OPINION 1
Before the Court is the motion for summary judgment filed by the Defendants, the Berkshire Group, LP (“Berkshire”) and Michael W. Trickey (“Trickey”), on all counts of the Trustee’s Amended Complaint. The crux of the issues presented is whether the relationship between the Defendants and the Trustee rose to a level of a fiduciary. For the reasons set forth below the Court finds it did not and consequently will grant the motion.
I. BACKGROUND
American Business Financial Services, Inc. (the “Debtor”) and its subsidiaries operated as a financial services organization that originated and serviсed mortgage loans primarily to credit-impaired borrowers. The Debtor raised capital by selling pools of these loans to special purpose entities created for securitization purposes (the “SPEs”). The SPEs then sold the pools of loans to mortgage loan trusts (the “Trusts”). To raise cash to purchase the loans, the Trusts sold notes or trust certificates secured by the Trusts’ assets to investors.
In exchange for the loans sold to the SPEs, the Debtor received cash and certificates of beneficial interеsts in the Trusts that entitled it to receive certain cash flows generated by the Trusts (the “I/O Strips”). The Debtor also retained the right to service the loans for a fee.
On January 21, 2005, the Debtor and certain of its direct and indirect subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtor filed a motion seeking debtor-in-possession financing, pursuant to which Greenwich Capital Financial Products, Inc. (“Greenwich”) agreed to provide a senior, secured, super-priority $500 million credit facility (the “DIP Facility”) to the Debtor. The DIP Facility was secured by substantially all of the Debtor’s assets, including the I/O Strips which had a reported book value of $391 million. 2 On March 10, 2005, the Court entered a Final Order approving the DIP Facility. Pursuant to the DIP Loan Agreement, the Debtor was required to sell its fee-producing future servicing rights.
Less than a month later, the Debtor publicly announced that a reorganization was not possible. On that same day, the Court approved the sale of the Debtor’s servicing rights to Ocwen Loan Servicing,
Shortly thereafter Greenwich declared a default on the DIP Facility. As a result, the bankruptcy case was converted to chapter 7 and George L. Miller was appointed trustee (the “Trustee”). The Trustee and Greenwich subsequently entered into a Conditional Consent and Undertaking (the “Consent Agreement”) whereby the Trustee agreed to sell certain whole loan assets of the Debtor (which were Greenwich’s collateral) pursuant to section 363 of the Bankruptcy Code. The Court approved the Consent Agreement and the sale of the whole loan assеts to Credit-Based Asset Servicing and Securi-tization, LLC for approximately $29 million. Under the Consent Agreement, the Trustee received $300,000 of the sale proceeds for the benefit of the Debtor’s estate and agreed to release Greenwich from any and all claims. Greenwich subsequently foreclosed on certain I/O Strips which it sold by public auction (the “Auction”) pursuant to Article 9 of the Uniform Commercial Code to Ocwen for $5.1 million.
On September 13, 2006, the Trustee filed a Complaint against Greenwich, Ocwen, Trickey, Berkshire, and the Indеnture Trustees (“ITs”). The Trustee asserted the following claims against Berkshire and Trickey: (1) fraudulent transfer avoidance and recovery under the Bankruptcy Code, (2) fraudulent transfer avoidance and recovery under state law, (3) breach of fiduciary duty, (4) aiding and abetting a breach of fiduciary duty, (5) common law fraud, (6) civil conspiracy, (7) objections to and subordination of their claims, and (8) declaratory relief.
A motion to dismiss the Complaint was filed by the Defendants. After briefing, the Court dismissed the following counts against Berkshire and Trickey: aiding and аbetting a breach of fiduciary duty, fraudulent transfer, common law fraud, civil conspiracy, and declaratory relief (as it related to the dismissed claims).
Miller v. Greenwich Capital Fin. Prods., Inc., et al. (In re Am. Bus. Fin. Servs., Inc.),
The Trustee filed an Amended Complaint, and Berkshire and Trickey filed a motion to dismiss the aiding and abetting a breach of fiduciary duty and the civil conspiracy counts against them. The Court denied that motion.
Miller v. Greenwich Capital Fin. Prods., Inc., et al. (In re Am. Bus. Fin. Servs., Inс.),
After conducting discovery, Berkshire and Trickey filed a motion for summary judgment on the remaining claims. The Trustee opposed the motion. Briefing on the motion is complete. The matter is now ripe for decision.
II. JURISDICTION
The Court has subject matter jurisdiction over this adversary proceeding. 28 U.S.C. §§ 1334(b) & 157(b)(1). Many of the counts are core and the parties raised no objection to the Court rendering a final judgment in this proceeding. 28 U.S.C. § 157(b)(2)(A), (B), (E), (H), & (O).
The Supreme Court recently held, however, that bankruptcy courts lack the constitutional authority as Article I cоurts to enter final judgments on state law counterclaims even if they are core proceedings. St
ern v. Marshall,
— U.S. -,
III. DISCUSSION
A. Standard of Review
The Court should grant a motion for summary judgment “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). 3
In considering a motion for summary judgment under Rule 56, the court must view the inferences from the record in the light most favorable to the non-moving party.
Anderson v. Liberty Lobby, Inc.,
The movant bears the burden of establishing that no genuine issue of material fact exists.
See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
Once the moving party has establishеd a prima facie case in its favor, the party opposing summary judgment must go beyond the pleadings and point to specific facts showing there is a genuine issue of fact for trial.
See, e.g., id.
at 252,
B. Breach of Fiduciary Duty
Delaware law requires a plaintiff in a breach of fiduciary duty claim to prove by a preponderance of the evidence that (1) a fiduciary duty existed between the parties and (2) the fiduciary breached that duty.
Dynamis Therapeutics, Inc. v. Alberto-Culver Int’l., Inc.,
No. 09-773-GMS,
The Trustee contends that his relationship with Berkshire and Trickey began on June 6 or 7, 2005, the day a confidentiality agreement was signed by them and the Trustee. However, this confidentiality agreement is nothing more than a boilerplate form signed by at least nine other parties who did not have a fiduciary relationship with the Trustee. (D.I. #611 at
Of further significance, the Trustee never filed a retention application under section 327 of the Bankruptcy Code to hire Trickey or Berkshire as the estate’s agent. 11 U.S.C. 327(a) (2006) (“[T]he trustee,
with the court’s approval,
may employ one or more ... other professional persons ... to represent or assist the trustee in carrying out the trustee’s duties under this title.”) (emphasis added).
See, e.g., In re Arkansas Co., Inc.,
The Trustee asserts, nonetheless, that Trickey agreed to act on behalf of the Trustee and the estate to manage the I/O Strips and to negotiate with Ocwen for an incentive agreement to enhance their value. The Trustee avers that he budgeted $300,000 for Trickey’s serviсes and actually paid him $68,000 with Greenwich’s encouragement and approval, which he contends evidences his retention of Berkshire and Trickey on behalf of the estate.
The Court finds no support for the Trustee’s assertions. As Berkshire and Trick-ey note, and the Trustee admits, the $68,000 paid to Berkshire and Trickey was for work done by them for the ITs (not the Trustee) from April 29 through June 5, 2005, the period before the Trustee alleges his relationship with Berkshire and Trick-ey arose.
The Trustee also acknowledged in his deposition that he was awаre that Trickey was working for the ITs. The Trustee knew that Trickey had signed a confidentiality and consulting agreement with the ITs and, as a result, that Trickey was withholding work product from the estate. (D.I. # 611 at Ex. H, 857-58.)
The Trustee cites an email exchange between Susan Storey, a representative of the ITs, and a partner of the Trustee, William Homony, to support his contention that Berkshire and Trickey worked for the Trustee. (D.I. # 672 at Ex. 7.) An examination of the email, however, actually supports the Defendants’ argument that their involvement was limited to being rеtained by the ITs. In the first email of the exchange, Storey requested that the Trustee pay Trickey directly despite the fact that the Trustee typically paid the ITs’ fees and expenses through counsel for the ITs. 4 (D.I. # 672 at Ex. 7.)
Berkshire and Trickey, therefore, assert that their relationship with the Trustee did not even give rise to a contractual relationship, much less one imposing fiduciary duties. They argue that in the absence of any “engagement” by the Trustee, there can be no basis for alleging the existence of a fiduciary duty. Berkshire and Triсk-ey note that Delaware courts are very cautious in expanding situations in which they will impose fiduciary duties.
See, e.g., N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla,
The Court agrees that Delaware courts are reluctant to create fiduciary duties in commercial relationships.
See Wal-Mart Stores, Inc. v. AIG Life Ins. Co.,
Acknowledging that he had no written retention agreement with Berkshire or Trickey, the Trustee nonetheless asserts that an agency relationship was created orally or by the parties’ conduct. Restatement (Second) of Agency § 26 cmt. c (1958) (stating that an agency relationship can be inferred through words or actions of the principal which indicates that the agent is working for the best interest of the principal).
Even in principal/agent relationships, however, an “agent” may only be a fiduciary whеn the agent is authorized to “alter the legal relations between the principal and third persons.... ”
Wal-Mart,
Additionally, the Trustee had confidential conversations with Ocwen which were pertinent tо Trickey’s responsibilities, but which the Trustee chose not to disclose to Trickey. (D.I. # 611 at Ex. H, 801.) Consequently, the Court finds that the Trustee’s own conduct does not evidence that Berkshire and Trickey had an agency or other fiduciary relationship with the Trustee.
For the aforementioned reasons, the Court concludes that the Trustee has failed to carry his burden of establishing that Berkshire and Trickey had a fiduciary duty to him. Therefore, the Court will grant the Defendants’ motion for summary judgment on this count.
C. Aiding and Abetting a Breach of Fiduciary Duty
Under Delaware law, there are four elements of a claim for aiding and abetting a breach of fiduciary duty: “(1) the existence of a fiduciary relationship, (2) the fiduciary breached its duty, (3) a defendant, who is not a fiduciary, knowingly participated in a breach, and (4) damages to the plaintiff resulted from the concerted action of the fiduciary and the non-fiduciary.”
Gotham Partners, L.P. v. Hallwood Realty Partners, L.P.,
In his Complaint, the Trustee asserts that Greenwich had a fiduciary duty to dispose of the Debtor’s collateral in a commercially reasonable manner. The Trustee contends that Greenwich sat on the I/O Strips watching their value plummet, while collecting the fees associated with the defaults. Additionally, the Trustee argues that Trickey knew of Greenwich’s misleading over-valuation of the I/O Strips and did not inform the estate of his valuation, which was substantially lower. Finally, the Trustee contends that Trickey never managed Ocwen to increase the value of the I/O Strips.
Berkshire and Trickey claim that the first prong cannot be met because Greenwich did not breach any fiduciary duty at the time of their involvement in the case. They then assail the third prong of the
1. Existence of a fiduciary duty
If Greenwich did not have a fiduciary duty to the estate at the time of Trickey’s involvement, then the first prong of aiding and abetting a breach of fiduciary duty is not satisfied.
See In re Am. Bus. Fin. Servs.,
In this case, the Court finds that the Trustee has established no facts suggesting that Greenwich formed an intent to liquidate the I/O Strips before Trickey’s departure in mid-September 2005. 5 Without any facts evidencing that Greenwich intended to liquidate the I/O Strips during the period they were involved, Berkshire and Trickey could not aid and abet a breach of fiduciary duty.
2. Knowingly participated
Thе Trustee also offers no evidence to show that Trickey or Berkshire had any contact with Greenwich, other than as an agent working for the ITs, or that they knowingly participated or assisted in any scheme to cause the I/O Strips to lose their value. Additionally, the Trustee was aware that Trickey’s work-product including the valuation of the I/O Strips was confidential information between the ITs and Trickey. The Trustee has not provided any evidence that Berkshire and Trick-ey shared that work product or otherwise knowingly assisted Greenwiсh in any capacity to defraud the estate.
For the aforementioned reasons the Court will grant the motion for summary judgment filed by Berkshire and Trickey on the aiding and abetting a breach of fiduciary duty claim.
D. Fraudulent Transfers
In order to have a successful fraudulent transfer claim the Trustee must be able to show that (1) there was a transfer, (2) for less than a reasonable equivalent value, and (3) the debtor was insolvent.
In re Plassein Int’l. Corp.,
No. 05-51472,
An essential element of a claim for fraudulent transfer, under the Bankruptcy Code or Delaware law, is proof that the transferor did not receive equivalent value in exchange for the payment to the transferee.
Plassein,
The Trustee argues that the estate did not receive equivalent value in return for payments made for Trickey’s services. The Trustee asserts that Trickey did nothing more than go through the motions, yet collected $68,000 from the estate.
Berkshire and Trickey respond that they performed work for the ITs which was invoiced and approved by counsel for the ITs. The ITs as secured creditors were
The Court finds that the Trustee’s contention is not supported by the facts. The value the estate received was the ITs’ consent to the use of cash collateral, which in turn was conditioned on payment of the fees incurred by the ITs. Bеrkshire and Trickey performed services for, and submitted invoices to, the ITs. (D.I. # 611 at Ex. N.) Additionally, by the Trustee’s own admission, the $68,000 paid directly by the estate to Trickey was for services rendered for the ITs prior to the estate’s alleged engagement of Berkshire and Trickey. 7 (D.I. # 611 at Ex. P, 5.)
As a result, the Court concludes that the Trustee has failed to' carry his burden of establishing a fraudulent transfer. Therefore, the Court will grant the Defendants’ motion for summary judgment on this count.
E. Aiding and Abetting a Fraudulent Transfer
Aiding and abetting a fraudulent transfer is not a valid claim under state or federal law where a trustee is bringing the claim.
See In re The Brown Sch.,
For the abovementioned reason, the Court concludes that the Trustee has failed to establish a claim that Berkshire and Trickey aided and abetted a fraudulent transfer. Therefore, the Court will grant the motion for summary judgment on this count.
F. Common Law Fraud
In order to establish a common law fraud claim, a plaintiff must demonstratе each of the following elements: (1) a false representation made by the defendant; (2) the defendant knew or believed that the representation was false, or was made with reckless disregard of the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting on the basis of the misrepresentation; (4) the plaintiff did, in fact, act or refrain from acting on the basis of the misrepresentation; and (5) the plaintiff suffered damages as a result of such reliance.
Tillman v. Pepsi Bottling Grp., Inc.,
In his Complaint, the Trustee does not allegе that Berkshire and Trickey made any affirmative misrepresentation, but rather alleges that they remained silent in the face of a duty to speak.
Stephenson,
There must be a duty to disclose, however, for there to be a claim of fraud for failure to disclose.
See Chiarella v. United States,
Because there was no fiduciary relationship between Triekey and the Trustee, the Court does not find any evidence to support the Trustee’s claim that Triekey had a duty to disclose his relationship with Ocwen to the Trustee.
In addition, Berkshire and Trick-ey argue that the ITs through their consulting and confidentiality agreement controlled the information that Berkshire and Triekey were permitted to disclose to the Trustee. (D.I. # 611 at Ex. G.) Thus, they were not free to disclose their valuation of the I/O Strips to the Trustee. Berkshire and Triekey claim that once the ITs allowed Triekey to release the vаluation to the Trustee, however, the Trustee ignored it. 8
The Court agrees with Berkshire and Triekey. The Trustee through his own admission was aware of the Defendants’ engagement by the ITs. 9 This relationship, the Trustee knew, mandated that Berkshire and Triekey withhold work product from the estate. Further, even when the Trustee received Trickey’s valuation, in September 2005, he did not review it. (D.I. # 611 at Ex. H, 864.) Consequently, the Court will grant the Defendants’ motion for summary judgment on this count.
G. Civil Conspiracy
Under Delaware law, in order to establish a civil conspiracy claim a plaintiff must show “(1) [a] cоnfederation or combination of two or more persons; (2) [a]n unlawful act committed in furtherance of the conspiracy; and (3) [a]ctual damages” to the plaintiff caused by the conspiracy.
Nicolet, Inc. v. Nutt,
The Trustee alleges that Berkshire and Triekey conspired with Greenwich and Ocwen to harm the Debtor by allowing Greenwich to pursue its run-off scheme, allowing Ocwen to diminish the I/O Strips’ value through poor servicing, which in turn allowed Ocwen to purchase the assets at a significant discount at the June 28, 2006, Auction.
Berkshire and Triekey argue that there is no evidence of an unlawful agreement among any of the parties. Without any evidence of such an agreement or actions that constitute an agreement there cannot be a conspiracy.
See, e.g., Encite LLC v. Soni,
No. 2476-CC,
As noted above, the work product Trick-ey withheld—the I/O Strips’ valuation— was confidential information between Trickey and the ITs. Additionally, the Court finds no evidence that an agreement between Greenwich, Ocwen, and Berkshire and Trickey existed. Thus, the Court finds that there is no evidence that Trickey committed an unlawful act in combination with Greenwich and Ocwen, by withholding the I/O Strips’ valuation.
See Smiley v. Daimler Chrysler,
For the above reasons, the Court concludes that the Trustee has failed to carry his burden of establishing a claim for civil conspiracy. Therefore, the Court will grant the Berkshire and Trickey motion for summary judgment on this count.
H. Objection and Subordination of Claims
For an equitable subordination claim there must be a showing of three elements: (1) engagement in some type of inequitable conduct; (2) the misconduct resulted in injury to the creditors or created an unfair advantage to the defendant; and (3) the equitable subordination of the claim must be cоnsistent with the provisions of the Bankruptcy Code.
See, e.g., United States v. Noland,
The Trustee argues that the actions of Trickey—in failing to disclose his relationship with Ocwen and the valuation of the I/O Strips—warrants the subordination of his claim and the disgorgement of the fees paid to him by the Trustee.
Cf. In re eToys, Inc.,
Berkshire and Trickey contend that they never worked for the Trustee and have never filed any claims against the estate in the bankruptcy case.
See In re World Health Alts., Inc.,
Here, Berkshire and Trickey had a valid agreement to perform services for the ITs. Additionally, the Trustee knew there was a confidentiality agreement that did not allow Trickey to disclose his work product to the Trustee. Furthermore, the $68,000 paid by the estate to Berkshire and Trick-ey was for services rendered to the ITs not for any alleged services to the estate. Under the cash collateral agreement approved by the Court, the fees of the ITs were to be paid by the estate. Therefore, the evidence does not show any inequitable conduct by Berkshire or Trickey or any other basis for disgorgement of these fees. Consequently, the Court will grant summary judgment to Berkshire and Trickey on this count.
I. Declaratory Relief
Because the Court finds that Trickey and Berkshire are entitled to summary judgment on all the substantive counts, the Court will also grant summary judgment on the declaratory judgment claim as well.
IV. CONCLUSION
For the foregoing reasons, the Court will grant the motion for summary judg
An appropriate order is attached.
ORDER
AND NOW, this 28th day of July, 2011, upon consideration of the Motion of The Berkshire Group, LP (“Berkshire”) and Michael W. Trickey (“Trickey”) for summary judgment in their favor on all counts of the Trustee’s Amended Complaint it is hereby
ORDERED that the Motion is GRANTED, and it is further
ORDERED that judgment is entered in favor of Berkshire and Trickey on all counts of the Trustee’s complaint.
Notes
. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
. The I/O Strips represented the largest single asset of the Debtor.
. Rule 7056 of the Federal Rules of Bankruptcy Procedure incorporates Rule 56 of thе Federal Rules of Civil Procedure in adversary proceedings.
. "Attached is Mike Trickey's Invoice. Historically the Debtor has paid Pryor Cashman for all fees of the Indenture Trustees. If you can pay Mike directly that would be great....” (D.I. # 672 at Ex. 7.)
. On the contrary the Trustee acknowledges, in the Plaintiff s Answering Brief in Opposition to the Motions for Partial Summary Judgment of Defendant Greenwich Capital Financial Product, Inc., that Greenwich did not have any intention to sell the I/O Strips before September 2005. (D.I. # 528 at 126-27.)
. The Trustee acknowledged in his deposition that the Defendants were paid from the cash сollateral budget. (D.I. #611 at Ex. H, 923-24.)
. The Trustee alleges that the confidentiality agreement signed on June 6, 2005, was his engagement contract with Berkshire and Trickey.
. The Trustee was asked why he did not review the email he received from Triekey which contained his analysis of the I/O Strips. He responded, "I don't read every e-mail that is sent to me. I just wouldn't have enough time in the day.” (D.I. #611 at Ex. H, 864.)
. The Trustee in his deposition acknowledged that the Defendants had a confidentiality agreement with the ITs, which did not allow Triekey to identify the source of his valuation information or the work product behind the I/O Strips’ valuation. (D.I. #611 at Ex. H, 858.)