Title: U.S. Timberlands Klamath Falls v. U.S. National Bank

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
U.S. TIMBERLANDS KLAMATH FALLS, 
§ 
L.L.C. n/k/a INLAND FIBER GROUP, 
§ 
L.L.C.; U.S. TIMBERLANDS FINANCE 
§ 
CORP. n/k/a FIBER FINANCE CORP.;  
§ 
No. 36, 2005 
U.S. TIMBERLANDS YAKIMA, L.L.C. 
§ 
n/k/a AMERICAN FOREST RESOURCES, § 
Court Below:  Court of Chancery 
L.L.C.; U.S. TIMBERLANDS HOLDINGS § 
of the State of Delaware, in and   
GROUP, L.L.C. n/k/a CASCADES 
 
§ 
for New Castle County 
RESOURCE HOLDINGS GROUP, L.L.C.; § 
U.S. TIMBERLANDS SERVICES  
 
§ 
C. A. No. 112 
COMPANY, L.L.C. n/k/a/ TIMBER  
§ 
RESOURCES SERVICES, L.L.C.; JOHN § 
M. RUDEY; and GEORGE R. HORNIG, 
§ 
 
 
 
§ 
     
 
Defendants Below,  
§ 
 
Appellants, 
 
§ 
 
 
 
 
§ 
              v. 
 
 
§ 
 
 
 
 
§ 
U.S. BANK NATIONAL ASSOCIATION § 
in its capacity as Indenture Trustee and not § 
in its individual capacity, 
 
§ 
 
 
 
§ 
 
 
Plaintiff Below, 
 
§ 
 
 
Appellee. 
 
§ 
 
 
 
Submitted: 
June 3, 2005 
 
 
Decided: 
June 6, 2005 
 
Before STEELE, Chief Justice, HOLLAND and JACOBS, Justices. 
 
ORDER 
 
This 6th day of June 2005, the Court having considered the briefs and oral 
arguments of the parties, it appears to the Court that: 
 
2
 
1. 
On December 22, 2004, the Court of Chancery issued an Opinion,1 
implemented by Order electronically filed on January 11, 2005, granting the 
Plaintiff Below-Appellee’s motion for partial summary judgment, and denying the 
motion of the Defendants Below-Appellees to dismiss, except for the contractual 
claims asserted against the individual defendants in Counts I and VI of the Second 
Amended Complaint.  Those latter claims were dismissed. 
 
2.  
The Defendants Below-Appellants appealed from the Order of the 
Court of Chancery granting the Plaintiff Below-Appellee’s motion for summary 
judgment. 
 
3. 
The Appellants have raised certain issues in this Court and in the 
Court of Chancery that were not clearly addressed in the Court of Chancery's 
Opinion.  More specifically, those issues were whether:  (a) amending the 
Operating Agreement of U.S. Timberlands Yakima, L.L.C. (“Yakima”) on 
September 14, 2001 to eliminate the preferred voting rights of U.S. Timberlands 
Klamath Falls, L.L.C. (“Klamath”), had the effect of eliminating Yakima’s status 
as a “subsidiary” under the Indenture; and (b) if so, whether as a matter of contract 
the refinancing transaction in which the Bank of Montreal released its lien, “cured” 
the violation of the Indenture found to have occurred under Section 4.10 of the 
Indenture; and (c) whether Yakima’s pledge of its timberland assets to MBIA on 
                                                 
1 U.S. Bank Nat. Ass'n v. U.S. Timberlands Klamath, 864 A.2d 930 (Del. Ch. 2004). 
 
3
the September 14, 2001 date constituted a separate violation of Section 4.10 or 
other provision of the Indenture.  The Appellee’s Brief did not adequately address 
the Appellants' arguments on these issues.  For these reasons, we are unable to 
determine whether or not the Court of Chancery correctly rejected the Appellee’s 
argument that if there was any violation of Section 4.10, that violation had been 
cured. 
 
4. 
In these circumstances, we would ordinarily remand the case to the 
Court of Chancery with instructions to clarify the basis for its ruling.  In this case, 
however, the circumstances call for a different disposition.  The Court of Chancery 
has scheduled a trial on all claims as to which summary judgment was not granted.  
Moreover, certain issues that are the subject of this appeal, and certain issues that 
are the subject of the trial, are factually intertwined, for example, issues relating to 
events of default, Yakima’s “subsidiary” status, and the adequacy of the 
consideration received by Klamath for the timberlands transferred to Yakima.  In 
these circumstances, the Court has concluded that, as a matter of practicality and 
judicial economy, the more prudent disposition of this appeal is to remand the 
entire case to the Court of Chancery for a trial on all issues, including issues 
previously decided on the motion for partial summary judgment. 
 
NOW, THEREFORE, IT IS ORDERED, that the Order of the Court of 
Chancery is vacated and that the case is remanded to that Court for a 
 
4
trial that will include the issues determined by the Court in its Order issued on 
January 11, 2005. 
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
/s/ Jack B. Jacobs          
 
 
 
 
 
 
Justice