Burtch v. Seaport Capital, LLC (In re Direct Response Media, Inc.)
466 B.R. 626
Bankr. D. Del.2012Background
- Direct Response Media, Inc. (the Debtor) filed Chapter 7 with Trustee in 2010; Seaport Capital and related entities controlled the Debtor via interlocking boards.
- On Target Media Inc. transformed into Direct Response Media, Inc. after acquiring Pennsylvania Direct Response in 2006 for $11M, financed by CapSource’s $7.5M loan.
- Seaport through OTMH purchased Innovation for $36.5M in 2006, funded in part by an amended CapSource loan, for which the Debtor became a co-borrower and guarantor.
- Proceeds from the Innovation transaction and a Big Picture investment were funneled through Direct Response, allegedly without fair consideration, altering the Debtor’s assets and solvency.
- The Trustee asserts the Challenged Transactions harmed the Debtor and its creditors, seeking avoidance, recovery, turnover, accounting, and related equitable remedies.
- The Court denied some motions to dismiss while granting others, defining core vs. non-core authority post-Stern v. Marshall.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Authority of bankruptcy court to issue final orders post-Stern | Trustee argues Stern narrows authority | Defendants contend broad loss of final adjudication power | Stem narrows, but does not strip core matters of final adjudication |
| Timeliness of fiduciary duty claims against Board Defendants | Trustee alleges post-2007 acts actionable | Some acts time-barred by 3-year Delaware statute | Post-limitations acts (2007–2010) viable; pre-2007 acts dismissed |
| Aiding and abetting breach of fiduciary duties | Knowing participation alleged against non-fiduciaries | Defendants lacked fiduciary duty to Debtor | Count XI viable to extent fiduciary duty pleaded against defendants |
| Fraudulent transfer claims against CapSource and others | Transfers to satisfy Innovation’s obligation harmed estate | Some transfers lacked initial-transferee basis; value analysis contested | Counts as to Innovation/OTMH supported; CapSource-related counts largely dismissed or limited |
| CapSource’s separate liability and related remedies | CapSource engaged in transfers harming estate | CapSource properly exercised contractual rights | CapSource dismissed on multiple counts; some claims survive to limited extent |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (limits bankruptcy court final adjudication authority in core matters)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (distinguishes core vs. non-core; jury trial if no proof of claim)
- Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (public rights exception to Article III; congressional assignment to bankruptcy courts)
- In re USDigital, Inc., 461 B.R. 276 (2011) (Del. bankruptcy court adopts Stem narrowly; equitable subordination as core)
- Walker v. Lukens, 757 A.2d 1278 (Del. 2000) (Delaware standard for derivative fiduciary duties; Caremark context)