted or read out of the text.”
In other words? TNA couldn’t become insolvent if TNA already was insolvent. From Hobbes’ ruling:
It is undisputed that at the time the parties entered into the insolvency provision of the default section of the Pledge Agreement, the LLC was financially distressed. While the inference the Defendants seek for the Court to draw is that this distress was an anticipated temporary cash crunch from moving a license fee operation of the LLC to a barter system to maximize monetarization of the LLC’s content, the facts nevertheless are unrefuted that in 3months—June, July, August 2016—the LLC had to have huge infusions of cash from the Plaintiff to meet expenses and to produce its product or, as stated by Defendant Broadhead, “all would have been lost.”
The Court further finds that much of the Plaintiffs proof of insolvency, as would be expected, is not financial events and “snapshots” which occurred after the Pledge Agreement was entered into on August 11, 2016, but were conditions and events which had their inception and roots before August 11, 2016, which continued to worsen and deteriorate up to the present.
Due to the time constraints of working for the injunction, what Corgan was able to find amounting to proof of TNA becoming insolvent after August 11th was “that debts have increased 52% in the last 60 days ” and the following “collection and enforcement demands” from creditors (new or at least partially new information is in bold):
- As of August 19, 2016, Impact Ventures was unable to pay American Express, prompting American Express to file suit to recover.
- As of August 31, 2016, Impact Ventures was unable to pay officers’ salaries.
- As of September 1, 2016, checks issued to talent bounced, and Dean Broadhead stated: “We owe talent money. We owe employees money, we [sic] many vendors money.
- As of September 8, 2016, the Tennessee Department of Revenue filed a tax lien against the company.
- As of September 8, 2016, Impact Venture’s operating account was overdrawn and the company had trade accounts payable.
“The parties have submitted competing and disputed versions of these facts such that the proof is not clear” as to whether or not TNA withheld or concealed information from Corgan. Corgan needed to prove a “substantial likelihood of success on the merits at trial that the Defendants breached by withholding information.” At this early juncture, with conflicting information from both sides, Hobbes didn’t think his case rose to that level.