Icahn Partners LP et al. v. Lions Gate Entertainment Corp. et al., (2011) 306 B.C.A.C. 173 (CA)

• Judge: Newbury, Mackenzie and Tysoe, JJ.A.
• Court: Court of Appeal (British Columbia)
• Case Date: March 24, 2011
• Jurisdiction: British Columbia
• Citations: (2011), 306 B.C.A.C. 173 (CA);2011 BCCA 228

Icahn Partners LP v. Lions Gate (2011), 306 B.C.A.C. 173 (CA);

    516 W.A.C. 173

MLB headnote and full text

Temp. Cite: [2011] B.C.A.C. TBEd. MY.029

Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP, Icahn Partners Master Fund III LP and High River Limited Partnership (appellants/petitioners) v. Lions Gate Entertainment Corp., Lions Gate Entertainment Inc., Mark H. Rachesky, MHR Fund Management LLC, MHR Institutional Partners III LP and Kornitzer Capital Management, Inc. (respondents/respondents)

(CA038552; 2011 BCCA 228)

Indexed As: Icahn Partners LP et al. v. Lions Gate Entertainment Corp. et al.

British Columbia Court of Appeal

Newbury, Mackenzie and Tysoe, JJ.A.

May 10, 2011.

Summary:

The Icahn shareholders (Icahn) of Lions Gate Entertainment Corp. (Lions Gate) felt that their attempt to elect their slate of corporate directors at an upcoming shareholders' meeting had been unjustly thwarted by a "deleveraging" transaction approved by the present board of directors. Icahn brought an oppression action against Lions Gate, corporate director Rachesky and some shareholders.

The British Columbia Supreme Court, in a decision reported [2010] B.C.T.C. Uned. 1547; 2010 BCSC 1547, dismissed the action. The petitioners appealed.

The British Columbia Court of Appeal dismissed the appeal.

Company Law - Topic 2170

Shareholders - Shareholders' rights - To rectify oppressive or unfairly prejudicial act - [See first Company Law - Topic 9785 ].

Company Law - Topic 4311

Directors - Duties to company and shareholders - Duty to act in the best interest of the corporation - [See first Company Law - Topic 9785 ].

Company Law - Topic 9781

Actions against corporations and directors - Action for oppressive conduct - When available - [See first Company Law - Topic 9785 ].

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - Lions Gate Entertainment Corp. (Lions Gate) was a "heavily leveraged" company - KCM held approximately $100 million worth of Lions Gate Convertible Senior Subordinated Notes due in 2024 and 2025 - Kornitzer controlled KCM - A group controlled by Icahn (Icahn) held 37.9% of Lions Gate's shares - Burns was Lions Gate's vice-chairman - Rachesky was a director - He held shares in Lions Gate through his company MHR - Rachesky wanted to acquire more shares in Lions Gate - Kornitzer was concerned that Lions Gate was over-leveraged - Icahn wanted to elect its slate of directors at the next shareholders' meeting - Burns and Rachesky viewed this proposed election adversely - A "deleveraging" transaction was arranged whereby Lions Gate exchanged KCM's Notes for new ones, KCM sold the new notes to MHR and MHR converted the new Notes into Lions Gate shares - This transaction had the effect of diluting Icahn's shareholdings to 33.5% of the total - Icahn brought an oppression action under s. 227 of the Business Corporations Act (B.C.) to set aside the entire "deleveraging" transaction - Icahn argued that their attempt to elect their slate of corporate directors at the next shareholders' meeting had been unjustly thwarted - The trial judge dismissed the action, concluding as follows: (1) Icahn did not have standing to pursue the oppression remedy because they sued not as a shareholder but as a "bitter bidder"; (2) the primary purpose of the impugned transaction was to "de-leverage" the company; (3) the secondary purpose was the dilution of Icahn's position in the context of a hostile take-over bid; (4) even if the dilution of Icahn's position was "top mind", the transaction would not have occurred without the de-leveraging effect; (5) both purposes were demonstrably considered by the board of directors to be in Lions Gate's best interest and this was a reasonably held view; (6) Icahn's professed expectation that the Lions Gate board would not act improperly so as to prevent the removal of directors at the next shareholders' meeting was not reasonable; (7) Icahn's only available reasonable expectation was that the board would act within its rights in the best interests of the company based on their reasonably held views; and (8) Lions Gate had not acted in a manner that was oppressive or unfairly prejudicial to Icahn's interests - The British Columbia Court of Appeal upheld the decision - Where directors had carried out reasonable enquiries to inform themselves as to where their company's best interests lay and were bona fide of the belief, based on reasonable grounds, that a proposed takeover would run contrary to those interests, they were entitled to use their powers to take defensive measures - See paragraphs 1 to 90.

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - The British Columbia Court of Appeal did not accede to the argument that proof of an improper purpose alone effectively equated to oppressive conduct or, conversely, that the absence of an improper purpose negatived the possibility of oppression or unfair prejudice - See paragraph 72.

Cases Noticed:

Aegon Capital Managment Inc. et al. v. BCE Inc. et al., [2008] 3 S.C.R. 560; 383 N.R. 119; 2008 SCC 69, appld. [para. 1].

BCE Inc. v. 1976 Debentureholders - see Aegon Capital Management Inc. et al.

Ballard v. Ballard Estate (1991), 50 O.A.C. 254; 3 B.L.R.(2d) 113 (Div. Ct.), consd. [para. 45].

820099 Ontario Inc. v. Ballard (Harold) Ltd. - see Ballard v. Ballard Estate.

Teck Corp. v. Millar, [1973] 2 W.W.R. 385, 33 D.L.R.(3d) 288 (B.C.S.C.), consd. [para. 47].

Hogg v. Cramphorn Ltd. et al., [1966] 3 All E.R. 420 (Ch.), consd. [para. 47].

Pente Investment Management Ltd. et al. v. Schneider Corp. et al. (1998), 113 O.A.C. 253; 42 O.R.(3d) 177 (C.A.), consd. [para. 49].

Dicore Resources Ltd. v. Goldstream Resources Ltd. (1986), 2 B.C.L.R.(2d) 244 (S.C.), consd. [para. 49].

Cross v. Mountain High Recreation Ltd. et al. (2007), 237 B.C.A.C. 198; 392 W.A.C. 198; 2007 BCCA 121, consd. [para. 49].

Casey v. CopperLeaf Technologies Inc. et al., [2010] B.C.T.C. Uned. 417; 2010 BCSC 417, consd. [para. 49].

Rogers Communications Inc. v. MacLean Hunter Ltd., [1994] O.J. No. 408 (Gen. Div.), consd. [para. 50].

Benson v. Third Canadian General Investment Trust Ltd. (1993), 14 O.R.(3d) 493 (Gen. Div.), refd to. [para. 50].

CW Shareholdings Inc. v. WIC Western International Communications Ltd. et al. (1998), 61 O.T.C. 81; 39 O.R.(3d) 755; 160 D.L.R.(4th) 131 (Gen. Div.), refd to. [para. 50].

Gazit (1997) Inc. v. Centrefund Realty Corp. et al., [2000] O.T.C. 638; 8 B.L.R.(3d) 81 (Sup. Ct.), refd to. [para. 50].

Samra v. Bel-Air Taxi Ltd. et al., [2009] B.C.T.C. Uned. 548; 2009 BCSC 548, consd. [para. 51].

Walker et al. v. Betts et al., [2006] B.C.T.C. 128; 15 B.L.R.(4th) 114; 2006 BCSC 128; 2006 BCSC 612, consd. [para. 51].

Furry Creek Timber Corp. v. Laad Ventures Ltd. (1992), 75 B.C.L.R.(2d) 246 (S.C.), consd. [para. 51].

Revlon Inc. v. MacAndrews and Forbes Holdings Inc. (1985), 506 A.2d 173 (U.S. Del. Sup. Ct.), refd to. [para. 58].

Unocal Corp. v. Mesa Petroleum Co. (1985), 493 A.2d 946 (Del. Sup. Ct.), refd to. [para. 58].

Peoples Department Stores Inc. (Bankrupt) v. Wise, [2004] 3 S.C.R. 461; 326 N.R. 267; 244 D.L.R.(4th) 564; 2004 SCC 68, consd. [para. 64].

Starcom International Optics Corp. et al. v. Macdonald et al., [1994] B.C.T.C. Uned. 492 (S.C.), consd. [para. 71].

Scottish Co-operative Wholesale Society Ltd. v. Meyer, [1959] A.C. 324 (H.L.), consd. [para. 71].

Safarik v. Ocean Fisheries Ltd. (1995), 64 B.C.A.C. 14; 105 W.A.C. 14; 22 B.L.R.(2d) 1 (C.A.), consd. [para. 71].

Westfair Foods Ltd. v. Watt et al. (1992), 131 A.R. 142; 25 W.A.C. 142; 5 B.L.R.(2d) 160 (C.A.), refd to. [para. 71].

Sparling v. Doyle et autres, [1986] R.J.Q. 1073, varied on other grounds (1992), 43 Q.A.C. 16 (C.A.), leave to appeal refused (1992), 144 N.R. 399; 53 Q.A.C. 169 (S.C.C.), refd to. [para. 71].

Sparling v. Javelin International Ltd. - see Sparling v. Doyle et autres.

Low and Anderson v. Ascot Jockey Club Ltd. et al. (1986), 1 B.C.L.R.(2d) 123 (S.C.), refd to. [para. 71].

Brant Investments Ltd. et al. v. KeepRite Inc. et al. (1991), 45 O.A.C. 320; 80 D.L.R.(4th) 161 (C.A.), refd to. [para. 71].

Such v. RW-LB Holdings Ltd. et al., [1994] 3 W.W.R. 725; 147 A.R. 241 (Q.B.), refd to. [para. 71].

R.S. v. RW-LB Holdings Ltd. et al. - see Such v. RW-LB Holdings Ltd. et al.

Orangeville Raceway Ltd. v. Wood Gundy Inc. et al. (1995), 59 B.C.A.C. 241; 98 W.A.C. 241; 6 B.C.L.R.(3d) 391 (C.A.), refd to. [para. 73].

Authors and Works Noticed:

Flannigan, Robert, Fiduciary Accountability Transformed (2009), 35 Adv. Q. 334, generally [paras. 68, 72].

Iacobucci, Edward M., and Davis, Kevin E., Reconciling Derivitive Claims and the Oppression Remedy (2000), 12 S.C.L.R.(2d) 87, pp. 88, 89 [para. 72].

Koehnen, Marcus, Oppression and Related Remedies (2004), pp. 117, 118 [para. 71]; 266 [para. 66].

McGuinnes, Kevin Patrick, Canadian Business Corporations Law (2nd Ed. 2007), p. 1254 ff. [para. 68].

MacIntosh, Jeffrey G., The Oppression Remedy: Personal or Derivative (1991), 70 Can. Bar Rev. 29, generally [para. 72].

Nicholls, Christopher C., Mergers, Acquisitions, and Other Changes of Corporate Control (2007), pp. 185 to 196 [para. 58].

Rotman, Leonard I., Debunking the "End of History" Thesis for Corporate Law (2010), 33 Boston Coll. Int'l & Comp. L. Rev. 219, pp. 237 to 241 [para. 58].

Rotman, Leonard I., Fiduciary Law (2005), pp. 358 to 361 [para. 58].

Counsel:

M. Gelowitz, R.S. Anderson, Q.C., A.D. Coleman and T.M. Tomchak, for the appellants, Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP, Icahn Partners Master Fund III LP and High River Limited Partnership;

M.D. Andrews, Q.C., A.I. Nathanson and J. Francis, for the respondents, Lions Gate Entertainment Corp. and Lions Gate Entertainment Inc.;

S.R. Schacter, Q.C., J. Gomery and P. Senkpiel, for the respondents, Mark H. Rachesky, MHR Management LLC, MHR Institutional Partners III LP;

J.K. McEwan, Q.C., and T. Boyar, for the respondents, Kornitzer Capital Management, Inc.

This appeal was heard at Vancouver, B.C., on March 24, 2011, by Newbury, Mackenzie and Tysoe, JJ.A., of the British Columbia Court of Appeal. The decision of the Court of Appeal was delivered at Vancouver, B.C., on May 10, 2011, by Newbury, J.A.