2009 Chapter 11 Recent Developments (Part I)

in this proceeding from litigating the dischargeability of the FTC's claim.

Bridgeport Holdings Inc. Liquidating Trust v. Boyer, et. al. (In re Bridgeport Holdings, Inc.), 388 B.R. 548 (Bankr. D. Del. 2008)

Facts: The Bridgeport Holdings Inc. Liquidating Trust (the "Trust") sued certain officers and directors of the debtor (the "D&Os"), as well as a restructuring advisor (the "Advisor"), for breach of their respective duties of care, good faith and loyalty with respect to the management and ultimate sale of the debtor and its assets. The Trust also asserted claims of corporate waste. Issues: Whether the Trust's claims should be dismissed for failure to plead a cause of action upon which relief can be granted.

Rules:

(1)

"Where a plaintiff brings a claim based upon multiple allegedly wrongful acts, a court considers each act in turn in applying the statute of limitations."

(2)

"A claim for breach of loyalty may be premised upon the failure of a fiduciary to act in good faith... by intentionally failing to act in the face of a known duty to act, demonstrating a conscious disregard for their duties."

(3)

Under Delaware law - 8 Del. C. § 102(b)(7) - a liability for a breach of the duty of care may be limited in a company's certificate of incorporation only to the extent that a plaintiff sues for breach only of the duty of care. In other words, "'a Section 102(b)(7) charter provision bars a claim that is found to state only a due care violation.'"

(4)

The business judgment rule can be used to rebut assertions that directors abdicated their duties in that their decisions rested on poor advice or on negligence. However, to use the business judgment rule, directors have a duty to inform themselves of all material information they have available prior to making their decisions.

(5)

"Only extraordinary circumstances can justify a finding of waste..."

Holding:

(1)

Two of the four acts are dismissed as being outside the statute of limitations. No tolling applies in this case. Those acts may provide background in assessing the remaining two acts that are the subject of the complaint.

(2)

The motions to dismiss are denied as to the breach of duty of loyalty.

(3)

Since the complaint asserts more than a breach of the duty of care (and the claims that there was a breach of duty of loyalty were not dismissed) the charter provision under 8 Del. C. § 102(b)(7) cannot bar the cause of action. Neither is the claim barred, under these facts, by the directors' assertion that the business judgment rule protects their decisions.

(4)

The claims that the officers violated their duty of care are dismissed.

(5)

The claims against the restructuring advisor are not dismissed.

(6)

The claims for waste of corporate assets are dismissed.

Reasoning: Ultimately, the bankruptcy court stepped through each claim and found that, under the facts alleged, they were either dismissed or not under Delaware law.

Burgio v. Protected Vehicles, Inc., et. al. (In re Protected Vehicles, Inc.), 2008 WL 4977631 (Bankr.

D. S.C. Nov. 21, 2008)

Facts: The debtor terminated its employees without complying with the WARN Act and thereafter declared bankruptcy. The debtor's former employees commenced two adversary proceedings against