469 B.R. 623
Bankr. W.D.N.C.2012Background
- This is an involuntary Chapter 11 case following a sale of all HPG assets to Hickory Printing Solutions, LLC in May 2010.
- James T. Ward Sr., as Chapter 7 Trustee for HPG, alleges the sale was for grossly inadequate consideration and benefited defendants personally.
- Plaintiff claims defendants breached fiduciary duties owed to HPG and its creditors by the sale and related actions.
- Defendants contend the sale was in HPG’s best interests due to default on a bank line of credit and lack of cash flow, and that the bank held a perfected lien.
- Plaintiff asserts the Bank of Granite claim was unsecured only near closing, and that assets were sold for less than reasonably equivalent value.
- The court denies the partial motion to dismiss the first, second, and fourth causes of action, allowing those claims to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of legal duty by Glisan and Hale | Whitley contends Glisan/Hale breach duties owed to HPG and creditors. | Glisan/Hale argue no breach given board discretion and lack of bad faith. | Plaintiff states plausible breach claims |
| Breach of duty to creditors by improper asset transfer | Amended complaint shows transfer without reasonably equivalent value harmed creditors. | Defendants argue no improper transfer given business context. | Plaintiff states plausible breach-to-creditors claim |
| Business judgment rule applicability to first/second causes | Alleges self-dealing and personal benefit negate the business judgment defense. | Board actions should be protected by business judgment rule absent misconduct. | Plaintiff sufficiently pled facts to overcome presumption; dismissal denied |
| Property of the estate: Glisan Loans | Glisan loans are estates assets because not paid pre-bankruptcy. | Defendants offer no theory to dismiss; loans not properly estate property argument. | Fourth cause of action not dismissed |
Key Cases Cited
- Winters v. First Union Corp., 2001 NCBC 08 (N.C. Super. Ct. 2001) (requires specific claims of bad faith or inattentiveness to overcome business judgment presumption)
- In re Bostic Constr., 435 B.R. 46 (Bankr.M.D.N.C. 2010) (general rule: directors owe no fiduciary duty to creditors unless winding up)
- In re Maxx Race Cards, Inc., 266 B.R. 74 (Bankr. W.D.N.C. 1998) (winding-up analog supports breach when creditors are harmed)
- In re Brokers, Inc., 363 B.R. 458 (Bankr.M.D.N.C. 2007) (business judgment rule considerations in third-party wrongdoing contexts)
- Ameri-First Bank v. Bomar, 757 F. Supp. 1365 (S.D. Fla. 1991) (questioning whether business judgment defense is proper where allegations show wrongdoing)
- Kuznik v. Bees Ferry Associates, 342 S.C. 579, 538 S.E.2d 15 (S.C. Ct. App. 2000) (self-dealing and unconscionable conduct carve out to business judgment rule)
- Whitley v. Carolina Clinic, Inc., 118 N.C.App. 523, 455 S.E.2d 896 (N.C. Ct. App. 1995) (wind-up/dissolution exception to fiduciary duties to creditors)
- Edwards v. City of Goldsboro, 178 F.3d 231 (4th Cir. 1999) (relevance of pleading standards for 12(b)(6) motions in the Fourth Circuit)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (S. Ct. 2007) (plausibility pleading standard)
- Giarratano v. Johnson, 521 F.3d 298 (4th Cir. 2008) (rejects wholesale acceptance of legal conclusions; requires plausible claims)