Burtch v. Opus LLC
698 F. App'x 711
| 3rd Cir. | 2017Background
- Opus East, a Delaware LLC and real-estate developer within the Opus Group, faced severe financial strain after the 2008 market collapse; Mark Rauenhorst was chairman of Opus LLC and Opus East.
- Opus East relied on related-party loans, a Bank of America credit line, and project financing; it created special-purpose entities (SPEs) for projects, including Maryland Enterprises (ME) for the NOAA Project.
- The NOAA Project (ME) went badly: cost overruns and GSA disputes led Opus East to stop construction in Dec. 2008, default on project financing in Apr. 2009, and abandon the project; Opus East sold ME to GAMD (funded by the Trusts) for $100,000 plus an interest in early lawsuit proceeds; Rauenhorst was conflicted on that transfer.
- Opus East anticipated a major salvage deal from the 100 M Street Project; when that deal collapsed, the company could not close a hoped-for rescue transaction.
- Opus East filed Chapter 7 on July 1, 2009; the Trustee sued to avoid post‑insolvency transfers and brought fiduciary-duty claims. The Bankruptcy Court ruled for Opus Group on most counts; the District Court affirmed; the Trustee appealed to the Third Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Opus East was insolvent prior to Feb. 1, 2009 | Trustee: balance-sheet, cash-flow, and undercapitalization tests show insolvency as early as 2006–2008 | Opus Group: financial statements, asset sales, and access to insider/third-party credit show solvency until Feb. 1, 2009 | Court: Affirms Bankruptcy Court — no clear error; insolvency began Feb. 1, 2009 |
| Balance-sheet valuation method to determine insolvency date | Trustee: expert adjustments (Mimms) show lower asset values and insolvency by mid‑2008 | Opus Group: going‑concern valuations, auditor support, and realized sales justify higher valuations | Held: Bankruptcy Court reasonably credited Opus Group valuations over Trustee's expert |
| Cash-flow insolvency (ability to pay debts as due) | Trustee: forecasts were unrealistic; company relied improperly on insider credit and new financing | Opus Group: reliance on available insider/third‑party credit and actual payments to creditors supported reasonable cash forecasts | Held: No clear error — cash‑flow insolvency not shown before Feb. 1, 2009 |
| Whether Rauenhorst breached fiduciary duties in transferring ME to GAMD | Trustee: conflicted self‑dealing; transfer on eve of bankruptcy constituted breach of fiduciary duties | Rauenhorst/Opus Group: transaction was negotiated with multiple executives, outside counsel was consulted, no unfair price, and was in Opus East's interest | Held: No clear error — entire fairness, care, loyalty, and good‑faith requirements satisfied; no breach found |
Key Cases Cited
- Kool, Mann, Coffee & Co. v. Coffey, 300 F.3d 340 (3d Cir.) (standard for appellate review of bankruptcy findings)
- In re Fruehauf Trailer Corp., 444 F.3d 203 (3d Cir.) (trustee burden to prove insolvency by preponderance)
- In re R.M.L., Inc., 92 F.3d 139 (3d Cir.) (balance sheet test and fair valuation principles)
- Moody v. Sec. Pac. Bus. Credit, Inc., 971 F.2d 1056 (3d Cir.) (going concern vs. liquidation valuation; undercapitalization analysis)
- In re Trans World Airlines, Inc., 134 F.3d 188 (3d Cir.) (market value and reasonable time for realization in going concern valuation)
- United Artists Theatre Co. v. Walton, 315 F.3d 217 (3d Cir.) (director duty of care; gross negligence standard)
- Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) (Delaware fiduciary duties of care and loyalty)
- William Penn P'ship v. Saliba, 13 A.3d 749 (Del. 2011) (entire fairness standard governs conflicted transactions)
- In re Walt Disney Co. Deriv. Litig., 906 A.2d 27 (Del. Ch.) (duty of good faith; conscious disregard standard)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (fair price and fair dealing elements of entire fairness)