Kennedy v. Meager (In re Radnor Holdings Corp.)

• Decision Date: 22 April 2016
• Docket Number: Case No. 06-10894(KG),Adv. No. 12-51308(KG)
• Parties: In re: RADNOR HOLDINGS CORPORATION, et al., Debtors, MICHAEL T. KENNEDY, MTK TRUST FBO RYAN KENNEDY, MTK TRUST FBO SEAN M. KENNEDY, MTK TRUST FBO MICHAELA C. KENNEDY, MTK TRUST FBO CONNOR R. KENNEDY, Plaintiffs, v. SKADDEN ARPS MEAGER & FLOM LLP; SK PRIVATE INVESTMENT FUND 1998 LLC; RICHARD T. PRINS, ESQUIRE; GREGG M. GALARDI, ESQUIRE; TENNENBAUM & CO. LLC; TENNENBAUM CAPITAL PARTNERS, LLC; BABSON & CO. LLC; SPECIAL VALUE EXPANSION FUND, LLC; SPECIAL VALUE OPPORTUNITIES FUND, LLC; MICHAEL E. TENNENBAUM; SUZANNE S. TENNENBAUM; DAVID A. HOLLANDER; MARK K. HOLDSWORTH; HOWARD M. LEVKOWITZ; RICHARD E. SPENCER; JOSE FELICIANO; ALVEREZ & MARSAL, INC. and STANFORD M. SPRINGEL, Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

In re: RADNOR HOLDINGS CORPORATION, et al., Debtors,MICHAEL T. KENNEDY, MTK TRUST FBO RYAN KENNEDY,MTK TRUST FBO SEAN M. KENNEDY, MTK TRUST FBO MICHAELA C. KENNEDY,MTK TRUST FBO CONNOR R. KENNEDY, Plaintiffs, v. SKADDEN ARPS MEAGER & FLOM LLP;SK PRIVATE INVESTMENT FUND 1998 LLC;RICHARD T. PRINS, ESQUIRE; GREGG M. GALARDI,ESQUIRE; TENNENBAUM & CO. LLC; TENNENBAUM CAPITAL PARTNERS, LLC;BABSON & CO. LLC; SPECIAL VALUE EXPANSION FUND,LLC; SPECIAL VALUE OPPORTUNITIES FUND, LLC; MICHAEL E. TENNENBAUM;SUZANNE S. TENNENBAUM; DAVID A. HOLLANDER; MARK K. HOLDSWORTH;HOWARD M. LEVKOWITZ; RICHARD E. SPENCER; JOSE FELICIANO;ALVEREZ & MARSAL, INC. and STANFORD M. SPRINGEL, Defendants.

Case No. 06-10894(KG)

Adv. No. 12-51308(KG)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

April 22, 2016

(Jointly Administered)

Re: D.I. Nos. 29, 33, 110 & 112

MEMORANDUM OPINION¹

This Memorandum Opinion addresses the motions to dismiss the Complaint² which the Skadden Defendants³ and the Tennenbaum Defendants⁴ filed to the Complaint filed by Michael T. Kennedy ("Kennedy").⁵ The bankruptcy case dates back to 2006 and there have been many hearings and opinions since then. These rulings most importantly and relevantly include:

1. The Skadden Retention Order, dated September 21, 2006, authorizing the Debtors to employ Skadden as their counsel. D.I. 246.

2. Evidentiary hearing on Skadden's Final Fee Application and Kennedy's objection, held on May 1 and 2, 2013, in which the Court granted Skadden's fees in their entirety and overruled Kennedy's objection in all respects. See Memorandum Opinion and Order Regarding the Objection of Michael T. Kennedy to the Final Fee Application of Skadden (the "Fee Opinion and Order"), D.I. 2076, reported at 2013 WL 3228116 (Bankr. D. Del. June 30, 2013).

3. Appeal of the Fee Opinion and Order to the District Court. The District Court affirmed on August 13, 2014. Case No. 13-01398-SLR, D.D.I. 22. The decision is reported at 528 B.R. 245 (D. Del 2014).

4. Decision by the Court on Kennedy's motion to vacate the Fee Opinion and Order which the Court denied. See Memorandum Order, dated March 18, 2015. D.I. 2151.

5. Decision by the Third Circuit Court of Appeals on Kennedy's appeal of the District Court's Opinion, in which the Third Circuit affirmed the District Court Opinion and the Court's Fee Opinion and Order. The decision is reported at 629 Fed. App'x. 277 (3d Cir. 2015). Thereafter, the Third Circuit denied Kennedy's petition for rehearing.

In the Complaint, Kennedy generally alleges that:

1. The Tennenbaum Defendants were an important Skadden client. Complaint, ¶ 37, 226.

2. The Skadden Defendants did not disclose the relationship with Tennenbaum to Kennedy, Radnor's Board of Directors or the Court. Complaint, ¶ 100, 107-109, 116, 144, 218, 239, 281.

3. The Tennenbaum Defendants directed Radnor to the Skadden Defendants. Complaint ¶ 112.

4. The Tennenbaum Defendants and the Skadden Defendants conspired to achieve the Tennenbaum Defendants' goals in the bankruptcy cases. Complaint, ¶ 202, 219, 228, 230, 247, 281.

5. The Skadden Defendants represented the Tennenbaum Defendants' interests in the bankruptcy cases. Complaint, ¶ 164, 281.

6. The Skadden Defendants orchestrated a sale of Radnor's assets to the Tennenbaum Defendants. Complaint, ¶ 156, 169.

7. The Skadden Defendants thwarted Kennedy's and Radnor's efforts to reorganize Radnor. Complaint, ¶ 137, 152, 153, 154, 166, 171, 183, 185, 216, 281.

FACTS

The facts of the case and the Court's findings are contained in the Court's Fee Opinion and Order. In summary, Kennedy is the Debtors' former Chief Executive Officer. He has been involved in the litigation arising from Tennenbaum's purchase of Debtors' assets, the loss of his equity interest in Debtors and the judgment Tennenbaum obtained against Kennedy on Kennedy's personal guarantee. The Court will not repeat the facts except as they are relevant to the Court's findings, and the Court refers to the Fee Opinion and Order, 2013 WL 3228116.

The Court's findings of fact and conclusions of law in the Fee Opinion and Order are highly relevant to this Memorandum Opinion. The Court heard evidence and found that:

1. The Skadden Defendants did not misrepresent their relationship with the Tennenbaum Defendants to the Court. Fee Opinion and Order, ¶ 11.

2. The Skadden Defendants disclosed their relationship with the Tennenbaum Defendants to Kennedy, Debtors, Debtors' Board of Directors and Debtors' general counsel. Id., ¶ 12.

3. There was no basis for the allegation that the Tennenbaum Defendants chose the Skadden Defendants to represent Debtors. Id., ¶ 18.

4. The Tennenbaum Defendants opposed hiring Skadden. Id., ¶ 18.

5. There was no basis for Kennedy's allegation that there was an understanding between the Skadden Defendants and the Tennenbaum Defendants that Skadden would not litigate claims against Tennenbaum. Id., ¶ 23.

6. Skadden did not represent Tennenbaum in the bankruptcy cases. Id., ¶ 26.

7. Skadden did not frustrate Debtors' efforts to restructure. Id., ¶ 29.

8. The Tennenbaum Defendants did not dictate a sale of Debtors' assets. Id., ¶ 32.

9. Skadden vigorously negotiated against Tennenbaum on the bid procedures Id., ¶ 33.

10. The Skadden Defendants did not "collude or conspire with the Tennenbaum Defendants to orchestrate or manipulate these chapter 11 cases and the sale process for the benefit of the Tennenbaum Defendants at the expense of Debtors' creditors and equity security holders or Kennedy." Id., ¶ 35.

11. Skadden did not represent Kennedy individually and did not owe him attorney-client duties. Id., ¶ 38.

12. Skadden acted in good faith as Debtors' counsel and neither held nor represented any interest adverse to Debtors. Skadden was disinterested within 11 U.S.C. § 321(a). Id., ¶ 50.

13. Skadden's disclosures made before its retention and in connection with its retention including disclosures regarding the Tennenbaum Defendants were "adequate and sufficient." Id., ¶ 51. 14. "Skadden did not engage in malpractice, breach of fiduciary duty, fraud, conspiracy, perjury, obstruction of justice or other willful misconduct in connection with [these] chapter 11 cases." Id., ¶ 52.

As previously written, the District Court and the Third Circuit agreed with the Court's findings of fact and conclusions of law.

On the Motion to Vacate, the Court held that it was the law of the case that:

1. The Skadden Retention Order determined that Skadden did not have a conflict of interest and did not fail to make adequate disclosures;

2. The Tennenbaum judgment determined that the Tennenbaum Defendants did not improperly scheme;

3. The Sale Order determined that the Tennenbaum Defendants did not conspire with Skadden to purchase Debtors; and

4. The Fee Opinion and Order "rejected all allegations of wrongdoing by and between Tennenbaum and Skadden."

Memorandum Order Denying Motion to Vacate at 11.

DISCUSSION

The Court will grant the motions to dismiss on several grounds.

1. Statutes of Limitations

There are several statutes of limitations which might apply to Kennedy's claims. What is important is that all of the claims which Kennedy asserts are barred by any applicable statutes. The Court will incorporate the charts which the Skadden Defendants presented in their brief and which the Court has verified are accurate.

The three applicable - or potentially applicable - statutes of limitations are New York, Pennsylvania and Delaware.⁶

NEW YORK STATUTES OF LIMITATION

COUNT

CAUSE OF

ACTION

STATUTE OF LIMITATION

1

Breach of

Fiduciary

Duty

3 years if money damages are sought; 6 years if equitable

remedy is sought. IDT Corp. v. Morgan Stanley Dean Witter &

Co., 907 N.E.2d 268, 272 (N.Y. 2009); Doukas v. Ballard, No. 9267-

11, 2013 WL 2129137, at *4 (N.Y. Sup. Ct. May 1, 2013).

2

Fraud

The longer of 6 years from the wrongful conduct or 2 years

from when the party knew, or should have discovered, the

fraud. CSAM Capital, Inc. v. Lauder, 67 A.D.3d 149, 153 (N.Y.

App. Div. 2009); Doukas v. Ballard, No. 9267-11, 2013 WL

2129137, at *3 (N.Y. Sup. Ct. May 1, 2103).

3

Conspiracy

The longer of 6 years from the wrongful conduct or 2 years

from when the party knew, or should have discovered, the

fraud. Powers Mercantile Corp. v. Feinberg, 109 A.D.2d 117, 119-

21 (N.Y. App. Div. 1985).

4

Malpractice

3 years.Shumsky v. Eisenstein, 96 N.Y.2d 164, 166 (N.Y. 2001).

5

Perjury

2 years if misdemeanor; 5 years if felony. People v. Lohnes, 76

Misc. 2d 507, 508 (N.Y. Sup. Ct. 1973).

6

Unjust

Enrichment

6 years.Coombs v. Jervier, 74 A.D.3d 724, 724 (N.Y. App. Div.

2010).

7

Obstruction of

Justice

5 years.Morales v. United States, 961 F. Supp. 633, 638 (S.D.N.Y.

1997).

8

Breach of

Contract

6 years.Chase Sci. Research v. NIA Grp., 96 N.Y.2d 20, 25 (N.Y.

2001); Doukas v. Ballard, No. 9267-11, 2013 WL 2129137, at *4

(N.Y. Sup. Ct. May 1, 2013).

9

Tortious

Interference

3 years.Ullmannglass v. Oneida, Ltd., 86 A.D.3d 827, 828 (N.Y.

App. Div. 2011).

10

Theft by

Deception

3 years.Doukas v. Ballard, No. 9267-11, 2013 WL 2129137, at *2

(N.Y. Sup. Ct. May 1, 2013); Banach v. Dedalus Foundation, Inc.,

No. 600918/2009, 2012 N.Y. Misc. LEXIS 190, at *9 (N.Y. Sup. Ct.

Jan. 9, 2012).

PENNSYLVANIA STATUTES OF LIMITATION

COUNT

CAUSE OF

ACTION

STATUTE OF LIMITATION

1

Breach of

Fiduciary Duty

2 years.Ravitch v. Price-Waterhouse, 793 A.2d 939, 941 (Pa. Super.

Ct. 2002).

2

Fraud

2 years.Weston v. Northampton Personal Care, Inc., 62 A.3d 947,

1015 (Pa. Super. Ct. 2013); Lesoon v. Metro. Life Ins. Co., 898 A.2d

620, 633 (Pa. Super. Ct. 2006).

3

Conspiracy

2 years.Staiano v. Johns Manville Corp., 450 A.2d 681, 682-83 (Pa.

Super. Ct. 1982).

4

Malpractice

2 years if based in tort; 4 years if based in contract. Steiner v. Markel,

968 A.2d 1253, 1255 n.5 (Pa. 2009).

5

Perjury

5 years.DeBlase v. Roth, No. 95-5473, 1996 U.S. Dist. LEXIS 178,

at *30 (E.D. Pa. Jan. 11, 1996).

6

Unjust

Enrichment

4 years.Sevast v. Kakouras, 915 A.2d 1147, 1153 (Pa. 2007).

7

Obstruction of

Justice

5

...