U.S. Bank National Ass'n v. Verizon Communications, Inc., 761 F.3d 409

Background

In 2006 Verizon spun off its print/online directories business into Idearc, which received the business and $9.1 billion of debt; Idearc began trading publicly and paid dividends and interest through early 2009, then filed Chapter 11 in March 2009.
Idearc’s confirmed Plan transferred avoidance/avoidance-recovery claims (Bankr. Code §§ 544, 550) to a post-confirmation Litigation Trust; U.S. Bank was appointed Trustee and sued Verizon, two subsidiaries, and the pre‑spin director Diercksen alleging fraudulent transfers, fiduciary and promoter claims, unlawful dividend, unjust enrichment, and alter‑ego theories.
The district court struck the Trustee’s jury demand, bifurcated trial, and held a ten‑day bench Phase I trial limited to one factual issue: Idearc’s value at the spin‑off (Nov. 17, 2006); the court found Idearc worth at least $12 billion and therefore solvent on that date.
After an order to show cause and supplemental briefing, the district court concluded the Trustee could not prevail on remaining claims (actual and constructive fraudulent transfer, fiduciary/promoter/aid‑and‑abet, unlawful dividend, alter‑ego) and entered judgment for defendants; Trustee appealed.
On appeal the Fifth Circuit affirmed: it upheld the striking of the jury demand (applying Granfinanciera / Langenkamp and related bankruptcy public‑rights principles to a litigation trust pursuing debtor’s §§ 544/550 claims), found no clear error in the valuation, and affirmed dismissal/entry of judgment on the substantive claims given solvency and lack of direct evidence of fraudulent intent.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Right to jury trial on fraudulent‑transfer claims brought by litigation trust	Trustee: Litigation Trust (post‑confirmation) is entitled to Seventh Amendment jury trial; Langenkamp doesn’t apply to litigation trusts and Stern requires Article III/jury for actions like this	Defendants: Proofs of claim filed by Verizon triggered claims‑allowance process; trustee stands in debtor’s shoes so Langenkamp applies and extinguishes jury right; Stern does not displace Langenkamp here	Held: Affirmed—jury demand properly struck; Langenkamp applies (claims integral to allowance process); litigation trust stands in debtor’s shoes; Stern distinguished and not controlling
Valuation of Idearc at spin‑off	Trustee: Expert valuation ≈ $8.15B and other evidence undermines reliance on market price; alleged corporate defects should cloud valuation	Defendants: Market evidence, experts, and disclosures support valuation ≥ $12B; Trustee’s expert double‑counted and relied on unreliable projections	Held: Affirmed—district court’s finding (≥ $12B) not clearly erroneous; market evidence and expert critiques supported result
Fraudulent transfer (actual and constructive)	Trustee: Transfers (debt/cash) were intent‑fraudulent or lacked reasonable equivalent value; badges of fraud and corporate form defects support intent	Defendants: Idearc was solvent; disclosures were adequate; no direct evidence of intent and remaining badges insufficient to show actual intent; constructive claim fails given solvency	Held: Affirmed—constructive claim barred by solvency; no direct evidence of intent and circumstantial badges insufficient to establish actual fraud
Fiduciary, aiding‑and‑abet, promoter, unlawful dividend, alter ego	Trustee: Diercksen and Verizon as promoter owed and breached duties; dividend and corporate‑form failures render these claims viable despite solvency	Defendants: Idearc was Verizon’s wholly‑owned subsidiary; principals/promoter rules and Delaware law limit duties to subsidiary while solvent; dividend lawful because surplus existed; alter‑ego depends on underlying claims	Held: Affirmed—summary‑judgment subsidiary finding stands; Delaware law (Anadarko/Trenwick) bars parent/promoter duties to solvent wholly‑owned subsidiary; unlawful dividend and other claims fail given solvency and lack of causation; alter‑ego fails without underlying successful claims

Key Cases Cited

Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (distinguishes legal/equitable claims in bankruptcy and jury right for fraudulent transfer suits)
Katchen v. Landy, 382 U.S. 323 (bankruptcy claims‑allowance process is equitable; no Seventh Amendment jury right for objections to claims)
Langenkamp v. Culp, 498 U.S. 42 (when creditor files proof of claim, trustee’s preference/avoidance actions become integral to claims‑allowance and jury right may be extinguished)
Stern v. Marshall, 564 U.S. 462 (limits bankruptcy courts’ authority to finally adjudicate certain state‑law counterclaims; distinguishes matters that are not part of claims‑allowance)
Executive Benefits Ins. Agency v. Arkison, 573 U.S. 25 (clarifies procedure for "Stern claims"—bankruptcy courts may issue proposed findings reviewed de novo)
In re Jensen, 946 F.2d 369 (5th Cir.) (Langenkamp principle applies to debtors and affects right to jury based on nature of claim)
Grede v. Bank of New York Mellon, 598 F.3d 899 (7th Cir.) (post‑confirmation litigation trusts are governed by plan terms; does not erase applicability of claims‑allowance analysis)
Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171 (Del. 1988) (parent owes no general fiduciary duties to wholly‑owned subsidiary absent minority/shareholder concerns)
Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch.) (applying Anadarko principles to director duties in parent/subsidiary context)
Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160 (Del. 2002) (elements for aiding‑and‑abetting breach of fiduciary duty require underlying breach)