In Brevan Howard Credit Catalyst Master Fund Limited, et al. v. Spanish Broadcasting System, Inc., the Delaware Court of Chancery considered the latest judicial iteration of rights of holders of preferred stock in Spanish Broadcasting System, Inc. (“SBS”) in which the plaintiffs sought damages as a result of SBS incurring indebtedness following the non-payment of dividends to the preferred stockholders without their consent. The Chancery Court granted defendant SBS’s motion to dismiss on the grounds that collateral estoppel and res judicata barred the plaintiffs from re-litigating issues previously decided in Lehman Brothers Holdings, Inc. v. Spanish Broadcasting System, Inc. against those in privity with the plaintiffs finding that the plaintiffs acquiesced to the non-payment of dividends. The Court dismissed the majority of the plaintiffs’ claims.
By way of background, in Lehman Brothers Holdings, Inc. v. Spanish Broadcasting System, Inc., a prior case involving similar claims brought by other preferred stockholders of SBS, such plaintiffs claimed that the non-payment of dividends to the preferred stockholders led to the occurrence of a voting right trigger event after which SBS incurred indebtedness in violation of the preferred stockholders’ contractual rights, the Court of Chancery granted a motion for summary judgment brought by SBS, holding that the defense of acquiescence as to the non-payment of dividends defeated those preferred stockholders’ claims. The Certificate of Designation of SBS (“Certificate”) setting forth the rights, privileges and preferences of the SBS preferred stock provided that dividends on the preferred stock were payable quarterly, and that if such dividends were not paid for four consecutive quarters, a voting rights trigger permitted the holders of 10% of the outstanding preferred stock to call a special meeting and elect additional directors. The Certificate also prohibited SBS from incurring additional debt after such a triggering event. According to the plaintiffs, a triggering event had occurred in April 2010, while additional debt was incurred in 2011 and 2012. None of the preferred stockholders called a special meeting to elect additional directors. Plaintiffs in this suit brought suit (1) seeking a declaration that a voting rights triggering event had occurred, (2) for breach of contract for incurring the debt, (3) seeking to exercise repurchase rights under the Certificate, and (4) breach of the covenant of good faith and fair dealing.