On Thursday, March 22, 2012, Davis Polk won a significant victory on behalf of Delphi, a world-leading auto parts manufacturer that recently emerged from Chapter 11 restructuring.

Last December, a group of Delphi’s general unsecured creditors sued the purchasers of Delphi’s assets (DIP Holdco 3, LLC, Delphi Automotive LLP, and Delphi Automotive PLC), claiming that Delphi’s plan of reorganization entitles unsecured creditors to $300 million in payments as a result of Delphi’s recent IPO. The plan provides that general unsecured creditors may be entitled to payments of up to $300 million should Delphi Automotive LLP make more than $7.2 billion in qualifying distributions to its members. Plaintiffs alleged that the $7.2 billion threshold had been crossed because Delphi Automotive LLP’s members had exchanged their membership units for more than $7.2 billion worth of shares of Delphi Automotive PLC in advance of Delphi Automotive PLC’s IPO. The plaintiffs asserted claims for breach of contract, breach of the covenant of good faith and fair dealing, and civil contempt.

Davis Polk prepared a motion to dismiss that explained, among other things, that the transactions at issue involved no “distributions” within the meaning of Delphi’s plan of reorganization. Davis Polk noted that courts and federal agencies in other contexts had recognized that similar transactions involved nothing more than the exchange of one form of equity for another.

Following oral argument, the U.S. Bankruptcy Court for the Southern District of New York dismissed the complaint, agreeing with Davis Polk’s argument that the pre-IPO transactions involved the exchange of one form of equity for another and did not constitute distributions within the meaning of the plan of reorganization. The Court therefore dismissed the complaint with prejudice.

The team consisted of partner Benjamin S. Kaminetzky and associates Rajesh S. James and Samir Kaushal. All members of the Davis Polk team are based in the New York office.

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