520 B.R. 455
Bankr. D. Del.2014Background
- Tropicana Entertainment, LLC and affiliates filed Chapter 11 petitions on May 5, 2008, with casinos/hotels across several states.
- An ad hoc consortium sought a Chapter 11 trustee to replace Yung, who controlled Tropicana’s parent and was a central figure.
- Plans confirmed May 5, 2009 created a Litigation Trust to pursue Insider Causes of Action; Lightsway Litigation Services, LLC is Trustee.
- February 17, 2010, the Trustee filed an Amended Complaint asserting five claims against Yung, Wimar, Columbia.
- Defendants moved to dismiss; the court granted in part and denied in part, and discussed core/related-to jurisdiction and choice of law.
- The court analyzed whether the Debtors’ solvency status affects standing to sue and whether Delaware law should govern, given multiple states involved.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law governing fiduciary claims | Delaware law should apply under forum choice rules | Conflicts exist among jurisdictions; apply another state’s law if appropriate | Delaware choice-of-law rules apply; Delaware law governs the claims |
| Breach of fiduciary duty—in pari delicto/standing | Insider status allows derivative-style claims by creditors | In pari delicto bars claims and creditors lack standing | Count One dismissed; in pari delicto not barring standing, insolvency pleading lacking; dismissal stands |
| Breach of contract—Identified Agreements scope | Contracts identified in amendments support claims | Need contract specifics for all agreements; broad pleading insufficient | Count Three viable for Identified Agreements; other contracts dismissed |
| Equitable subordination of claims | Subordination warranted by broad equitable conduct | Too vague; requires Identification of allowed claims | Count Five dismissed without prejudice |
| Implied covenant claim (Count Four) viability | Implied covenant exists within Identified Agreements | Implied covenant improperly restates breach of contract | Count Four not dismissed for Identified Agreements |
Key Cases Cited
- Stoe v. Flaherty, 436 F.3d 209 (3d Cir.2006) (core/related-to, arsing under Bankruptcy Code considerations)
- Halper v. Halper, 164 F.3d 830 (3d Cir.1999) (conflicts of laws and choice-of-law principles)
- In re Resorts Int'l, Inc., 372 F.3d 154 (3d Cir.2004) (post-confirmation jurisdiction close nexus test)
- Gheewalla, 930 A.2d 92 (Del.2007) (solvency determines creditor standing for fiduciary claims)
- Production Resources Group, LLC v. NCT Group, Inc., 863 A.2d 772 (Del. Ch.2004) (insolvency affects who may pursue fiduciary claims derivative)