Rsl Communications Plc v. Bildirici
| Decision Date | 14 August 2009 |
| Docket Number | No. 04 Civ. 5217(RJS).,04 Civ. 5217(RJS). |
| Citation | 649 F.Supp.2d 184 |
| Parties | RSL COMMUNICATIONS PLC, by Michael John Andrew Jervis and Steven Anthony Pearson as the Joint Administrators, Plaintiff, v. Nesim BILDIRICI, Paul Domorski, Itzhak Fisher, Ronald S. Lauder, Steven Schiffman, Jacob Schuster, and Eugene Sekulow, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Ingrid Mara Bagby, Cadwalader, Wickersham & Taft LLP, John Hyok Bae, Greeberg Traurig, New York, NY, and Dan K. Webb, Julie A. Bauer, and Robert L. Michels, Winstron & Strawn, LLP, Chicago, IL, for Plaintiff.
Catherine M. Amirfar, Emily O'Neill Slater, and John S. Kiernan, Debevoise & Plimpton, LLP, New York, NY, for Defendants.
Keara A. Bergin, Dewey, Pegno & Kramarsky, LLP, New York, NY, for Defendant Fisher.
The joint insolvency administrators of Plaintiff RSL Communications Plc ("RSL Plc") bring this diversity action on behalf of Plaintiff, alleging that seven former members of RSL Plc's Board of Directors breached fiduciary duties owed to RSL Plc and its creditors.1 In its two causes of action, Plaintiff seeks to hold Defendants individually liable for approximately $1 billion in damages, a figure that represents Plaintiff's estimate of the decline in RSL Plc's value during the year 2000.
Before the Court are the parties' cross-motions for summary judgment, as well as Plaintiff's motion to re-open discovery pursuant to Rule 56(f) of the Federal Rules of Civil Procedure. For the reasons set forth below, Plaintiff's motions are denied, and Defendants' motion is granted.
This case relates to the financial collapse of the RSL Group, an international telecommunications enterprise founded in 1994 by Defendant Ronald S. Lauder (the "RSL Group"). The primary parent entity of the RSL Group was RSL Communications Ltd. ("RSL Ltd."), a publicly traded company with numerous subsidiaries, including Plaintiff RSL Plc. Plaintiff's claims focus on Defendants' conduct in connection with RSL Plc and the RSL Group during the year 2000. (See, e.g., Pl.'s Mem. at 1.)3 Therefore, in describing the relevant background information, the Court's discussion focuses on that period of time.
The RSL Group was created in order "to capitalize on the growth, deregulation and profitability of international long-distance telecommunications markets." (Defs.' 56.1 ¶ 1.) Its business strategy was two-fold. First, the RSL Group sought to provide "network and data solutions" to "small and medium business customers," including local, national, international, and mobile phone services, internet access, web hosting, data networking services, and "e-commerce solutions." (Dembrow Decl. Ex. R at RSL PLC 0003902; see also Amirfar Decl. Ex. 1 at PLF 66811.) Second, "once a sufficient critical mass of customers" was established, the RSL Group planned to make investments in the underlying network and infrastructure in order to achieve efficiencies that would provide it with a cost advantage. (See Dembrow Decl. Ex. R at RSL PLC 0003902.)
The RSL Group pursued these objectives through acquisitions in strategic regions spanning several continents and twenty-two countries. (See Defs.' 56.1 ¶ 2.) The enterprise was structured as a parent entity, RSL Ltd., with eighty-five direct and indirect subsidiaries. (Pl.'s 56.1 ¶¶ 3, 5; Defs.' 56.1 ¶ 2.)4
RSL Ltd. was incorporated under Bermuda law in 1996, and its securities were publicly traded on the NASDAQ Stock Market during 2000. (Defs.' 56.1 ¶ 1.) The RSL Group's acquisitions were funded through periodic public offerings of RSL Ltd. shares, as well as debt offerings issued through RSL Plc to "qualified institutional buyers." (See id. ¶ 3; Pl.'s 56.1 Opp'n ¶ 3.)5 By the beginning of 2000, the RSL Group had $1.47 billion in revenues and over one million customers. (Defs.' 56.1 ¶ 2.)
However, during 2000, RSL Ltd.'s stock price decreased significantly, and it struggled to raise sufficient capital to fund its operations. On March 18, 2001, the Board of Directors of RSL Ltd. (the "RSL Ltd. Board") resolved to commence insolvency proceedings in Bermuda on behalf of the corporation. (Id. ¶ 82.)
Plaintiff RSL Plc was incorporated in the United Kingdom in 1996. (Pl.'s 56.1 ¶ 1.) It was created to serve as a "financing arm" of RSL Ltd., and functioned as an intermediate holding company for RSL Ltd.'s subsidiaries in North America and Europe. (Amirfar Decl. Ex. 123, Dep. of Paul Domorski at 21:22; see also Pl.'s 56.1 ¶¶ 4-5.) RSL Plc had no separate employees, and its only operations were conducted by its subsidiaries. (Def.'s 56.1 ¶ 6; Pl.'s 56.1 Opp'n ¶ 6.)6 Thus, immediately following the RSL Ltd. Board's March 18, 2001 decision to commence insolvency proceedings in Bermuda, the Board of Directors of RSL Plc (the "RSL Plc Board") formally convened and resolved to file for insolvency administration in the United Kingdom. (Defs.' 56.1 ¶ 82.)
Between 1996 and February 2000, RSL Plc issued approximately $1.4 billion in debt through a series of note offerings, all of which were unconditionally guaranteed by RSL Ltd. (Defs.' 56.1 ¶ 4.) Employees of RSL Ltd., acting from the New York offices of RSL Ltd., administered the funds raised by RSL Plc through these debt offerings. (Defs.' 56.1 ¶ 7; see also Amirfar Decl. Ex. 114, Aug. 31, 2007 Report on Flow of Funds, Valuation, and Solvency Considerations by Mark A. Hopkins (the "Hopkins Report") at 14-15; Amirfar Decl. Ex. 112, July 27, 2007 Expert Report by Seymour Preston Jr. (the "Preston Report") at 4.)7 RSL Ltd. deposited the "vast majority" of the funds raised by RSL Plc, as well as the proceeds of an RSL Ltd. stock offering, into an account in RSL Plc's name at Morgan Stanley Dean Witter. (See Hopkins Report at 14.) According to one of Defendants' experts:
Generally speaking, the determining factor in whether funds were held in ... accounts in RSL Plc's name appeared to be not whether the funds were nominally raised at the RSL Plc or RSL Ltd. level, but whether the funds were to be expended in the short term or to be held for investment before they were expended.
(Id.) When RSL Ltd. wished to provide operational funding and capital to one of the RSL Group's subsidiaries, it would transfer funds to the subsidiary from a bank account in RSL Ltd.'s name. (Defs.' 56.1 ¶ 7.) RSL Ltd. employees would then restore the balance of RSL Ltd.'s account by depositing funds from an account maintained in RSL Plc's name. (Id.; see also Hopkins Report at 14-15.)
Each Defendant was a member of the RSL Plc Board at some point during the year 2000. (Defs.' 56.1 ¶ 11.) However, it is undisputed that "[n]o formal, noticed ... meeting (either telephonic or in-person) of the full [RSL Plc Board] was held during the period from March 1 to December 31, 2000." (Pl.'s 56.1 ¶ 40.) Nevertheless, in addition to serving on the RSL Plc Board, each Defendant was also either an executive at RSL Ltd., or a member of its Board of Directors, or both. (Defs.' 56.1 ¶ 11.)
Specifically, Defendant Fisher was RSL Ltd.'s Chief Executive Officer ("CEO") from the beginning of 2000 until August 2000. (Id.) In August 2000, Defendant Domorski replaced Fisher as RSL Ltd.'s CEO. (Id.) Defendant Schiffman acted as RSL Ltd.'s Chief Financial Officer ("CFO") from mid-April 2000 until March 2001. (Id.; see also Amirfar Decl. Ex. 131, Dep. of Steven Schiffman at 7:3-15.) Defendant Bildirici was RSL Ltd.'s Executive Vice President of Mergers and Acquisitions for all of 2000. (See Defs.' 56.1 ¶ 11.)
Defendant Lauder—the founder of the RSL Group—held voting control of RSL Ltd. through his ownership of RSL Ltd. stock, and he acted as the chairman of the RSL Ltd. Board. (Id. ¶¶ 1, 11.) Defendants Lauder, Schuster, and Sekulow served as non-executive, i.e., "outside," directors of the RSL Ltd. Board, and Defendants Fisher and Domorski were also RSL Ltd. directors during their respective tenures as CEO of RSL Ltd. (See id. ¶ 11.) Additionally, Defendants Lauder, Schuster, Sekulow, and Fisher were members of the Executive Committee of the RSL Ltd. Board, and Defendants Schuster and Sekulow served on the Audit Committee. (Id. ¶¶ 14-15.)
There is no dispute that, entering the year 2000, the financial forecasts for the RSL Group were positive. In late 1999 and early 2000—during the "golden age" of the European telecommunications industry—the shares of RSL Ltd. were rated as a "buy," and analysts considered the total value of the RSL Group to be greater than the aggregate value of its outstanding shares at their current price. (Id. ¶ 19; see also Pl.'s 56.1 Opp'n ¶ 19.) During the last two quarters of 1999, RSL Ltd. reported positive earnings before interest, taxes, depreciation, and amortization ("EBITDA"). (Defs.' 56.1 ¶ 18.) In November 1999, RSL Ltd. also raised approximately $100 million through a public offering of securities of Deltathree, an RSL Ltd. subsidiary that provided voice-over-internet communications services. (Id.)
Optimism regarding the RSL Group was tempered by its short-term cash requirements. Slides from a January 6, 2000 presentation by RSL Ltd. Chief Operating Officer ("COO") Donald Shassian, titled "2000 Budget," estimated "Cash Needs" for the RSL Group of between $240 and $260 million, and identified "the Ability to Complete New Financing" as a "Critical Success Factor" for the year. (Amirfar Decl. Ex. 18 at LTD 003315-16.) Thus, in order to generate the needed funds in early 2000, the RSL Group issued additional shares of RSL Ltd. stock, sought private equity investments, and issued additional debt.
On February 18, 2000, RSL Ltd. hired Chase Securities to solicit investments from private equity firms in $150-million blocks. (Defs.' 56.1 ¶ 25; see also Amirfar Decl. Ex. 29.) However, although Chase...
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