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- Third Circuit Reversal Paves the Way For NextEra to Potentially Recover Administrative Expenses Incurred in Connection With Failed Merger
- Delaware District Court Disagrees with Bankruptcy Court’s Ruling and Holds That Committee’s Challenge Rights Survived Entry of the Sale Order and Consummation of Sale
- “Straddling the Line”: Delaware Bankruptcy Court Rules That Not All Tax Liabilities Incurred During a Debtor’s Petition Year are Eligible for Administrative Expense Priority
“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 more specific allegations.
By way of background, non-debtor Heico Holdings Inc. (“Heico”) wholly owns debtor Conex Holdings, LLC (“Holdings”), which in turn wholly owns debtor Conex International, LLC (“Conex”). Heico acquired Conex in 2008 through a $246 million leveraged buy-out that allegedly left Conex insolvent. In 2011, Conex and Holdings were placed into involuntary bankruptcy proceedings and a chapter 7 trustee was appointed. The trustee filed the instant proceeding, alleging that certain officers and directors of Heico, who also served as officers and directors of Conex or other Heico affiliated divisions that controlled the debtors, caused Conex to make preferential payments to Heico in lieu of paying Conex creditors. The trustee’s complaint rested upon general allegations, such as “the Directors and Officers caused Conex, while insolvent, to cease paying certain creditors, and instead caused Conex to begin paying…the Preferential Payments to Heico.” The officer and director defendants (the “Individual Defendants”) sought to dismiss the action, asserting that the trustee failed to state with specificity the wrongdoing each defendant did in connection with any particular transfer.
Judge Sontchi agreed with the Individual Defendants and held that the trustee failed to provide specific facts supporting a facially plausible breach of fiduciary duty claim against each defendant. Indeed, the Court stated that “[t]his [was] not a close question.” Because liability is personal, allegations of wrongdoing cannot be lumped together and satisfy the well-known pleading standards of Twombly and Iqbal. Specific facts as to which transactions a particular defendant authorized, allegations as to what authority any particular defendant had to approve such transactions, and details regarding each defendant’s knowing participation are needed as theories of “collective responsibility” will not pass muster. Although the Court found dismissal was warranted at this initial pleading stage, it nevertheless allowed the trustee 30 days to file an amended complaint to firm up his general allegations.