Tissue Technology LLC v. TAK Investments LLC

In 2007, OFTI sold a mill to TAK. During the financial crunch, Goldman Sachs cut $19 million from the financing. OFTI had promised clean title, but with the reduced financing, was unable to pay off all security interests. TAK agreed to issue negotiable notes, aggregating about $16 million, to OFTI, which would offer them as substitute security. The creditors accepted the notes. The transaction closed. OFTI promised to pay the notes. The lenders who released their security had the credit of both companies behind the notes. TAK was to hire an OFTI construction firm to build new mills; if TAK did not arrange for this construction and did not pay the notes, OFTI could cancel the notes and acquire a 27% interest in TAK. Neither paid the notes. The new mills did not materialize. OFTI demanded a 27% equity interest in TAK. Some formerly secured creditors have not been paid and retain promissory notes; OFTI does not possess any of the notes. The Seventh Circuit affirmed the denial of relief. A hold-harmless agreement effectively prevents OFTI from enforcing the notes against TAK; whatever TAK gave to OFTI would be returned in indemnification. The notes were designed as security for third parties, not as compensation for OFTI. Additionally, under Wisconsin’s UCC applicable to negotiable instruments, OFTI is not entitled to enforce the notes because it is not their holder, is not in possession of them, and is not entitled to enforce them under specified sections. If OFTI could use nonpayment as a reason to cancel the notes, they would be worthless to the creditors. View "Tissue Technology LLC v. TAK Investments LLC" on Justia Law