In re Total Containment, Inc., Bankruptcy No. 04-13144bif (Bankr. E.D. Pa. 1/28/2008)
| Decision Date | 28 January 2008 |
| Docket Number | Adversary No. 05-0145.,Bankruptcy No. 04-13144bif. |
| Parties | In re TOTAL CONTAINMENT, INC., Chapter 11, Debtor GEORGE L. MILLER, Chapter 11 trustee Plaintiff v. MARCEL DUTIL, et al. Defendants |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Presently before me is a summary judgment motion filed by the plaintiff, George L. Miller, in his capacity as counterclaim defendant, third-party defendant and third-party plaintiff. In addition, a motion for summary judgment was filed by third-party defendants Andre Marsan and Groupe Conseil Marsan, Inc. These two summary judgment motions are opposed. As will be discussed, the claims at issue have been narrowed by agreement of the parties.
The plan administrator, Mr. George L. Miller, who is the former chapter 11 trustee in the above-captioned case, had filed an amended complaint asserting seven causes of action against eleven defendants, and seeking a total of $23 million in damages as well as declaratory relief. Among those claims, Mr. Miller averred that the individual defendants wrongfully caused the debtor, Total Containment, Inc. ("TCI") to fail to defend against prepetition lawsuits brought by Murphy Oil USA, Inc. and PISCES OPW, Inc., purportedly causing damage to the debtor in excess of $5 million. Id., ¶¶ 35-46.
In response to Mr. Miller's amended complaint, the individual defendants, as well as some corporate defendants, raised numerous counterclaims. In addition, they asserted third-party claims against Mr. Miller in his individual capacity. These counterclaims and third-party claims can be placed into four groups.
First, defendants Winston Towers 1988, Inc., Canam Group, Inc.,1 Marcel Dutil, Bernard Gouin, Pierre DesJardins, Jay Wright, and Finloc, Inc. averred that the former trustee, in both his official and individual capacities, acted negligently and breached his fiduciary duty in failing to timely raise a claim under a prepetition insurance policy (a "D&O First" Policy) issued to TCI by American International Specialty Lines Insurance Company, with policy number 320-83-57 and with a policy period from May 31, 2003 until May 31, 2004.
Second, these same defendants claimed that the former trustee acted negligently and breached his fiduciary duty, in both his official and individual capacities, by failing to move to vacate or set aside the prepetition judgments entered against TCI by PISCES and Murphy Oil.
Third, the same defendants alleged that the former trustee acted negligently and breached his fiduciary duty, in both his official and individual capacities, by his post-petition conduct in selling two facilities of TCI (one located in Bakersfield, California, and the other located in Oaks, Pennsylvania). These defendants maintain that the trustee's actions failed to achieve the best price available.
And fourth, these same defendants averred that the former trustee, Mr. Miller, should be held liable, in both his official and individual capacities, in his exercise of control over TCI's affiliate company, Delaware Valley Enterprises NV, formerly known as TCI Environment NV/SA ("TCIE"). TCI held 99% of the outstanding shares of TCIE, which shareholder interest became part of the TCI bankruptcy estate controlled by Mr. Miller. In his exercise of that control, Mr. Miller appointed two new corporate directors and purportedly authorized a dividend payable from TCIE to TCI.
Defendant Canam Group, Inc. asserts among its counterclaims that it is a creditor of TCIE and that Mr. Miller, in his official capacity as trustee, authorized a fraudulent transfer of assets from TCIE to TCI while TCIE was insolvent. This transfer was improper as Mr. Miller should not have authorized any TCIE distribution to shareholder TCI until TCIE creditors were repaid in full.
In addition, defendants Winston Towers 1988, Inc., and Canam Group, Inc., aver that Mr. Miller appointed two TCIE directors who were unqualified and who were paid excessive compensation. For example, defendant Winston Towers 1988, Inc. alleges in paragraphs 11-12, 69-71 of its counterclaims and third-party claims:
11. As the majority shareholder of TCIE, at the annual meeting in May, 2004 the Trustee replaced two of the three directors of TCIE, by appointing John R. Peters ("Mr. Peters"), the Trustee's next-door neighbor, and John B. Rice ("Mr. Rice"), the Trustee's personal attorney and whose firm is also presently representing the Trustee's accounting firm, Miller, Coffey Tate. Neither had any relevant industry experience and neither was qualified to oversee the affairs of TCIE.
12. Nevertheless, following the appointment of Mr. Peters and Mr. Rice to the TCIE board, the Trustee caused TCIE to pay each of his appointed directors a monthly fee of 荤1,500. In March, 2006, the monthly director fee for each was increased to 荤3,500.
69. Further, Mr. Miller's administration of the estate's controlling interest in TCIE also fell below the standard of care. As the Chapter 11 Trustee for TCI, Mr. Miller had the duty to exercise the rights and responsibilities as the controlling shareholder of TCIE, which stock was a principal asset of TCI. Mr. Miller appointed friends and cronies as directors of TCIE board who collected substantial director fees from TCIE. However, these directors lacked the experience and skills to provide the appropriate supervision over TCIE management, and therefore, the TCIE board did not function properly. Thus, TCIE's payment of the directors fees was an unnecessary expenditure of its resources which should have been available to pay TCIE creditors or for distribution to TCI following the satisfaction of TCIE's creditors.
70. As a consequence of Mr. Miller's failure to properly exercise the rights and responsibilities of the controlling shareholder of TCIE through the appointment and payment of unqualified directors, TCIE was unnecessarily depleted of the cash that was paid to the directors appointed by Mr. Miller. These funds should have been available to satisfy the obligations of TCIE to its creditors, and after satisfaction of its creditors for distribution to the TCI estate.
71. As the Chapter 11 Trustee for TCI, Mr. Miller had a duty to exercise reasonable diligence and care in the performance of his duties on behalf of the TCI estate. Mr. Miller's duty to exercise reasonable diligence and care in the performance of his duties on behalf of the TCI estate extended to creditors such as Winston Towers.
In response to the factual and legal assertions made against him by the various defendants, Mr. Miller denied appointing unqualified directors of TCIE, denied wrongfully conveying any TCIE assets, and denied breaching any fiduciary duties or acting negligently with respect to the D&O insurance policy, the PISCES and Murphy Oil judgments, the sale of the two TCI facilities or via conduct as majority shareholder of TCIE.
In addition to these denials, Mr. Miller asserted a third-party complaint against Mr. Andre Marsan and Group Conseil Marsan, Inc. In this third party complaint, Mr. Miller alleged that, prior to TCI's bankruptcy filing on March 4, 2004, both defendants were "in charge of, and made decisions related to, the day to day operations of TCI in conjunction with the TCI Board of Directors, and other insiders and their affiliates. . . ." Complaint, ¶ 13. In failing to take any action to vacate the PISCES and Murphy Oil judgments against TCI, Mr. Marsan and Group Conseil Marsan allegedly violated their fiduciary duties to TCI and were negligent. Mr. Miller then asserted that these two third-party defendants were liable to him in contribution or indemnity to the extent he was liable to the counterclaiming defendants. Third-Party Complaint, ¶¶ 27, 33. Mr. Miller also raised similar contribution or indemnity claims against Marsan and Group Conseil Marsan concerning the counterclaims and third party claims made against him involving the sale of the two TCI facilities. Mr. Marsan and Group Conseil Marsan responded to Mr. Miller's complaint by denying all liability over to Mr. Miller.
Thereafter, Mr. Miller and the various defendants and third-party defendants undertook discovery and ultimately entered into a stipulation dismissing the following counterclaims and third-party claims: the claims involving the PISCES judgment; and the sale of the two TCI facilities. (See docket entry # 227.) Moreover, all parties agreed that the counterclaims and third-party claims involving the D&O policy were rendered moot by the insurance company's acceptance of the individual director's claims under the D&O policy, as well as my ruling on September 26, 2007, which ruling permitted the director and officer defendants to use the proceeds of that D&O policy.
Accordingly, there are relatively few counterclaims and third-party claims still outstanding. Mr. Miller now seeks summary judgment as to all those remaining claims, except as to the fraudulent conveyance claim raised against him by Canam Group, Inc. Therefore, the only counterclaims and third-party claims remaining for possible resolution via summary judgment are the negligence and breach of fiduciary duty claims lodged against Mr. Miller in his representative and individual capacities as the former chapter 11 trustee of TCI involving his failure to seek to vacate the prepetition judgment against the debtor by Murphy Oil, and concerning his selection of Messrs. Rice and Peters as corporate directors of TCIE and the alleged payment to them of excessive compensation.
Mr. Marsan and Groupe Conseil Marsan, Inc. have also demanded entry of summary judgment on the indemnity and contribution claims lodged against them by Mr. Miller. Of those four claims—involving the sale of the two facilities and the PISCES and Murphy Oil judgments—the trustee has agreed to dismiss all but the Murphy Oil related claim. And that remaining third-party claim can only survive if Mr. Miller is denied...
To continue reading
Request your trial