In re Magnesium Corp. of America
| Decision Date | 16 January 2009 |
| Docket Number | Bankruptcy No. 01-B-14312(REG).,Adversary No. 03-06559(REG). |
| Citation | 399 B.R. 722 |
| Parties | In re MAGNESIUM CORPORATION OF AMERICA, et al., Debtors. Lee E. Buchwald, Chapter 7 Trustee of Magnesium Corporation of America and Renco Metals, Inc., Plaintiff, v. The Renco Group, Inc., a Delaware corporation; K. Sabel Holdings, Inc., an Alabama corporation; KPMG Peat Marwick LLP; Donaldson, Lufkin & Jenrette Securities Corporation; Houlihan Lokey Howard & Zukin; Cadwalader, Wickersham & Taft, LLP; Ira Leon Rennert; Roger L. Fay; Justin W. D'Atri; Dennis A. Sadlowski; Michael C. Ryan; Michael H. Legge; Ron L. Thayer; Todd R. Ogaard; Lee R. Brown; Howard I. Kaplan; Keith Sabel; Unidentified Trustees of Trusts Established by Ira Leon Rennert; and Does I through XX, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Beus Gilbert, PLLC by Leo R. Beus, Esq. (argued), Timothy J. Paris, Esq. (argued), Mitzi L. Torri, Esq., Scottsdale, AZ, Salomon Green & Ostrow, PC by Nicholas F. Kajon, Esq. (argued), New York, NY, Counsel for Lee E. Buchwald, the Debtors' Chapter 7 Trustee.
Arnold & Porter LLP by H. Peter Haveles, Jr., Esq. (argued), Anthony D. Boccanfuso, Esq., New York, NY, Counsel for The Renco Group, Inc., the Estate of Justin D'Atri, Roger L. Fay, Dennis A. Sadlowski, Michael C. Ryan, Michael H. Legge, Lee L. Brown, Ron L. Thayer, Todd R. Ogaard, Howard I. Kaplan, and the Trustees of the Trusts Established by Ira Leon Rennert.
Cadwalader, Wickersham & Taft LLP by Jonathan M. Hoff, Esq., New York, NY, Defendant Pro Se and Counsel for The Renco Group, Inc., Ira Leon Rennert, the Estate of Justin D'Atri, Roger L. Fay, Dennis A. Sadlowski, Michael C. Ryan, Michael H. Legge, Lee L. Brown, Ron L. Thayer, Todd R. Ogaard, Howard I. Kaplan, and the Trustees of the Trusts Established by Ira Leon Rennert.
King & Spalding LLP by Barry N. Seidel, Esq., New York, NY, Counsel for The Renco Group, Inc., Ira Leon Rennert, the Estate of Justin D'Atri, Roger L. Fay, Dennis A. Sadlowski, Michael C. Ryan, Michael H. Legge, Lee L. Brown, Todd R. Ogaard, Howard I. Kaplan, and the Trustees of the Trusts Established by Ira Leon Rennert.
Scarcella Rosen & Slome LLP by Lon J. Seidman, Esq. (argued), Alan Marder, Esq., Uniondale, NY, Counsel for K. Sabel Holdings, Inc. and Keith Sabel.
Willkie Farr & Gallagher LLP by Terence K. McLaughlin, Esq. (argued), Joseph T. Baio, Esq., New York, NY, Counsel for KPMG Peat Marwick LLP.
Mintz Levin Cohn Ferris Glovsky & Popeo, PC by Dominic J. Picca, Esq. (argued), Stephanie K. Hoos, Esq., Peter B. Zlotnick, Esq., New York, NY, Counsel for Houlihan Lokey Howard & Zukin.
Shearman & Sterling LLP by Richard F. Schwed, Esq. (argued), Stuart J. Baskin, Esq., Adam S. Hakki, Esq., New York, NY, Counsel for Credit Suisse First Boston LLC.
DECISION AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS
In this adversary proceeding under the umbrella of the jointly administered chapter 7 cases of Magnesium Corporation of America ("MagCorp") and MagCorp's parent Renco Metals Corporation ("Renco Metals") (collectively, the "Debtors"), Lee E. Buchwald, the estate's chapter 7 trustee (the "Trustee"), asserts a total of 51 claims against various of the defendants, alleging unlawful dividends and stock redemption, fraudulent conveyances, breaches of fiduciary duty, aiding and abetting the foregoing, and a host of additional bases for recovery. The damages sought are to be "proven at trial," but based on the claims of injury, seemingly would exceed $100 million. The various defendants move, under Fed.R.Civ.P. 12(b)(6), to dismiss 42 of the Trustee's claims,1 asserting that they are time-barred under applicable statutes of limitations and/or fail to state claims upon which relief can be granted.
The Trustee's claims arise predominantly from:
(a) the use of the proceeds of a $150 million bond offering in 1996 (the "1996 Bond Offering") — which refinanced earlier indebtedness of about half that amount — to fund dividends ($75.7 million), redeem preferred stock ($8.5 million), and make payments to officers ($5.3 million), aggregating nearly $90 million;
(b) additional dividends and payments to officers, in the two years thereafter, aggregating almost $15 million; and
(c) a subsequent release of one of Renco Metals' two subsidiaries, Sabel Industries, of Sabel Industries' responsibility as a guarantor of the indebtedness from the 1996 Bond Offering.
The dividends and other payments, and release of the guaranty, the Trustee alleges, constituted breaches of fiduciary duty, unlawful dividends and stock redemptions, and fraudulent conveyances — having been effected at a time when the Debtors were insolvent, principally by reason of massive liabilities to federal and state environmental protection agencies arising from MagCorp's magnesium extraction operations.
In addition to suing the recipients of the dividends and other payments, and the directors and officers who authorized them, the Trustee has sued professionals employed by the Debtors — their accountants, legal counsel, and the investment banking firms that were the underwriters for Renco Metals' bond offering and that issued a solvency opinion at that time. Those claims assert, inter alia, aiding and abetting, conspiracy, malpractice, and breach of contract.
Though the Court has little difficulty denying the motions to dismiss by Renco Group and the...
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