A Third Circuit Analysis of Fiduciary Duties in the Face of Bankruptcy

In re Ultimate Escapes Holdings, LLC, 682 Fed. Appx. 125 (2017)

In re Ultimate Escapes Holdings, LLC, No. 12-50849 (BLS), 2015 WL 1590132 (Bankr. D. Del. Feb. 5, 2015)

In affirming the decisions of the courts below, the Third Circuit in its Opinion of In re Ultimate Escapes Holdings, LLC not only provides a refresher on Delaware’s entire fairness and business judgment standards; it also sends a comforting signal to officers and directors faced with difficult decisions when a company is in financial distress and on the verge of bankruptcy.

As the merger negotiations continued, UE’s financial situation deteriorated.  An… Read More

Tidbits From The Delaware Bankruptcy Court On In Pari Delicto and Equitable Subordination

Lightsway Litig. Servs., LLC v. Yung (In re Tropicana Enter., LLC), Adv. No. 10-50289 (KJC), 2014 WL 6704445 (Bankr. D. Del. Nov. 25, 2014)

In this Memorandum, the Honorable Kevin J. Carey disposes of certain claims against William J. Yung III (“Yung”), the former director and CEO of Tropicana Entertainment LLC (with its affiliated entities, the “Debtors”) and certain entities controlled by Yung, Wimar Tahoe Corporation (“Wimar”), the parent corporation of the Debtors, and Columbia Sussex Corporation (“Columbia” and together with Wimar and Yung, the “Defendants”).  Notably, the Court discusses—albeit briefly—two developing legal concepts in the Third Circuit… Read More

“Thread-bare” Complaint Alleging Collective and Non-Specific Breaches of Fiduciary Duty Dismissed Against Individual Officers and Directors

Stanziale v. Heico Holdings, Inc. (In re Conex Holdings, LLC), Adv. No. 13-50941 (CSS), 2014 WL 3883712 (Bankr. D. Del. Aug. 8, 2014)

In this short Memorandum Opinion, the Bankruptcy Court dismissed a chapter 7 trustee’s claims for breaches of fiduciary duties against certain officers and directors under Texas common and statutory law.  In doing so, Judge Sontchi held that the trustee failed to plead facts with any specificity as to how each officer and director breached his duties.  However, the Court allowed the trustee leave to amend his complaint within 30 days to allege… Read More

Post-Sale Data May Be Useful to Confirm the Reasonableness of Pre-Sale Projections and Valuations But It is of No Relevance In a Breach of Fiduciary Duty Action

Miller v. Am. Capital, Ltd. (In re NewStarcom Holdings, Inc.), Adv. No. 10-50063 (CSS), 2014 WL 3865822 (Bankr. D. Del. Aug. 6, 2014)

In this breach of fiduciary duty action arising from the prepetition “fire” sale of the debtors’ subsidiary (“Old Matco”) to insiders, the chapter 7 trustee sought to compel defendants to produce post-sale financial information of the sold-subsidiary so that the reasonableness of any valuation performed as of the sale date could be determined.  The defendants objected to the production on the grounds that the request was, among other things, irrelevant to the fiduciary claims, arguing… Read More

Derivative Standing to Pursue Recharacterization, Equitable Subordination, and Breach of Fiduciary Duty Claims on behalf of Debtors Optim Energy, LLC Denied by Bankruptcy Court

In re Optim Energy, LLC, No. 14-10262 (BLS), 2014 WL 1924908 (Bankr. D. Del. May 13, 2014)

On May 13, 2014, the Honorable Brendan L. Shannon issued an Opinion denying an unsecured creditor’s request for derivative standing to pursue claims on behalf of debtor Optim Energy, LLC (“Optim Energy”) and its affiliated debtors (collectively, the “Debtors”) for recharacterization, equitable subordination, and breach of fiduciary duties against direct and indirect non-debtor owners, ECJV Holdings, LLC (“ECJV”) and Cascade Investments, L.L.C. (“Cascade”).  Walnut Creek Mining Company (“Walnut Creek”), the Debtors’ largest non-insider general unsecured creditor, alleged that the… Read More

Subsidiary Can Exercise Actual Control Over Parent Sufficient to Create a Fiduciary Relationship Says Bankruptcy Court

Burtch v. Owlstone, Inc. (In re Advance Nanotech, Inc.), Adv. No. 13-51215 (MFW), 2014 WL 1320145 (Bankr. D. Del. Apr. 2, 2014)

On April 2, 2014, the Honorable Mary F. Walrath issued a Memorandum Opinion denying a motion to dismiss brought by a non-debtor subsidiary challenging breach of fiduciary duty claims asserted by a chapter 7 trustee on behalf of a bankrupt-parent.  In doing so, the Court made an interesting (and perhaps controversial) conclusion – it is possible for a subsidiary to exercise actual control over its parent sufficient to create a fiduciary obligation.

In 2004, Advance… Read More