In Re Tousa Inc. . Official Committee Of Unsecured Creditors Of Tousa Inc. v. Technical Olympic, Bankruptcy No. 08-10928-BKC-JKO.

• Decision Date: 04 October 2010
• Docket Number: Bankruptcy No. 08-10928-BKC-JKO.,Adversary No. 09-1616-JKO.
• Parties: In re TOUSA, INC., et al., Debtors. Official Committee of Unsecured Creditors of TOUSA, Inc., et al., Plaintiff, v. Technical Olympic, S.A., et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Florida

437 B.R. 447

In re TOUSA, INC., et al., Debtors.Official Committee of Unsecured Creditors of TOUSA, Inc., et al., Plaintiff,

v.Technical Olympic, S.A., et al., Defendants.

Bankruptcy No. 08-10928-BKC-JKO.

Adversary No. 09-1616-JKO.

United States Bankruptcy Court,S.D. Florida, Fort Lauderdale Division.

Oct. 4, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Daniel H. Golden, David M. Zensky, Philip C. Dublin, Akin Gump, et al., Jessica S. Budoff, New York, NY, Patricia A. Redmond, Miami, FL, for Plaintiff.

Andrew Goldman, New York, NY, Andrew D. Zaron, Esq., Larry I. Glick, Ismael Diaz, Jeffrey T. Foreman, Joseph A. DeMaria, Esq., Joseph L. Rebak, Maria P. Gonzalez, Maria C. Priovolos-Gonzalez, Miami, FL, Peter E. Shapiro, Esq., Ft. Lauderdale, FL, Lisa Markofsky, Esq., Boca Raton, FL, William L. Petros, Coral Gables, FL, for Defendants.

Order Denying Motions to Dismiss Amended Complaint ¹

JOHN K. OLSON, Bankruptcy Judge.

The Official Committee of Unsecured Creditors (the “Committee”) filed a 62-page Amended Complaint on February 19, 2010 alleging breaches of fiduciary duties as well as aiding and abetting those breaches. ² All of the Defendants filed motions to dismiss which (inclusive of exhibits, memoranda, etc.) total 447 pages. ³ The Committee filed an 80-page Omnibus Response to the motions on April 3, 2010, ⁴ I conducted a hearing on April 19, 2010, and took the matter under advisement because the filings were voluminous with substantial case law citation.

The issues are whether the Amended Complaint states claims which would entitle the Plaintiff to relief, and whether the Amended Complaint alleges sufficient factual detail to satisfy the heightened pleading standards of Twombly and Iqbal. ⁵ For the reasons below, I find the Amended Complaint sufficient and will deny all seven motions to dismiss.

Overview

This action arises out of TOUSA, Inc.'s decision to borrow, and to cause many of its subsidiaries to borrow, $500 million on July 31, 2007, as well as its decision to secure that debt by granting the lenders liens on substantially all of the subsidiaries' assets. TOUSA undertook this transaction to settle litigation which arose from an unsuccessful 2005 business venture.

Most of the conveying subsidiaries are incorporated in Delaware, and a minority are incorporated in Arizona, Colorado, Florida, Nevada, and Texas. The Defendants almost exclusively rely upon Delaware law because they argue that the Committee's claims primarily involve the internal affairs of business entities formed in Delaware. The Committee follows the Defendants' approach in its omnibus opposition. On the issues presented in these motions, there is no apparent substantial conflict between Delaware law and the laws of the other states of incorporation. I will therefore apply Delaware law. ⁶ I exercise jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and find that this is a core proceeding under § 157(b)(2)(O). I further find that venue is proper under § 1409(a).

Standard of Review

The purpose of a motion to dismiss is not to resolve disputed facts or decide the merits of a case. ⁷ Rather, its sole purpose is to ensure that the Plaintiff has provided notice of the grounds which entitlement him to relief. ⁸ “To survive a motion to dismiss, a complaint need not contain ‘detailed factual allegations,’ but it must contain sufficient factual allegations to suggest the required elements of a cause of action.” ⁹ Neither formulaic recitation of the cause of action's elements, nor mere labels, nor mere legal conclusions will withstand a motion to dismiss under Fed. R. Bankr.P. 7012(b), incorporating Fed.R.Civ.P. 12(b)(6). ¹⁰ “This is a stricter standard than the Supreme Court described in Conley v. Gibson ... which held that a complaint should not be dismissed for failure to state a claim ‘unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.’ ” ¹¹ Under the heightened pleading standards of Twombly and Iqbal, a complaint cannot suggest the existence of a claim; it must contain “enough facts to state a claim to relief that is plausible on its face.” ¹² The facts alleged in the Amended Complaint must be taken as true, and dismissal is inappropriate merely because it appears unlikely that the Plaintiff can prove those facts or will ultimately prevail on the merits. ¹³

Discussion

I. Summary of the Claims

Count I of the Amended Complaint alleges that the defendant directors, officers, and managers of TOUSA, Inc. breached fiduciary duties owed to the stakeholders (including creditors) of insolvent subsidiaries. Count II alleges that the defendant directors, officers, and managers of TOUSA, Inc. aided and abetted breaches of fiduciary duties by “substantially and knowingly participating in, inducing, encouraging, substantially assisting, and/or aiding or abetting the breaches of fiduciary duty” ¹⁴ committed by directors, officers, and managers of the conveying subsidiaries. Count III alleges breaches of fiduciary duty by directors, officers, and managers of the conveying subsidiaries. Count IV alleges breach of fiduciary duty by defendant Tommy McAden, a member of the TOUSA, Inc. Board of Directors who abstained from the decision to proceed with the July 2007 transaction. Count V alleges aiding and abetting breaches of fiduciary duties by Technical Olympic, S.A., a construction company based in Athens, Greece which owned approximately 67% of TOUSA, Inc.'s stock at the time of the July 2007 transaction.

II. Summary of the Motions to Dismiss

This single order addresses seven motions to dismiss by twenty defendants. The motions have much in common, and I will summarize each motion here:

A. The Stengos Motion ¹⁵

The Stengos Motion alleges that the Amended Complaint: (1) fails to state a claim for breach of duty against the Stengos directors; (2) fails to state a claim for aiding and abetting breaches of fiduciary duty against the Stengos directors; (3) fails to state a claim for aiding and abetting fiduciary duty breaches against Technical Olympic, S.A.; and (4) should be dismissed because the claims are moot anyway. The Stengos defendants argue that the Committee's claims against them are direct claims which are improper under Delaware law; that they do not owe any duties to the conveying subsidiaries or their creditors; that even if they did owe duties, the Amended Complaint fails to state sufficient factual detail to survive their motion to dismiss; and that the exculpatory provision in TOUSA's certificate of incorporation bars any claim against them for breach of the duty of care. They further argue that, even if the Committee's aiding and abetting claim were derivative rather than direct, it is essentially a claim for aiding and abetting a fraudulent transfer and is therefore not a cognizable cause of action. Alternatively they argue that, even if it were cognizable, the Amended Complaint does not sufficiently allege the elements of the claim and contains insufficient factual detail.

B. The Outside Directors' Motion

The Outside Directors' Motion ¹⁶ alleges that the Amended Complaint: (1) improperly asserts a direct claim by creditors for breach of fiduciary duty that is expressly barred under Delaware law; (2) does not establish the existence of a fiduciary relationship between the nine subsidiaries and the Outside Directors; (3) does not state a claim for breach of fiduciary duty against any defendant because corporate directors are afforded substantial protections under Delaware law; (4) contains claims for deepening insolvency which are not permitted under Delaware law; (5) fails to state a claim for aiding and abetting the breaches of fiduciary duties of others; (6) asserts moot claims because relief has already been awarded in substantially similar form; and (7) contains conclusory allegations regarding the subsidiaries, their purported insolvency, and the Outside Directors rather than the requisite factual detail to survive a motion to dismiss.

C. The Subsidiary D & O Motion

The Subsidiary D & O Motion ¹⁷ argues that Count III of the Amended Complaint is an impermissible direct creditor claim dressed up as a derivative action. The motion also argues that, even if this were a properly pled derivative claim, the Committee failed to allege facts sufficient to overcome the business judgment rule and the exculpatory provisions contained in the relevant operating agreements and certificates of incorporation. Finally, these defendants argue that the Committee makes nothing more than a conclusory allegation that the subsidiary debtors were damaged, while conceding that the July 2007 transaction was ordered unwound by the October 2009 order in adversary proceeding 08-01435-JKO. These defendants accordingly believe that the October 2009 judgment moots the Committee's claim because the subsidiary debtors have not been damaged.

D. The Mon Motion

The Mon Motion ¹⁸ argues that the Amended Complaint fails because the Committee is pursuing direct creditor claims for breach of fiduciary duty, and this is barred under Delaware law. Mr. Mon also argues that he owed no fiduciary duties to subsidiaries by virtue of his status as a director of the parent entity, and therefore largely relies upon the Stengos Motion because he is similarly situated. Accordingly, Mr. Mon concentrates on TOUSA Associates Services Company (“TAS”) because that is the one subsidiary where he acted as a director. Mr. Mon argues that the Amended Complaint does not explain what assets TAS held or how they were affected by the July 2007 transaction, and that this means the Amended Complaint lacks an essential element of the claim-a plausible explanation of injury suffered by TAS. Finally, he argues that the Committee's claims for breach of fiduciary duty fail to overcome the protection of the business judgment rule.

E. The Konderik Motion

The Konderik...