In re Fedders North America, Inc., Bankruptcy No. 07-11176 (BLS).

• Court: U.S. Bankruptcy Court — District of Delaware
• Writing for the Court: Brendan Linehan Shannon
• Citation: 405 B.R. 527
• Parties: In re FEDDERS NORTH AMERICA, INC., et al., Debtors. Official Committee of Unsecured Creditors of Fedders North America, Inc., et al., on behalf of the Debtors' Estates, Plaintiff, v. Goldman Sachs Credit Partners L.P., et al., Defendants.
• Decision Date: 21 May 2009
• Docket Number: Adversary No. 08-50549 (BLS).,Bankruptcy No. 07-11176 (BLS).

405 B.R. 527 In re FEDDERS NORTH AMERICA, INC., et al., Debtors.
Official Committee of Unsecured Creditors of Fedders North America, Inc., et al., on behalf of the Debtors' Estates, Plaintiff,
v.
Goldman Sachs Credit Partners L.P., et al., Defendants. Bankruptcy No. 07-11176 (BLS). Adversary No. 08-50549 (BLS). United States Bankruptcy Court, D. Delaware. May 21, 2009.

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Rachel B. Mersky, Esquire, Monzack Mersky McLaughlin & Browder, P.A., Wilmington, DE, Sharon L. Levine, Esquire, Lowenstein Sandler PC, Rosemand, NJ, Counsel to the Plaintiff, the Official Committee of Unsecured Creditors.

Normal L. Pernick, Esquire, Cole, Schotz, Meisel, Forman & Leonard, P.A., Wilmington, DE, Counsel for Debtors and Debtors-in-Possession.

Jonathan N. Helfat, Esquire, Otterbourg, Steindler, Houston & Rosen, PC, New York, NY, William P. Bowden, Esquire, Ashby & Geddes, P.A., Wilmington, DE, Counsel for Bank of America.

Stephen M. Miller, Esquire, Morris James LLP, Wilmington, DE, Counsel to General Electric Capital Corporation.

Judith Elkin, Esquire, Haynes Boone, New York, NY, Thomas G. Macauley, Esquire, Zuckerman Spaeder LLP, Wilmington, DE, Counsel for Highland Capital Management, L.P.

Stephen Karotkin, Esquire, Weil, Gotshal & Manges LLP, New York, NY, Mark D. Collins, Esquire, Richards, Layton & Finger, P.A., Wilmington, DE, Counsel for Goldman Sachs Credit Partners, L.P.

Richard W. Reinthaler, Esquire, Dewey & LeBoeuf LLP, New York, NY, Neil B. Glassman, Esquire, Bayard, P.A., Wilmington, DE, Counsel to certain individual Defendants, namely Salvatore Giordano, Jr., Michael Giordano, Joseph Giordano, William J. Brennan, David C. Chang, Michael L. Ducker, Howard S. Modlin, Herbert A. Morey, S.A., Muscarnera, Anthony E. Puleo, Jitendra V. Singh, Robert L. Laurent, Jr., Kent E. Hansen, Peter Gasiewicz, and Warren Emley.

OPINION¹

BRENDAN LINEHAN SHANNON, Bankruptcy Judge.

Before the Court are motions to dismiss filed by defendants herein (i) Bank of America, N.A. ("Bank of America") [Docket No. 6]; (ii) General Electric Capital Corporation ("GECC") [Docket No. 8]; Highland Capital Management, L.P.

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("Highland") [Docket No. 11]; Goldman Sachs Credit Partners L.P. ("Goldman Sachs") [Docket No. 12] and certain individual defendants named in this adversary proceeding [Docket No. 16]. For the following reasons, the Court will grant the motions in part and deny the motions in part.

I. BACKGROUND

In 1896, Theodore C. Fedders founded Fedders Corporation, then a metalworking shop located in Buffalo, New York. About 50 years later, the Fedders family sold a majority interest in the business to a private company called Frank J. Quigan, Inc. ("Quigan").

One of Quigan's employees at the time of the sale was Salvatore Giordano. Salvatore Giordano joined Quigan in 1927 and later became the president of Quigan. Following the purchase of Fedders by Quigan, Salvatore Giordano became president of the newly formed Fedders-Quigan. By the mid-1950s, Fedders-Quigan, which later shortened its name to Fedders, sold over a million room air conditioners in the United States annually. Throughout the next few decades, Fedders continued to expand under the leadership of Salvatore Giordano.

In 1988, Salvatore Giordano, Jr. assumed his father's role as Fedders' chief executive officer. The parties generally agree that Fedders was a thriving business at this point in time. In 1989, for example, Fedders recorded net income of $ 23.7 million dollars on $ 367.6 million in net sales, both of which were records for the company. These profits were made possible because Fedders' share of the North American market for residential room air conditioners grew from approximately eight percent in 1982 to roughly thirty percent by the end of the 1980s.

In the early 1990s, Fedders' business began to deteriorate under the leadership of Salvatore Giordano, Jr. Then Michael Giordano, the son of Salvatore Giordano, Jr., assumed the role of president and chief executive officer in 1996. Salvatore Giordano, Jr. became Fedders' executive chairman at that time.

Over the course of the next ten years, Fedders changed its corporate strategy. Fedders embarked on a new campaign to move into growth industries that traditionally were not part of the company's operations, such as the commercial HVAC and indoor air quality businesses. Fedders also moved much of its production to overseas plants during this time. Fedders incurred substantial debt to pursue these growth and expansion strategies.

The cumulative impact of difficulties encountered in implementing these strategies and the debt assumed by the company for them, as well as a series of moves away from Fedders' traditional business, eventually placed the company in severe financial distress. By February 2007, Fedders was in default of its obligations under a $75 million secured credit facility with Wachovia Bank ("Wachovia"). Consequently, Wachovia began to limit Fedders' ability to borrow money under the agreement. This led to an inability to access new cash. The liquidity crisis threatened to prevent the company from building inventory and preparing for the upcoming 2007 summer selling season.

Fedders responded to this challenge by initiating a search for replacement financing. This effort resulted in two new credit facilities aggregating to $90 million being issued to the company on March 20, 2007. The first was a $50 million revolving facility with defendant Bank of America as administrative agent, collateral agent and lender, and defendant GECC as documentation agent and lender. The second was

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a $40 million term facility with defendant Goldman Sachs as administrative agent, collateral agent and lender. The lenders received certain loan and placement fees under these new financing agreements.

The new financing was used to pay off the defaulted Wachovia loan and to provide working capital prior to the summer selling season. It was not enough to save the company, however. It is clear that by May of 2007, Fedders was in default of certain of the covenants pertaining to its earnings that were included in the March 30 loans. Fedders continued to operate through the summer, but its financial condition only worsened.

Following the resignations of several directors, Fedders and its affiliates filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code (the "Code") on August 22, 2007. Fedders' bankruptcy case resulted in a series of sales of operating divisions under section 363 of the Code and a Chapter 11 plan of liquidation (the "Plan") that was confirmed by this Court on August 22, 2008.

Prior to confirmation, the Official Committee of Unsecured Creditors (the "Committee") filed a motion [Case No. 07-11176 Docket No. 641] seeking derivative standing to pursue a host of claims (set forth in a proposed complaint attached to and submitted with the motion) against Bank of America, GECC, Highland, and Goldman Sachs (hereinafter referred to collectively as the "Lenders") and a number of former officers and directors of Fedders (hereinafter referred to collectively as the "Individual Defendants"). The Court granted the Committee's motion for standing over the objections of the Lenders and the Individual Defendants on March 24, 2008. The Court's order allowed for the filing of the complaint, but provided that all other aspects of the litigation would be stayed until after the effective date of the Plan. Three days later, the Committee filed its adversary complaint.

Pursuant to the Plan, the claims asserted in the adversary complaint were assigned by the Committee to the GUC Liquidating Trust (the "Trust" or "Plaintiff"). The Lenders and the Individual Defendants each then timely filed a motion to dismiss all of the claims in the adversary complaint. Following a responsive brief by the Plaintiff and replies from the Lenders and Individual Defendants, the Court heard oral argument on the various motions to dismiss and thereafter took each motion under advisement.

Each motion has been fully briefed and argued. This matter is ripe for decision.

II. JURISDICTION AND VENUE

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of this adversary proceeding constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (C), (H), (K) and (O).

III. STANDARD OF REVIEW

The Lenders and Individual Defendants seek dismissal of each count in the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, which provides for dismissal for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). As noted recently by the U.S. Court of Appeals for the Third Circuit, the standard courts apply when considering such a motion is also related to the requirements set forth in Rule 8 of the Federal Rules of Civil Procedure. See Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir.2008).

A Rule 12(b)(6) motion serves to test the sufficiency of the factual allegations in a plaintiff's complaint. Bell Atl. Corp. v.

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Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.1993).

"In deciding a motion to dismiss, we must accept all well-pleaded allegations in the complaint as true, and view them in the light most favorable to the plaintiff." Carino v. Stefan, 376 F.3d 156, 159 (3d Cir.2004). See also Phillips, 515 F.3d at 231 (3d Cir.2008) (stating that the Supreme Court in Twombly "reaffirmed that, on a Rule 12(b)(6) motion, the facts alleged must be taken as true and a complaint may not be dismissed merely because it appears unlikely that the...