In re Co., Bankruptcy Nos. 08–35741

CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio
Citation456 B.R. 791
Docket Number08–35747.Adversary No. 09–3409.,08–35745,08–35742,08–35743,08–35746,08–35744,Bankruptcy Nos. 08–35741
PartiesIn re The ANTIOCH COMPANY, et al., Debtor.The Antioch Company Litigation Trust, W. Timothy Miller, Trustee, Plaintiffv.Lee Morgan et al., Defendants.
Decision Date28 April 2011

456 B.R. 791

In re The ANTIOCH COMPANY, et al., Debtor.The Antioch Company Litigation Trust, W. Timothy Miller, Trustee, Plaintiff
v.
Lee Morgan et al., Defendants.

Bankruptcy Nos. 08–35741

08–35742

08–35743

08–35744

08–35745

08–35746

08–35747.Adversary No. 09–3409.

United States Bankruptcy Court, S.D. Ohio, Western Division,

April 28, 2011.


[456 B.R. 807]

Marcia Voorhis Andrew, Taft Stettinius & Hollister LLP, Beth A. Silvers, Cincinnati, OH, for Plaintiff.Ronald E. Gold, Frost Brown Todd LLC, Brian P. Muething, Michael L. Scheier, Robert A. Klingler, Cincinnati, OH, Jennifer L. Maffett, Thompson Hine LLP, David M. Duwel, Duwel and Associates, Chad E. Burton, Leppla Associates, Terence L. Fague, Scott A. King, Dayton, OH, Scott J. Stitt, James E. Arnold & Assoc., Michael N. Schaeffer, Columbus, OH, Robert R. Kracht, Cleveland, OH, Julie A. Govreau, Theodore M. Becker, Morgan Lewis & Bockius LLP, Gregory Otsuka, Richard A. Chesley, DLA Piper, Emily N. Dillingham, Chicago, IL, Wendy S. Walker, Morgan, Lewis & Bockius LLP, New York, NY, R. Daniel Prentiss, Prentiss Law Firm, Providence, RI, William Bard Brockman, Bryan Cave Powell Goldstein, Atlanta, GA, for Defendants.
Recommendations for the United States District Court for the Southern District of Ohio to Deny in Part and Grant in Part Various Defendants' Motions to Dismiss Certain Non–Core Causes of Action
GUY R. HUMPHREY, Bankruptcy Judge.
+-----------------+
                ¦TABLE OF CONTENTS¦
                +-----------------+
                
                
I. Introduction 809
                II. Procedural Background 810
                III. Factual Background 811
                
 A. The Defendants 811
                 B. The 2003 Transaction 812
                 C. Events Following the 2003 Transaction 814
                 D. The Levimo Transaction 815
                 E. Sale Considerations 815
                 F. The First Sale Proposal and the Replacement of Antioch's Board 818
                 G. Defaults under the ESOP Notes 818
                 H. The Second Sale Proposal 819
                 I. The Bankruptcy Filing 819
                
IV. The Litigation Trustee's Claims and the Defendants' Responses 819
                V. Legal Standard and Analysis 820
                
 A. Legal Standard for Determining Motions to Dismiss 820
                 B. Choice of Law 822
                 C. Subject Matter Jurisdiction 822
                 The Reservation of Rights in the Confirmed Plan Meets the
                 D. Requirements of Browning v. Levy with respect to All of the 825
                 Defendants
                 E. ERISA Preemption (Claims 1–12) 831
                
 1. Law of ERISA Preemption 831
                 The Claim for Aiding and Abetting Breach of Fiduciary Duty
                 2. against GreatBanc Trust Company is Preempted by ERISA 836
                 The Claim for Professional Negligence against Reliance is
                 3. Preempted by ERISA 837
                 4. The Claims against Evolve Bank & Trust are Preempted by 838
                 ERISA
                
 5. Possible ERISA Claims against the ESOP Trustees 839
                 The Non–Core Causes of Action against Lee Morgan, Asha
                 6. Morgan Moran, and Chandra Attiken are not Preempted by 839
                 ERISA
                 7. Causes of Action against Marty Moran are not Preempted 844
                 8. The Professional Negligence Counts Fail to State a Claim 844
                 upon which Relief can be Granted
                
 F. Statute of Limitations (Claims 1–3) 845
                
 1. Positions of the Parties 845
                 The Litigation Trustee is an Assignee and Succeeds to All
                 2. Rights of Antioch, Subject to Any Defenses and Limitations 847
                 3. Applicable Law Concerning the Statute of Limitation 847
                 4. ORC § 2305.09 and the “Discovery Rule” 849
                 5. Equitable Tolling Principles under Ohio Law 851
                 6. The Doctrine of Adverse Domination 855
                
 General Principles under the Adverse Domination
                 a. Doctrine 855
                 b. Relationship to Agency Law 856
                 c. Relationship to Close Corporation Law 857
                 Ohio has Long Recognized the Corporate Agency
                 d. Principles Underlying the Adverse Domination Doctrine 857
                 Ohio Close Corporation Law Supports Application of the
                 e. Adverse Domination Doctrine 859
                 There is not a Sufficient Basis to Conclude that the
                 f. Supreme Court of Ohio would Recognize Adverse 859
                 Domination as a Separate Doctrine to Toll a Statute of
                 Limitation
                
 7. Conclusion as to the Statute of Limitation Pertaining to 860
                 Counts 1, 2, and 3
                
 G. Breaches of Fiduciary Duties (Counts 1, 3, 6, 8 and 10) 860
                
 1. Fiduciary Duties of Directors and Officers Generally 860
                 Count 1: Breach of Fiduciary Duty in Connection with the
                 2. 2003 Transaction 861
                 3. Count 3: Breach of Fiduciary Duty Related to the Condor 862
                 Transaction
                
 a. It is Premature to Dismiss Counts 3, 8, and 9 against 862
                 CRG Based on CRG's Contractual Agreement with Antioch
                
 The Litigation Trustee has Plead Sufficient Facts to
                 State a Claim for Breach of Fiduciary Duty as to the
                 b. Condor Transaction against All of the Count 3 864
                 Defendants
                 Count 3 and Other Counts Against CRG, Epstein, and
                 c. Ravaris should not be Dismissed at this Stage of the 866
                 Litigation Based on the Doctrine of In Pari Delicto
                 d. Count 3 is not Barred by the 4 Year Statute of 866
                 Limitation
                
 Count 6: Breach of Fiduciary Duty with respect to the
                 4. Levimo Transaction 867
                 Count 8: Breach of Fiduciary Duty with respect to the Sale
                 5. Process (The Recapitalization or Refinancing Alternative 869
                 Strategy)
                 Count 10: Breach of Fiduciary Duty with respect To the
                 6. Sale Process (The J.H.Whitney Offer) 871
                 7. Summary as to the Breach of Fiduciary Duty Counts 872
                
 H. Aiding and Abetting Breaches of Fiduciary Duty (Counts 2, 7, 872
                 9, & 11)
                
 Count 2: Aiding and Abetting Breach of Fiduciary Duty in
                 1. Connection with the 2003 Transaction 875
                 Count 7: Aiding and Abetting Breach of Fiduciary Duty with
                 2. respect to the Levimo Transaction 876
                 Count 9: Aiding and Abetting Breach of Fiduciary Duty with
                 3. respect to Sale Process (The Recapitalization and 877
                 Refinancing Alternatives)
                 Count 11: Aiding and Abetting Breach of Fiduciary Duty
                 4. with respect to Sale Process (Interference With the J.H. 879
                 Whitney Sale Offer)
                
 I. Count 12: Tortious Interference With Business Contracts with 880
                 respect to Sale Process
                
 1. Candlewood 882
                 2. Lee Morgan 883
                 3. Marty Moran 883
                
 J. Count 15: Attorney Fees 884
                
VI. Conclusion 885
                

[456 B.R. 809]

I. INTRODUCTION

W. Timothy Miller, as Trustee of The Antioch Company Litigation Trust (the “Litigation Trustee”), initiated this adversary proceeding on December 23, 2009 against thirty defendants, most of whom were identified in the complaint either as former trustees of the Antioch Company's employee stock ownership plan, or current or former officers and directors who served on the Antioch board of directors at various times from 2003 to the Chapter 11 filing. In addition to tort claims, including breach of fiduciary duty, aiding and abetting breach of fiduciary duty, professional negligence and tortious interference with contracts, the Litigation Trustee is asserting bankruptcy claims for equitable subordination and preferential transfers. The tort claims concern the role that the defendants played in connection with a transaction designed to transfer all of Antioch's equity to Antioch's employee stock ownership plan, decisions subsequent to that

[456 B.R. 810]

transaction, and the financial debacle that ensued. In a nutshell, the Litigation Trustee alleges that some of the defendants either placed their own interest ahead of that of the company, its employees, and creditors or assisted other defendants in furthering that aim. All of the defendants filed motions to dismiss the complaint. For the reasons discussed below, the court recommends that the motions to dismiss the tort claims be denied in part and granted in part.II. PROCEDURAL BACKGROUND

This adversary proceeding arises out of the Chapter 11 bankruptcy cases filed by The Antioch Company and certain of its subsidiaries on November 13, 2008 (“Antioch” or the “Company”).1 Cplt. ¶ 6. On January 27, 2009 the court entered an order confirming the Second Amended Joint Prepackaged Plan of Reorganization (the “Plan” and “Confirmation Order”). Id. The litigation trust (the “Litigation Trust”) was established through the Plan and the Confirmation Order. Cplt. ¶ 7. Pursuant to the Plan and the Confirmation Order, Antioch transferred certain assets to the Litigation Trust as of February 6, 2009, among which are certain causes of action. Id. The Litigation Trustee has authority to prosecute, settle and compromise all of the claims transferred as a representative of the Debtors' estate pursuant to Section 1123(b) of Title 11 of the United States Code.2 Cplt. ¶ 8.

On December 23, 2009 pursuant to its authority under the Litigation Trust, the Litigation Trustee filed a complaint with jury demand (the “Complaint”) (Adv. Doc. 1). All of the defendants filed motions to dismiss the Complaint (Adv. Docs. 80, 92, 98, 99, 104, 107, 109, 147, 150, 153, 156 & 159) (the “Motions to Dismiss”).3

On March 22, 2010 the Litigation Trustee filed Plaintiff's Consolidated Memorandum in Opposition to Motions to Dismiss Filed by Defendants Candlewood Partners, LLC, CRG Partners Group, LLC, Michael Epstein, Evolve Bank and Trust; Houlihan Lokey, Howard & Zukin, Inc.; James Northrop; Paul Ravaris; And Reliance Trust Company (Adv. Doc. 148) and on April 12, 2010 the Litigation Trustee filed Plaintiff's Consolidated Memorandum in Opposition to Motions to Dismiss Filed by Defendants Lee Morgan, Asha Morgan Moran, Chandra Attiken, Martin Moran, Lee Morgan GDOT Trust # 1, Lee Morgan GDOT Trust # 2; Lee Morgan Pourover Trust # 1, Lee Morgan Pourover Trust # 2, Nancy Blair, Wayne Allen Luce, Frederick Walker; Ben Carlson, Jeanine McLaughlin; Denis Sanan, Malte vonMatthiessen. GreatBanc

[456 B.R. 811]

Trust Co, Steve Bevelhymer; Karen Felix, Barry Hoskins, and G. Robert Morris (Adv. Doc. 186).

The court heard oral arguments on the Motions to Dismiss on September 1, 2010.

III. FACTUAL BACKGROUND

The facts asserted in the Complaint, which is 53 pages long and contains 263 paragraphs, are assumed as true for purposes of the defendants' Motions to Dismiss, but do not constitute the findings of the court. All factual references related to the Complaint discussed in these recommendations, whether stated or not, are as alleged only.

A. The Defendants

Lee Morgan (“Morgan”), the father of...

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7 practice notes
  • Halperin v. Richards, 20-2793
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • July 28, 2021
    ...Curran, as ... officers[ ] and directors. The relations ... function irrespective of [ERISA plan] administration."); In re Antioch Co. , 456 B.R. 791, 839 (Bankr. S.D. Ohio 2011), report and recommendation adopted, 2011 WL 3664564 (S.D. Ohio Aug. 12, 2011), modified on reconsideration sub n......
  • In the Matter of Steven Pixley v. Pixley, Bankruptcy No. 10–62556.
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
    • October 18, 2011
    ...§ 523(a)(6), based on collateral estoppel.V. Conclusion For the reasons stated in this opinion, the Court will enter an order denying [456 B.R. 791] Plaintiff Joyce McCallum's motion for summary judgment.--------Notes: FN1. See, e.g., Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654......
  • Halperin v. Richards, 20-2793
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • July 28, 2021
    ...and Curran, as … officers[] and directors. The relations … function irrespective of [ERISA plan] administration."); In re Antioch Co., 456 B.R. 791, 839 (Bankr. S.D. Ohio 2011), report and recommendation adopted, 2011 WL 3664564 (S.D. Ohio Aug. 12, 2011), modified on reconsideration sub nom......
  • Yaquinto v. Ehrman (In re Hart Oil & Gas, Inc.), Case No. 12-13558 t11
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico
    • December 13, 2016
    ...363 B.R. 559, 571 (Bankr. N.D. Ill. 2007) (very specific language discussing the claim in the disclosure statement); In re Antioch Co., 456 B.R. 791, 831 (Bankr. S.D. Ohio 2011) (schedule attached to plan identified almost all of the parties and causes of action at issue); Asarco LLC v. Cem......
  • Request a trial to view additional results
7 cases
  • Halperin v. Richards, 20-2793
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • July 28, 2021
    ...Curran, as ... officers[ ] and directors. The relations ... function irrespective of [ERISA plan] administration."); In re Antioch Co. , 456 B.R. 791, 839 (Bankr. S.D. Ohio 2011), report and recommendation adopted, 2011 WL 3664564 (S.D. Ohio Aug. 12, 2011), modified on reconsideration sub n......
  • In the Matter of Steven Pixley v. Pixley, Bankruptcy No. 10–62556.
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
    • October 18, 2011
    ...§ 523(a)(6), based on collateral estoppel.V. Conclusion For the reasons stated in this opinion, the Court will enter an order denying [456 B.R. 791] Plaintiff Joyce McCallum's motion for summary judgment.--------Notes: FN1. See, e.g., Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654......
  • Halperin v. Richards, 20-2793
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • July 28, 2021
    ...and Curran, as … officers[] and directors. The relations … function irrespective of [ERISA plan] administration."); In re Antioch Co., 456 B.R. 791, 839 (Bankr. S.D. Ohio 2011), report and recommendation adopted, 2011 WL 3664564 (S.D. Ohio Aug. 12, 2011), modified on reconsideration sub nom......
  • Yaquinto v. Ehrman (In re Hart Oil & Gas, Inc.), Case No. 12-13558 t11
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico
    • December 13, 2016
    ...363 B.R. 559, 571 (Bankr. N.D. Ill. 2007) (very specific language discussing the claim in the disclosure statement); In re Antioch Co., 456 B.R. 791, 831 (Bankr. S.D. Ohio 2011) (schedule attached to plan identified almost all of the parties and causes of action at issue); Asarco LLC v. Cem......
  • Request a trial to view additional results

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