In re the Antioch Company, Case No. 08-35741 through 08-35747

• Decision Date: 28 April 2011
• Docket Number: Jointly Administered Under Case No. 08-35741,Adv. No. 09-3409,Case No. 08-35741 through 08-35747
• Parties: In re: The Antioch Company, et al., Debtor The Antioch Company Litigation Trust, W. Timothy Miller, Trustee, Plaintiff v. Lee Morgan et al., Defendants
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

In re: The Antioch Company, et al., Debtor

The Antioch Company Litigation Trust, W. Timothy Miller, Trustee, Plaintiff

v.Lee Morgan et al., Defendants

Case No. 08-35741 through 08-35747

Jointly Administered Under Case No. 08-35741

Adv. No. 09-3409

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF OHIO WESTERN DIVISION AT DAYTON

Dated: April 28, 2011

This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.

IT IS SO ORDERED.

Guy R. Humphrey

United States Bankruptcy Judge

Judge Humphrey

Recommendations for the United States District Court for theSouthern District of Ohio to Deny in Part and Grant in Part Various

Defendants' Motions to Dismiss Certain Non-Core Causes of Action

TABLE OF CONTENTS

I. Introduction...............................................................................................................................6

II. Procedural Background............................................................................................................6

III. Factual Background.................................................................................................................8

A. The Defendants.....................................................................................................................8

B. The 2003 Transaction...........................................................................................................10

C. Events Following the 2003 Transaction..............................................................................15

D. The Levimo Transaction......................................................................................................16

E. Sale Considerations..............................................................................................................17

F. The First Sale Proposal and the Replacement of Antioch's Board...................................22

G. Defaults under the ESOP Notes..........................................................................................22

H. The Second Sale Proposal..................................................................................................24

I. The Bankruptcy Filing..........................................................................................................24

IV. The Litigation Trustee's Claims and the Defendants' Responses.......................................24

V. Legal Standard and Analysis...................................................................................................27

A. Legal Standard for Determining Motions to Dismiss........................................................27

B. Choice of Law......................................................................................................................29

C. Subject Matter Jurisdiction................................................................................................29

D. The Reservation of Rights in the Confirmed Plan Meets the Requirements of Browning v. Levy with respect to All of the Defendants..............................................36

E. ERISA Preemption (Claims 1-12)........................................................................................46

1. Law of ERISA Preemption...........................................................................................462. The Claim for Aiding and Abetting Breach of Fiduciary Duty against GreatBanc Trust Company is Preempted by ERISA..................................................54

3. The Claim for Professional Negligence against Reliance is Preempted by ERISA..................................................................................................56

4. The Claims against Evolve Bank & Trust are Preempted by ERISA..........................58

5. Possible ERISA Claims against the ESOP Trustees....................................................59

6. The Non-Core Causes of Action against Lee Morgan, Asha Morgan Moran, and Chandra Attiken are not Preempted by ERISA.....................................60

7. Causes of Action against Marty Moran are not Preempted.....................................69

8. The Professional Negligence Counts Fail to State a Claim upon which Relief can be Granted.................................................................................................69

F. Statute of Limitations (Claims 1-3)......................................................................................71

1. Positions of the Parties................................................................................................71

2. The Litigation Trustee is an Assignee and Succeeds to All Rights of Antioch, Subject to Any Defenses and Limitations...................................................74

3. Applicable Law Concerning the Statute of Limitation..............................................75

4. ORC § 2305.09 and the "Discovery Rule"...................................................................77

5. Equitable Tolling Principles under Ohio Law.............................................................80

6. The Doctrine of Adverse Domination........................................................................87

a. General Principles under the Adverse Domination Doctrine..........................87

b. Relationship to Agency Law.............................................................................89

c. Relationship to Close Corporation Law...........................................................90

d. Ohio has Long Recognized the Corporate Agency Principles Underlying the Adverse Domination Doctrine.................................................91

e. Ohio Close Corporation Law Supports Application of the Adverse Domination Doctrine..........................................................................93f. There is not a Sufficient Basis to Conclude that the Supreme Court of Ohio would Recognize Adverse Domination as a Separate Doctrine to Toll a Statute of Limitation............................................94

7. Conclusion as to the Statute of Limitation Pertaining to Counts 1, 2, and 3............95

G. Breaches of Fiduciary Duties (Counts 1, 3, 6, 8 and 10)....................................................95

1. Fiduciary Duties of Directors and Officers Generally.................................................95

2. Count 1: Breach of Fiduciary Duty in Connection with the 2003 Transaction.........98

3. Count 3: Breach of Fiduciary Duty Related to the Condor Transaction...................98

a. It is Premature to Dismiss Counts 3, 8, and 9 against CRG Based on CRG's Contractual Agreement with Antioch...................................99

b. The Litigation Trustee has Plead Sufficient Facts to State a Claim for Breach of Fiduciary Duty as to the Condor Transaction against All of the Count 3 Defendants.......................................103

c. Count 3 and Other Counts Against CRG, Epstein, and Ravaris should not be Dismissed at this Stage of the Litigation Based on the Doctrine of In Pari Delicto....................................................................106

d. Count 3 is not Barred by the 4 Year Statute of Limitation............................108

4. Count 6: Breach of Fiduciary Duty with respect to the Levimo Transaction..........108

5. Count 8: Breach of Fiduciary Duty with respect to the Sale Process (The Recapitalization or Refinancing Alternative Strategy).....................................112

6. Count 10: Breach of Fiduciary Duty with respect To the Sale Process (The J.H. Whitney Offer)............................................................................................117

7. Summary as to the Breach of Fiduciary Duty Counts...............................................118

H. Aiding and Abetting Breaches of Fiduciary Duty (Counts 2, 7, 9, & 11)...........................119

1. Count 2: Aiding and Abetting Breach of Fiduciary Duty in Connection with the 2003 Transaction.........................................................................................1232. Count 7: Aiding and Abetting Breach of Fiduciary Duty with respect to the Levimo Transaction........................................................................................125

3. Count 9: Aiding and Abetting Breach of Fiduciary Duty with respect to Sale Process (The Recapitalization and Refinancing Alternatives)....................127

4. Count 11: Aiding and Abetting Breach of Fiduciary Duty with respect to Sale Process (Interference With the J.H. Whitney Sale Offer)............................132

I. Count 12: Tortious Interference With Business Contracts with respect to Sale Process....................................................................................................................134

1. Candlewood................................................................................................................137

2. Lee Morgan.................................................................................................................138

3. Marty Moran...............................................................................................................140

J. Count 15: Attorney Fees....................................................................................................140

VI. Conclusion.............................................................................................................................143

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,...