Street v. The End of the Road Trust
| Decision Date | 17 September 2008 |
| Docket Number | No. 08-50605 (PJW).,08-50605 (PJW). |
| Citation | 394 B.R. 19 |
| Parties | Chriss W. STREET, Petitioner, v. The END OF THE ROAD TRUST and American Trailer Industries, Inc., Respondents. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Neil B. Glassman, Charlene D. Davis, Ashley B. Stitzer, Scott G. Wilcox, Bayard, P.A., Wilmington, DE, Phillip Greer, Law Offices of Phillip Greer, Esq., Newport Beach, CA, for Petitioner, Chriss W. Street.
David L. Finger, Finger & Slanina, LLC, Wilmington, DE, Robert T. Kugler, Robert L. DeMay, Sarah E. Doerr, Jacob B. Sellers, Leonard, Street and Deinard, Professional Association, Minneapolis, MN, for Respondents, The End of the Road Trust and American Trailer Industries, Inc.
This opinion is with respect to cross motions (Doc. ##36, 38) for summary judgment filed by petitioner, Chriss W. Street ("Street"), and by respondents, The End of The Road Trust (the "Trust") and American Trailer Industries, Inc. ("ATII") (collectively "Respondents"). With respect to two indemnification provisions, Street seeks a judgment for advancement of fees and expenses, and fees incurred in this proceeding. Respondents seek a judgment dismissing the petition. For the reasons stated below, the Court will deny Street's motion.
On October 7, 1996, the Fruehauf Trailer Corporation and its related entities ("Debtors") petitioned for relief under chapter 11 of title 11 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq. Street was the Chief Operating Officer of Debtors and was responsible for formulating a plan of reorganization. (Res. A5; Res. A421-22.)1 On July 31, 1998, Debtors filed the Amended Joint Plan of Reorganization (the "Plan") and the Amended Disclosure Statement (the "Disclosure Statement"). (Pet.A1-180.) The Plan proposed to establish a liquidating trust to orderly liquidate Debtors' assets and appointed Street as the Trustee. (Res. A41-45.) The Trust also designates two representatives of creditors to constitute a Trust Advisory Committee (the "TAC"). The TAC exercises approval authority over the Trustee with respect to certain significant Trust activity. (Res. A43 at ¶ 6.7(h).) The Plan also contains a general indemnification statement. (Res. A42 at ¶ 6.7(d).)
The Disclosure Statement lays out the terms of employment for Street as the Trustee and as Chairman of the Board ("COB") and Chief Executive Officer ("CEO") of Fruehauf de Mexico ("FdM"). (Res.A11-13.) As FdM was the only operating asset in the Trust, Street was the COB and CEO of FdM because of his role as the Trustee. The Disclosure Statement also contains a general indemnification statement and sets forth a detailed statement of Street's compensation package. (Res.A13-14.)
Exhibit B to the Plan is the Liquidating Trust Agreement (the "TA"), which details the formation and operation of the Trust. (Res.A19-35.) The TA contains an extensive indemnification provision, an advancement provision, and a compensation statement for the Trustee. The advancement provision reads:
Expenses (including attorneys' fees) incurred by the Trustee or any employee or agent of the Trustee in defending any action, suit or proceeding may be paid by the Liquidating Trust in advance of the final disposition of such action, suit or proceeding, upon an undertaking by the Trustee, or such employee or agent, to repay such amount to the Liquidating Trust, unless it shall ultimately be determined that he is or was entitled to be indemnified with respect thereto.
(Res. A31 at ¶ 8.5.2 (emphasis added).)
The compensation statement reads: "The Trustee shall be entitled to receive from the Trust Estate compensation for his services as Trustee in accordance with terms set forth on Exhibit C to this Liquidating Trust." (Res. A31 at ¶ 8.5.3.) However, while the TA references an Exhibit C, it was not attached to the TA. Nor was Exhibit C attached to the Disclosure Statement or the Plan. Exhibit C was not filed with this Court and therefore not approved by this Court. Presumably Exhibit C was not a part of the Disclosure Statement, the Plan, the TA, or any other material served on the creditors in the solicitation of votes on the Plan. Apparently the missing Exhibit C dealt with the compensation of the Trustee. (Res. A31 at ¶ 8.6.) The governing law for the TA is the State of Delaware. (Res. A578 at ¶ 10.10.)
On September 17, 1998, the Court confirmed the Plan. (Res. A66-68.) At the confirmation hearing, Street testified that the terms of his employment as the Trustee were those set forth in the Disclosure Statement (Res. A219; A498-500), and the Court so found. (Res. A75 at ¶ 18.)
On October 20, 1998, the Court entered an order amending the confirmed Plan to, among other things, provide for the creation of a Delaware corporation, FrudeMex, to hold the stock of FdM. (Res. A80 at ¶ 6.) FrudeMex stock was transferred in trust to Street, who named himself sole director and president. (Res. A81 at ¶ 9.) On December 31, 1998, FrudeMex merged into FrudeMex Holdings, LLC. (Res. A582-95.) On September 30, 1999, FrudeMex Holdings, LLC (Res.A596-597.) merged into FDM, Inc., a newly-created Delaware corporation (see Res. A599-601), later to be known as ATII. (Res.A650.)
Pursuant to the Plan, the TA was executed and Debtors' interests in property were transferred to Street in his capacity as the Trustee. (Res. A42 at ¶ 6.6; A554-55.) The TA sets forth a detailed indemnification provision (Section 8.5.1), an advancement provision (Section 8.5.2), and a compensation statement for the Trustee (Section 8.6). (Res.A547.) October 27, 1998, was the stipulated effective date for the Plan. (Res.A564.) On that day, Street and the Trust purportedly entered into an employment agreement (the "TEA"), retaining Street as the Trustee of the Trust. (Pet.A233-40.) Section 5 of the TEA addresses indemnification and advancement. In relevant part it states:
5. Indemnification .... Expenses (including attorney's fee) incurred by Street in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Trust in advance of them final disposition of such action, suit or proceeding upon receipt of an undertaking by Street to repay such amount if it shall ultimately be determined, by a court of competent jurisdiction, that Street is not entitled to be indemnified by the Trust ...
(Pet. A238 (emphasis added).)
Street signed the TEA both as the employee and as the Trustee. (Pet.A240.) On October 27, 1998, Street also purportedly entered into an employment agreement with FrudeMex (the "FEA"), retaining him as its COB and CEO. (Pet.A241-48.) The FEA contains essentially the same indemnification and advancement provision as the TEA. (Pet.A244.) The FEA was signed by Street both as the employee and as the employer. (Pet.A248.)
There is a dispute as to whether the TEA and FEA were finalized and signed on their stated date of execution, October 27, 1998. Respondents produced a letter of the Trust's counsel, Mr. David M. Englander, to the Trust that contained drafts of Street's employment agreements as the Trustee and as an officer of FrudeMex. (Res.A232.) The letter is dated December 2, 1998, approximately a month after the date on the executed TEA. (Res.A236.) Allegedly, Street made some suggestions relative to the draft and Mr. Englander incorporated the requested changes and mailed another draft to the Trust on January 20, 1999. (Res. A232 at ¶ 6.) Additionally, the Trust proffered a collaborating affidavit from Ms. Courtney Watson, the secretary for the Trust, that the TEA was not finalized until after 1998. (Res.A244-46.)
On August 1, 2005, Street resigned as the Trustee. On August 19, 2005, the Court entered an order appointing Daniel W. Harrow as the successor trustee (the "Successor Trustee"), effective August 1, 2005. (Res.A131-33.)
On March 7, 2006, Street sent Respondents a demand for advancement for expenses arising out of an investigation conducted by the Successor Trustee regarding Street's conduct during his trusteeship. (Pet.A254.) On December 28, 2006, Street again sent Respondents a demand for advancement for expenses arising out of the investigation conducted by the Successor Trustee and a lawsuit against an entity of which Street was a director. (Pet.A257-59.) Both demand letters contain an undertaking by Street to repay any expenses advanced if it were ultimately determined that Street was not entitled to indemnification. Both demands were rejected by the Successor Trustee. (Pet.A255-56.)
On January 9, 2007, Street filed a petition in the Chancery Court of the State of Delaware, asserting claims for advancement and indemnification. On February 2, 2007, the Successor Trustee commenced an adversary proceeding against Street in this Court alleging breaches of fiduciary and contractual duties. (Adv. Pro. No. 07-50398.) On the same day, the Successor Trustee removed the Chancery Court action to the District Court for the District of Delaware. (D.Del.D.I. 1.) On February 14, 2007, Street filed a motion to remand, challenging subject-matter jurisdiction. (Id.) On April 29, 2008, the District Court denied Street's motion to remand and referred the action to this Court. (D.Del.D.1.36.)
With this Court's permission, Street filed an amended petition and sought advancement of costs, including attorney's fees, in connection with the investigation conducted by, and the adversary proceeding filed by, the Successor Trustee, together with an award of fees on fees. (D.Del. D.I.24-25.) To date, Street claims that he has incurred fees and expenses in excess of $169,049.65 prosecuting the petition and $1.25 million defending the adversary proceeding in this Court. (Doc. # 39, pp. 8-9.)
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as...
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