In re Fruehauf Trailer Corp.
| Decision Date | 02 June 2000 |
| Docket Number | No. Civ.A.-99-477 MMS.,Civ.A.-99-477 MMS. |
| Citation | 250 BR 168 |
| Parties | In re FRUEHAUF TRAILER CORPORATION, et al., Debtors. End of the Road Trust on behalf of Fruehauf Trailer Corporation, Jacksonville Shipyards, Inc., and Pension Transfer Corp., Plaintiffs, v. Terex Corporation, Randolph W. Lenz and Marvin B. Rosenberg, Defendants. |
| Court | U.S. District Court — District of Delaware |
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Stephen W. Spence, Kathleen P. Makowski, Phillips, Goldman & Spence, P.A., Wilmington, Delaware; of counsel, Sheldon D. Camhy, David Neier, Douglas A. Amedeo, Maria J. Pantina, Camhy Karlinsky & Stein LLP, New York City, Robin E. Phelan, Michael D. Powell, Michael L. Hood, Haynes and Boone, LLP, Dallas, TX, for Plaintiffs.
Anthony W. Clark, Eric M. Davis, Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, DE, of counsel, Jonathan J. Lerner, Maura Barry Grinalds, William J. Hine, Skadden, Arps, Slate, Meagher & Flom LLP, New York City, for Defendants.
Plaintiff End of the Road Trust, on behalf of Plaintiffs Fruehauf Trailer Corporation and Jacksonville Shipyards, Inc., and Pension Transfer Corp. (collectively "Plaintiffs") filed an Amended Complaint against Defendants Terex Corporation, Randolph W. Lenz, and Marvin B. Rosenberg (collectively "Defendants") alleging breach of fiduciary duty, negligent misrepresentation, gross negligence and mismanagement, unjust enrichment, aiding and abetting breach of fiduciary duty, breach of contract, and breaches of ERISA fiduciary duty mandated by ERISA §§ 502(a)(2) and 502(a)(3). Defendants filed this Motion to Dismiss for failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(6) and for lack of personal jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2). For the reasons set forth below, Defendants' Motion to Dismiss will be DENIED except as to Count 6 (breach of contract) which will be dismissed to the extent it is premised upon breaches of the duties of due care, good faith, and loyalty.
Plaintiff Fruehauf Trailer Corp. ("Fruehauf") was, prior to bankruptcy, a Delaware corporation, engaged in the business of designing, manufacturing and selling truck trailers and related parts, accessories and services. Fruehauf was also the former sponsor and administrator for the Fruehauf Trailer Corporation Retirement Plan ("Fruehauf Plan"). Amended Complaint ("AC") ¶ 1.
Plaintiff Jacksonville Shipyards, Inc. ("JSI") was a wholly-owned and essentially nonoperating subsidiary of Fruehauf which had previously manufactured ships and sandblasting equipment. JSI was the former sponsor and administrator of the Pension Plan for Hourly Rated (Union) Employees of Jacksonville Shipyards, Inc. ("JSI Plan"). AC ¶ 1.
On October 7, 1996, Fruehauf, JSI and other affiliated entities of Fruehauf filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. Their consolidated Plan of Reorganization (the "Plan") became effective October 27, 1998. AC ¶ 1.
Plaintiff Pension Transfer Corp. ("Pension Transfer") is a Delaware Corporation formed on September 21, 1998 with its principal place of business in California. Pension Transfer is the subsequent plan sponsor and plan administrator of the Fruehauf Plan and the JSI Plan. Pension Transfer's purpose is sponsorship, management and administration of these two plans, which were merged in 1998 to form one plan (hereinafter collectively referred to as the "Fruehauf Plan"). AC ¶ 2.
Plaintiff End of the Road Trust ("ERT") is a liquidating creditor trust formed pursuant to the Plan for Reorganization and operating under the laws of the State of Delaware with its principal place of business in California. Pursuant to the Plan, this action, as well as Fruehauf's and JSI's other assets and claims, were transferred to ERT. This action is being prosecuted under the authority of the Plan by ERT for the purpose of maximizing Fruehauf's and JSI's assets and claims. AC ¶ 1.
Defendant Terex Corporation ("Terex") is a Delaware corporation with its principal place of business in Connecticut. Terex designs and manufactures heavy duty, off-highway, earth moving, lifting, and material handling equipment, attachments and parts for the construction and mining industries. From 1989 through August 1993, Terex was the parent company of Fruehauf and its dominant shareholder. AC ¶ 3.
Defendant Randolph W. Lenz ("Lenz") is a citizen and resident of Florida. From 1989 through August 1993, Lenz was Chairman of the Board of Fruehauf, Chairman of the Board of Terex, and Chairman of the Board, President and majority stockholder of KCS Industries, Inc. ("KCS"), a company which purported to provide legal, financial, and management services to Fruehauf and for which KCS received a monthly fee. AC ¶ 4.
Defendant Marvin B. Rosenberg ("Rosenberg") is a citizen and resident of Connecticut. From June 1989 through August 1993, Rosenberg was the Secretary and a Director of Fruehauf, and was the Secretary, General Counsel, and a Director of Terex; and was the General Counsel of KCS. Rosenberg continued to serve as Director of Fruehauf until September 1996 and remains a Director of Terex to this day. AC ¶ 5.
Between 1914 and 1989, Fruehauf (referred to herein as "Old Fruehauf") operated trailer manufacturing, distributing, sales and servicing facilities throughout the United States and was a leader in domestic used trailer sales. The company manufactured and marketed a wide variety of trailers and related products, including dry freight vans, refrigerated vans, platform trailers, liquid and bolt type trailers and dump trucks. Old Fruehauf also operated sales and services organizations that purchased and sold used trailers, sold replacement parts and offered maintenance services.
On July 14, 1989, Terex purchased Old Fruehauf's trailer division and maritime subsidiaries and the "Fruehauf" trade name through a complex and highly leveraged transaction (the "1989 Acquisition"). The trailer division and maritime subsidiaries became known as Fruehauf and was a wholly owned subsidiary of Terex. Terex paid an aggregate purchase price of approximately $231 million, obtaining much of the funds from $160 million in notes placed with certain institutional lenders. AC ¶¶ 15-16. Plaintiffs allege Defendants spent little or no time conducting due diligence in connection with the 1989 Acquisition. AC ¶ 19.
The Amended Complaint contains the following allegations of mismanagement of Fruehauf by Defendants between the July 1989 Acquisition and August 1993.
As part of the 1989 Acquisition, Old Fruehauf and Fruehauf entered into an Assumption Agreement, whereby Fruehauf assumed substantially all liabilities related to Old Fruehauf's trailer businesses, as well as the liabilities of its maritime subsidiaries, whether they were in the form of current or future claims (collectively referred to as "trailing liabilities"). The trailing liabilities included all current and future claims that might be brought under workers' compensation insurance coverage, assumed benefit plans, such as medical and retiree benefits, environmental liabilities, certain guarantee obligations, and products liabilities obligations. Plaintiffs allege Defendants reasonably should have known of the seriousness and extent of the trailing liabilities, but disregarded the consequences of the trailing liabilities vis a vis the business. AC ¶ 17.
As part of the 1989 Acquisition, Old Fruehauf and Fruehauf also entered into a management agreement with KCS whereby KCS purported to provide legal, financial and management services to Fruehauf in exchange for approximately $300,000 per month. Plaintiffs contend KCS, which was owned and operated by Lenz, did not provide services to Fruehauf of a value commensurate with the fee charged or that Fruehauf was not already obtaining from other professionals. AC ¶ 18.
Following the 1989 Acquisition, Fruehauf began publicizing efforts to restructure its operations and pare down its debt. Defendants claimed to have caused a strong turn around with positive results, purportedly for Fruehauf. In reality, Fruehauf was suffering significant losses. The economic recession of the early 1990's deeply affected trailer sales, and the entire trailer industry, including Fruehauf, suffered as a result. AC ¶ 20.
First, Defendants caused Fruehauf to cancel its products liability insurance and attempt self insurance, a decision which conserved immediate short term cash, but severely and negatively impacted the company's operations in the long term. AC ¶ 21.
Second, Defendants caused Fruehauf to sell off its distributors' network to garner immediate cash, leaving the company with only its manufacturing division. Fruehauf's distributors' network had been a unique and profitable part of its operations. The sole remaining business of trailer manufacturing was subject to increasingly difficult competition and was itself increasingly less profitable. AC ¶ 21.
Third, Defendants caused Fruehauf to lower its inventory to levels so low that customers could no longer rely on Fruehauf's ability to provide and service trailers. With its funds diverted, Fruehauf was unable to pay its vendors consistently. Vendors stopped supplying parts, resulting in half-built trailers stagnating at the factories. AC ¶ 22.
Fourth, despite reduced cash flow, Defendants caused Fruehauf to use available cash to continue paying the monthly KCS "management" fee and the salaries...
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Kremen v. Benedict P. Morelli & Associates, P.C., 2007 NY Slip Op 31141(U) (N.Y. Sup. Ct. 5/9/2007)
...limitations is "applicable nonbankruptcy law" within the meaning of section 108 of the Bankruptcy Code. The case of In re Fruehauf Trailer Corp., (250 BR 168 [D. Del 2000]), is illustrative, even though it involved Delaware law. In that case, the liquidating creditor trust, on behalf of the......