Miller v. Black Diamond Capital Mgmt., L.L.C. (In re Bayou Steel BD Holdings, L.L.C.)

Decision Date03 August 2022
Docket NumberCase No. 19-12153 (KBO),Adv. Proc. No. 21-51013 (KBO)
Citation642 B.R. 371
Parties IN RE: BAYOU STEEL BD HOLDINGS, L.L.C., et al., Debtors. George L. Miller, in his capacity as the Chapter 7 Trustee for the jointly administered bankruptcy estates of Bayou Steel BD, L.L.C., et al., Plaintiff, v. Black Diamond Capital Management, L.L.C.; BDCM Opportunity Fund IV, L.P.; Black Diamond Commercial Finance, L.L.C.; Sam Farahnak; Phil Raygorodetsky; Rob Archambault; Terry Taft; and Bob Unfried, Defendants.
CourtU.S. Bankruptcy Court — District of Delaware

Steven M. Coren, Janice Daul Felix, Janice Daul Felix, Benjamin M. Mather, Kaufman, Coren & Ress, P.C., Philadelphia, PA, Peter J. Keane, Colin R. Robinson, Bradford J. Sandler, Pachulski Stang Young & Jones LLP, Wilmington, DE, for Plaintiff.

Kevin M. Capuzzi, Jennifer R. Hoover, Benesch Friedlander Coplan & Aronoff LLP, Wilmington, DE, J. Erik Connolly, Jacob H. Marshall, Benesch, Friedlander, Coplan & Aronnoff, Chicago, IL, for Defendants Bob Unfried, Rob Archambault, Terry Taft.

Leslie C. Esbrook, Jack A. Herman, Lawrence S. Robbins, William J. Trunk, Kramer Levin Robbins Russell, Washington, DC, Judd A. Lindenfeld, Zaiger LLC, Stamford, CT, Seth A. Niederman, Fox Rothschild LLP, Wilmington, DE, Jeffrey H. Zaiger, Zaiger LLC, New York, NY, for Defendants BDCM Opportunity Fund IV, L.P., Black Diamond Capital Management, L.L.C., Black Diamond Commercial Finance, L.L.C., Phil Raygorodetsky, Sam Farahnak.

Sven Thure Nylen, IV, Benesch, Friedlander, Coplan & Aronoff, Chicago, IL, for Defendant Rob Archambault.

Related Docket to Nos. 25 & 27


Karen B. Owens, United States Bankruptcy Judge

In this proceeding, the chapter 7 trustee (the " Trustee ") for the jointly administered bankruptcy estates of Bayou Steel BD Holdings, LLC (" Bayou Holdings "), BD Bayou Steel Investment, LLC (" Bayou Investment "), and BD LaPlace, LLC (" BD LaPlace " and, together with Bayou Holdings and Bayou Investment, the " Debtors ") asserts an assortment of claims related to a prepetition distribution and secured loan against the following defendants (collectively, the " Defendants "): Black Diamond Capital Management L.L.C., (" BDCM "), BDCM Opportunity Fund IV, L.P. (" Fund IV "), Black Diamond Commercial Finance, L.L.C. (" BDCF " and together with BDCM and Fund IV, "the Black Diamond Entities "), Sam Farahnak and Phil Raygorodetsky (together, the " Black Diamond Directors "), and Rob Archambault, Terry Taft, and Bob Unfried (together, the " Independent Directors " and, collectively with the Black Diamond Directors, the " Director Defendants ").1 The Defendants have moved to dismiss all claims (the " Motions ").2 Briefing on the Motions completed on February 28, 2022,3 and oral argument followed on May 25, 2022. For the reasons discussed herein, the Motions will be denied and granted in part.


Prior to their bankruptcy filings, the Debtors manufactured and sold steel products.4 They did so from several mills and depots including their headquarters in LaPlace, Louisiana and a facility in Vinton, Texas.5 In 2016, Fund IV and BDCM purchased the Debtors from Arcelor Mittal (the " Acquisition ").6 The final purchase price was $90.2 million, funded by a combination of equity and debt.7 BDCM, through Fund IV, made an initial member contribution of $59.6 million, and the balance of the Acquisition purchase price was funded through a revolving loan (the " Revolving Loan ") with Bank of America (" BoA ") and SunTrust Robinson Humphrey, Inc. (" SunTrust "), that permitted borrowings in the aggregate amount not to exceed $75 million, secured by liens on substantially all of the Debtors’ assets.8 BDCM thereafter owned 100% of Bayou Holdings, which in turn owned 100% of Bayou Investment and BD LaPlace.9

The Debtors are Delaware limited liability companies (an " LLC ") established pursuant to the Delaware Limited Liability Company Act (the " Act ")10 and subject to separate LLC agreements (each, an " LLC Agreement ").11 Shortly after the Acquisition, BDCM appointed to the Board of Directors two of its own managing directors – Messrs. Farahnak and Raygorodetsky – and three independent directors – Messrs. Unfried, (a former steel industry executive), Archambault (a private-equity executive), and Taft (a former metals industry executive).12

From about June through December 2016, the Debtors operated at a loss.13 But unlike the LaPlace operations, the Vinton operations were cash flow positive.14 In or around December 20, 2016, BDCM sold the Vinton facility for $49 million (the " Vinton Sale ").15 The Debtors used the proceeds to reduce the Revolving Loan balance from $55.3 million to $6.4 million.16

On March 16, 2017, the Debtors, BoA, and SunTrust executed an amendment to the Revolving Loan to permit a distribution (the " Distribution ") of $30 million from BD LaPlace to Fund IV.17 The Distribution was paid on March 17, 2017.18 The Trustee alleges that the Debtors’ then-chief executive officer expressed concerns regarding the negative impact of the Distribution on the Debtors’ cash position and liquidity but that nevertheless, the funds were wired and the Distribution was consummated.19 The Trustee has no records of the Independent Directors’ involvement in the Distribution and there are no resolutions or consents of the Board of Directors with respect to the amendment or the Distribution.20

Throughout 2017 the Debtors faced severe liquidity issues and a struggling business, which the Trustee contends was a direct result of the Distribution.21 By late 2017, the Debtors were "running out of cash" and BDCM explored "injecting" some.22 In December 2017, the Debtors entered into a Subordinated Loan and Security Agreement (the " BD Term Loan "), which provided an initial $15 million credit line.23 The BD Term Loan identifies BD LaPlace as "Borrower," Bayou Holdings as "Parent," Bayou Investment as "Guarantor," Fund IV as "Lender," and BDCF as "Agent."24 In exchange for the BD Term Loan, each of the "Obligors" granted a continuing security interest and lien upon substantially all of their property (the " BD Lien Grant ").25 The Complaint defines "Obligors" as "BD LaPlace, Bayou Investment, and ‘any other Person that is liable for payment of any Obligations or that has granted a Lien on its assets in favor of Agent to secure any Obligations.’ "26

The BD Term Loan was subordinated to the BoA Revolving Loan, and BoA and SunTrust approved the additional borrowing.27 During the first half of 2019, the BD Term Loan was amended to increase the maximum term loan commitment once to $30 million and again to $40 million.28 Notwithstanding this additional availability, the Debtors continued to face difficulties and their "operational and financial performance were dismal."29

By early September 2019, the Debtors had drawn $33 million on the BD Term Loan.30 On September 12, 2019, following conversations with BoA related to the Debtors’ liquidity struggles, including BoA-required adjustments triggering a default under the Revolving Loan, BoA brought in an outside consultant to assist the Debtors with financial management.31 On October 1, 2019 (the " Petition Date "), the Debtors filed for bankruptcy under chapter 11 of the Bankruptcy Code.32 As of that date, the outstanding principal amount owing under the BD Term Loan was approximately $36.5 million with the Debtors never having made a repayment.33 Following the sale of substantially all of their assets under section 363 of the Bankruptcy Code, the Debtors converted their cases to ones under chapter 7, and the Trustee was appointed.34


On August 11, 2021, the Trustee filed the Complaint. It contains thirteen counts substantially focused on the Distribution and the BD Lien Grant. Specifically, the Trustee seeks to avoid the Distribution and the BD Lien Grant as fraudulent transfers, recover the Distribution, and recover damages in excess of $65 million for breaches of fiduciary duty, aiding and abetting, and corporate waste. He also seeks to equitably subordinate the Defendants’ claims and to surcharge the Black Diamond Entities. The Defendants each move to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (the " Federal Rules "), arguing that the Trustee fails to state a claim upon which relief may be granted.


1 When reviewing a motion to dismiss under Federal Rule 12(b)(6) challenging the sufficiency of a plaintiff's statement of claim, a court must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief."35 This is a plausibility standard, requiring more than a sheer possibility that a defendant acted unlawfully but it is not a probability standard.36 Rather, a plaintiff must allege sufficient facts that nudge the claims "across the line from conceivable to plausible[.]"37

"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of will not do[.]"38 "[T]he tenet that a court must accept as true all factual allegations contained in a complaint is inapplicable to legal conclusions."39 Thus, a plaintiff's threadbare recitals of a cause of action that are only supported by conclusory statements will not suffice.40

234 While a court may draw from "judicial experience and common sense" in considering a motion to dismiss,41 it must only consider alleged facts that are within the scope of the court's review.42 The scope of what is reviewable includes the complaint, public record, and documents that are "integral to or explicitly relied upon" by a...

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