Cleveland-Cliffs Burns Harbor LLC v. Boomerang Tube, LLC
2022-0378-LWW
Del. Ch.Sep 5, 2023Background
- Boomerang Tube, LLC, a maker of oilfield tubular goods, purchased $7.355M of steel from ArcelorMittal and defaulted on certain invoices; Cleveland-Cliffs acquired ArcelorMittal’s rights in December 2020.
- After a 2015 Chapter 11 reorganization, Black Diamond became Boomerang’s majority owner and controlled its board; Black Diamond Commercial Finance (an affiliate) sent notice of an Article 9 foreclosure sale on December 24, 2020.
- A ten-day-notice auction was held January 4, 2021; Bidco (renamed PTC Liberty), an affiliate of Black Diamond, bought substantially all of Boomerang’s assets for $16.5M.
- Cleveland-Cliffs alleges the sale was a sham to strip assets from creditors, that Boomerang was rendered a shell, and that PTC Liberty operates the same business, facilities, and personnel formerly associated with Boomerang.
- Cleveland-Cliffs sued Boomerang, Black Diamond, and PTC Liberty asserting successor liability, DUFTA fraudulent-transfer claims, veil piercing, breach of contract (against Boomerang), unjust enrichment, and a declaratory judgment challenging the Article 9 sale; Black Diamond and PTC Liberty moved to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Veil piercing / alter-ego liability (to hold Black Diamond liable) | Black Diamond dominated Boomerang/PTC Liberty and used corporate form to evade creditors | Corporate separateness observed; mere ownership/control insufficient; no sham or siphoning | Dismissed — Cliffs failed to plead the combination of factors and fraud/injustice required for veil piercing |
| DUFTA constructive fraudulent transfer (Article 9 sale) | Sale transferred assets worth > liens for inadequate value; Boomerang insolvent and got less than reasonably equivalent value | Sale was a foreclosure of encumbered assets; liens exceed asset value so no qualifying transfer | Survives vs. PTC Liberty and Boomerang — reasonably conceivable assets exceeded liens and value disparity pleaded; dismissed vs. Black Diamond as transfer beneficiary |
| DUFTA actual fraudulent transfer (intent to hinder creditors) | Badges of fraud: insider buyer, quick holiday notice, sale of substantially all assets, timing after invoices, insolvency — show actual intent | Intent imputation improper absent alter-ego; allegations target Black Diamond, not Boomerang | Survives vs. PTC Liberty and Boomerang — facts plead badges of fraud and plausible control to infer intent; not dismissed on pleading rules |
| Successor liability (mere continuation / de facto merger) | PTC Liberty is Boomerang’s continuation: same business, facilities, personnel, website; Boomerang ceased as going concern | APA disclaims liabilities, purchase was cash, excluded assets show not a transfer of all assets | De facto merger theory fails; mere-continuation survives at pleading stage vs. PTC Liberty — dismissal denied as reasonably conceivable continuation |
| Unjust enrichment (against PTC Liberty & Black Diamond) | Defendants unjustly retained value of goods/services without paying successor Cleveland-Cliffs | Contract governs rights (Terms & Conditions with Boomerang); unjust enrichment barred where contract exists; no well-pleaded enrichment of Black Diamond | Dismissed — contract governs and Cliffs failed to plead enrichment/relationship elements against PTC Liberty or Black Diamond |
| Declaratory relief under NY UCC Article 9 (challenge sale commercial reasonableness) | Sale was not commercially reasonable; seeks declaration under NY UCC | Article 9 standing limited to debtor, obligor, or secured creditor; Cliffs is unsecured creditor | Dismissed for lack of standing — Cliffs, an unsecured creditor, lacks statutory right to sue under NY UCC Article 9 |
Key Cases Cited
- Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) (pleading standard; reasonable-conceivability rule)
- Bestfoods, 524 U.S. 51 (U.S. 1998) (parent/subsidiary liability and limits on parent liability for subsidiary acts)
- Manichaean Capital, LLC v. Exela Technologies, Inc., 251 A.3d 694 (Del. Ch. 2021) (factors and approach for alter-ego/veil-piercing analysis)
- Wallace v. Wood, 752 A.2d 1175 (Del. Ch. 1999) (veil piercing requires fraud or similar injustice; corporation as sham)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (U.S. 1994) (foreclosure-sale valuation context; forced-sale valuation differs from fair-market value)
- Quadrant Structured Products Co. v. Vertin, 102 A.3d 155 (Del. Ch. 2014) (distinguishing DUFTA provisions and plaintiff standing under §1305)
- Trenwick American Litigation Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch. 2006) (limits on expanding fraudulent conveyance remedies to third parties)