Kaye v. Lone Star Fund V (U.S.), L.P.
453 B.R. 645
N.D. Tex.2011Background
- Bruno’s and BI-LO were reorganized post-2005 under Lone Star, with Lone Star owning Bruno’s via BI-LO and related entities.
- William Blair Report (2006) allegedly showed Bruno’s stand-alone value was negative and that Bruno’s was undercapitalized with chronic losses.
- 2005 restructuring included a Cardinal property sale-leaseback and a C&S supply arrangement; Lone Star retained substantial proceeds and imposed burdens on Bruno’s.
- Spin-off in March 2007 separated Bruno’s from BI-LO, transferring assets to Lone Star affiliates and saddling Bruno’s with assumed liabilities.
- Post-spin-off, Bruno’s incurred further losses, executed a Regions Bank loan (2008) and In Line sale-leasebacks, transferring value to insiders via BI-LO.
- Plaintiff Trustee alleges the Cardinal Transaction and related actions harmed Bruno’s, rendered it insolvent/undercapitalized, and were designed to benefit Lone Star and BI-LO at Bruno’s expense.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| AUFTA constructive fraudulent transfer viability | Cardinal transfer lacked reasonably equivalent value to Bruno’s. | Possible other benefits or overall restructure could justify value; not clearly insufficient pleadings. | Amended Complaint plausibly states constructive fraudulent transfer. |
| AUFTA actual intent fraudulent transfer viability | Badges of fraud (insider transfer, insolvency, inadequate consideration) present. | Badges not sufficiently pleaded against Cardinal transaction. | Amended Complaint supports actual intent fraudulent transfer claims. |
| Breach of fiduciary duty—insolvency standard | Bruno’s was insolvent during relevant periods; duties run to creditors when insolvent. | Insolvency pleading and timeframes contested; may not have harmed Bruno’s directly. | Insolvency plausibly pleaded; fiduciary duties owed to Bruno’s creditors during insolvency. |
| Breach of fiduciary duty—business judgment rule | Allegations rebut the business judgment rule; acts were irregular and disloyal. | Allegations show ordinary business decisions immunized by rule; no rebuttal shown. | Plaintiff must plead around the rule; some claims survive, others dismissed or require amendment. |
| Exhibits and judicial notice at Rule 12(b)(6) | Exhibits central to claims should be incorporated; affidavits helpful. | Exhibits are not central; cannot convert to summary judgment; judicial notice limited. | Exhibits not incorporated; judicial notice of existence and statements allowed; trustee’s strike motion granted in part. |
Key Cases Cited
- Collins v. Morgan Stanley Dean Witter, 224 F.3d 496 (5th Cir. 2000) (documents attached to motion may be considered if central to claims)
- Scanlan v. Tex. A&M Univ., 343 F.3d 533 (5th Cir. 2003) (documents not central not incorporated into pleadings)
- Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285 (5th Cir. 2004) (agency/relationship analysis in Rule 12(b)(6) context)
- Walch v. Adjutant General’s Department of Texas, 533 F.3d 289 (5th Cir. 2008) (use of documents in pleadings context; limitations on outside material)
- Gheewalla v. Nanticott Educ. Programming Found., Inc., 930 A.2d 92 (Del.2007) (fiduciary duties run to creditors when a company is insolvent)
- Gantler v. Stephens, 965 A.2d 695 (Del.2009) (business judgment rule and rebuttal standards)
- Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del.2009) (insolvency and fiduciary duties; independence and loyalty considerations)