MATTER OF DeLOREAN MOTOR CO.

• Citation: 65 BR 767
• Decision Date: 20 August 1986
• Docket Number: Bankruptcy No. 82-06031-G,Adv. No. 84-1032-G.
• Parties: In the Matter of DeLOREAN MOTOR COMPANY, Debtor. David W. ALLARD, Jr., Trustee, Plaintiff, v. Robert Weld BENJAMIN, et al. Defendants.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

65 B.R. 767 (1986)

In the Matter of DeLOREAN MOTOR COMPANY, Debtor.

David W. ALLARD, Jr., Trustee, Plaintiff, v. Robert Weld BENJAMIN, et al. Defendants.

Bankruptcy No. 82-06031-G, Adv. No. 84-1032-G.

United States Bankruptcy Court, E.D. Michigan, S.D.

August 20, 1986.

J.V. Walker, Plunkett, Cooney, Rutt, Watters, Stanczyk & Pedersen, P.C., Detroit, Mich., for Robert Weld Benjamin, third-party plaintiff.

James D. Zirin, New York City, James S. Sabella, Breed, Abbott & Morgan, Washington, D.C., Robert W. Powell, Dickinson, Wright, Moon, VanDusen & Freeman, Detroit, Mich., for Arthur Andersen & Co., third-party defendant movant.

Douglas G. Graham, Bruce L. Sendek, Butzel, Keidan, Simon, Myer and Graham, Detroit, Mich., for Paul, Weiss, Rifkind, Wharton & Garrison and Jerome Cohen, third-party defendants movants.

AMENDED ORDER GRANTING MOTION OF ARTHUR ANDERSON & COMPANY (U.S.A.), ARTHUR ANDERSON & COMPANY (REPUBLIC OF IRELAND), ARTHUR ANDERSON & COMPANY (UNITED KINGDOM), TO DISMISS THIRD-PARTY COMPLAINT OF ROBERT WELD BENJAMIN AND AN ORDER GRANTING MOTION OF PAUL, WEISS, RIFKIND, WHARTON & GARRISON AND ALLAN COHEN'S MOTION TO DISMISS THIRD-PARTY COMPLAINT OF ROBERT WELD BENJAMIN

RAY REYNOLDS GRAVES, Bankruptcy Judge.

This adversary proceeding comes before the Court on a motion filed by Arthur Anderson & Company (U.S.A.), Arthur Anderson & Company (Republic of Ireland), Arthur Anderson & Company (United Kingdom), (Anderson) a separate motion filed by Paul, Weiss, Rifkind, Wharton & Garrison and Allan Cohen (Paul, Weiss Defendants), to dismiss the third party complaint of Robert Weld Benjamin. The motions were filed on September 5, 1985 and November 1, 1985 respectively, and heard on December 9, 1985. For reasons set forth below the motions to dismiss are GRANTED.

On October 22, 1984, the trustee named Robert Weld Benjamin (Benjamin) among numerous officers, directors, and professional persons of the DeLorean Motor Company (DMC) as defendants in the present adversary proceeding. The 13-count complaint seeks recovery of property of the estate and damages arising from the defendant's alleged breach of fiduciary duties to DMC. The trustee asserts that the breach of duty resulted from various acts and omissions of Benjamin and the other defendants.¹

On June 25, 1985, Benjamin filed a third-party complaint against Anderson and the Paul, Weiss defendants. The third-party complaint seeks indemnification, contribution, and repayment of any further judgment against him plus cost. Anderson and the Paul, Weiss defendants subsequently filed motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).² The third-party defendants maintain the trustee's complaint seeks recovery of damages caused by Benjamin's active negligence while an officer of DMC. They argue further that Benjamin fails to allege he is free from personal fault, and even if alleged, a claim for indemnification cannot be sustained because Benjamin's liability, if any, derives directly from his active misconduct.

"The doctrine of indemnification rests on the proposition that when one is compelled to pay money or discharge a duty which in justice should have been paid or discharged by another, the payor may recover from the other unless barred by the wrongful nature of his conduct." Brown v. International Union, United Auto., 85 F.R.D. 328, 334 (W.D.Mich., S.D.1980). In Michigan, a right to indemnification arises from three sources: common law, implied contract, and express contract. Langley v. Harris Corp., 413 Mich. 592, 321 N.W.2d 662 (1982); Husted v. Consumers Powers, 376 Mich. 41, 135 N.W.2d 370 (1965); Feaster v. Hous, 137 Mich.App. 783, 359 N.W.2d 219 (1984); Skinner v. D-M-E Corp., 124 Mich.App. 580, 335 N.W.2d 90 (1983).

"Common law indemnity is based on the equitable principle that where the wrongful acts of one results in another being held liable, the latter is entitled to restitution from the wrongdoer." Hill v. Sullivan Equipment Co., 86 Mich.App. 693, 696, 273 N.W.2d 527 (1978); Accord Skinner, supra., "A right to indemnity may be enforced only when the liability arises vicariously or by operation of law from the wrongful acts of the party from whom indemnity is sought." Langley, 413 Mich.App. 601, 321 N.W.2d at 667; Accord Skinner, 124 Mich.App. at 584, 335 N.W.2d at 92. "A party seeking common law indemnification must show freedom from personal fault, that is, freedom from active or causal of negligence." Hartman v. Century Truss Co., 132 Mich.App. 661, 347 N.W.2d. 777, 778 (1984); Piper Aircraft Corp., v. Dumon, 421 Mich. 445, 364 N.W.2d. 647, 654 (1984); Feaster, 137 Mich. App. at 783, 359 N.W.2d at 222; Dale v. Whiteman, 388 Mich. 698, 705-06, 202 N.W.2d. 797 (1972). "If a party breaches a direct duty owed to another, and this breach is the cause of the other party's injury, that is active negligence. Where the active negligence is attributable solely to another and liability arises from operation of law, that is passive negligence." Langley, 413 Mich.App. 597-98, 321 N.W.2d. at 665.

In ascertaining the existence of personal fault, the court examines the primary plaintiff's complaint. "If the primary complaint alleges active negligence, the defendant, third-party plaintiff, is not entitled to their common law indemnification." Johnson v. Bundy, 129 Mich.App. 393, 342 N.W.2d. 567, 570 (1983); Accord: Beck v. Westphal, 141 Mich.App. 136, 366 N.W.2d. 217, 221 (1984); Feaster, supra. Benjamin is named in nine of the thirteen counts of the trustee's complaint.³ Count I alleges that Benjamin breached his duty to DMC by means of certain acts and omissions. Paragraph 94, of Count I lists 23 acts or omissions directly or proximately causing damages to DMC. The list includes: failing to exercise his best independent judgment for the benefit of DMC; failing to express and implement his best independent judgment with respect to the affairs of DMC; failing to object to the acts and omissions of other defendants as alleged herein, to disclose such acts or omissions to appropriate government agencies or to officers, directors, or shareholders of DMC, to cause necessary actions to be taken to redress such acts and omissions, or to prevent further improper acts and omissions; participating or acquiescing in the improper, wrongful and fraudulent acts and omissions; utilizing his position in relation to DMC for personal benefit or to benefit other defendants or other persons and entities to the detriment of DMC; profiting from fees, salaries, loans, commissions, or other money or property obtained or received, directly or indirectly from DMC which were excessive or unearned; utilizing or permitting others to utilize the assets, facilities, business operations or good-will of DMC for the benefit of persons or entities other than DMC; authorizing or permitting DMC to incur extraordinary, imprudent and unnecessary expenses, including but not limited to, the salaries and fees of officers, directors, attorneys and accountants who were acting in violation and disregard of their fiduciary duties to DMC; failing to establish a reasonable, practicable and achievable business plan for DMC; failing to establish reasonable and sound hiring practices improperly to supervise the officers and employees of DMC; failing to maintain or cause to be maintained, adequate records with respect to the policies, practices and business of DMC; participating, authorizing, permitting or acquiescing in transactions between DMC and its officers, directors, and/or employees, or their affiliates, or others, by which conduct corporate opportunities of DMC were appropriated by those defendants or others, or otherwise were loss to DMC; and authorizing or permitting transactions by DMC and the DeLorean Motor Company Incorporated (DMCI) with persons known or believed to be associated with organized crime or in connect with unlawful activities. Additionally, Counts II, III, and IV allege additional acts and omissions by Benjamin while an officer of DMC.⁴ In our view, the complaint alleges active negligence on the part of Benjamin and the defendants named herein consistent with the definition outlined in Langley.

Benjamin contends, however, that the trustee's complaint asserts claims for active and passive negligence, and that summary dismissal of a complaint for indemnification should not be granted where liability may be predicated on passive negligence and not only upon active negligence. Venters v. Michigan Gas Utilities Co., 493 F.Supp 345 (W.D.Mich.1980); Nanasi v. General Motors Corporation, 56 Mich. App. 652, 224 N.W.2d. 914 (1974); Skinner, supra. Although the cases support Benjamin's argument they have little application here. The trustee alleges Benjamin directly or proximately caused damages to DMC. The damages are alleged to have resulted from the breach of his fiduciary duty by various acts of omissions while acting in behalf of the corporation. "Regardless of whether such participation is charged as an act of omission or commission (since this is not the test for passive negligence)" his liability cannot be said to arise from operation of law. Pelkey v. State Sales, Inc., 210 F.Supp 924 (E.D.Mich.S.D.1962).

More importantly, in paragraphs 9 and 47 of the third-party complaint Benjamin denies allegations in the trustee's complaint but does not direct the court to a paragraph in the trustee's complaint wherein passive negligence, either by operation of law or by vicarious liability, is asserted. Rather, he argues "implicit in Benjamin's allegations in his contention that, if liable at all, he was only passively negligent. Thus, resolving all doubts in favor of Benjamin, Plaintiff's Complaint is susceptable of a reading which includes a theory based solely upon the past negligence of Benjamin (Benjamin brief at 5 and 6). To embrace the argument would enable defendants charged with active negligence to assert a valid claim for indemnification based on an ...