Think3 Litig. Trust v. Zuccarello (In re Think3, Inc.)
| Decision Date | 04 January 2015 |
| Docket Number | Adversary No. 13–1081–HCM.,Bankruptcy No. 11–11252–HCM. |
| Citation | 529 B.R. 147 |
| Parties | In re THINK3, INC., Debtor. Think3 Litigation Trust, Plaintiff, v. Filippo Zuccarello, Fabrizio Giudici, Joseph Costello, Sy Kaufman, and Mark Perry, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
Megan N. Brown, Kenneth Krock, Terri S. Morgan, Rapp & Krock, PC, Houston, TX, for Plaintiff.
Brian Talbot Cumings, Graves Dougherty Hearon & Moody, PC, Austin, TX, Emily M. Kelley, Washington, DC, Roger Lane, Cortney Worcester, Boston, MA, for Defendants.
This adversary proceeding pits a litigation trust created by a confirmed plan of reorganization (as Plaintiff) against former directors and officers of the chapter 11 Debtor (as Defendants). Plaintiff's claims revolve around alleged breaches of fiduciary duties by and avoidable transfers to the prior directors and officers of the Debtor. The underlying substance of the proceeding is interesting for a myriad of reasons, including that the Defendants were directors and officers of the Debtor before a pre-bankruptcy merger, two of the Defendants are residents of and worked primarily in a foreign country (Italy), an Italian insolvency proceeding involving the Debtor was commenced, and issues of Delaware corporate law are implicated.
At the outset (and not expectedly), the Defendants filed Motions to Dismiss on various grounds-including Rule 12(b)(6) —and alternatively to transfer venue of this proceeding to Delaware. For the reasons set forth in this Opinion, the Defendants' Motions to Dismiss under Rule 12(b)(6) are primarily denied and partially granted, and their request to transfer venue to Delaware is denied.
On May 18, 2011, Think3 Inc., as debtor (“Think3 ”), filed a voluntary Chapter 11 petition in this Court in case no. 11–11252. Think3 is a Delaware corporation and a global technology company. Think3 is based in the United States with offices and subsidiaries in several other countries, including a large branch office in Italy. See Voluntary Petition (case no. 11–11252, dkt. # 1).
Prior to the Chapter 11 filing by Think3 in the United States, an involuntary bankruptcy/insolvency proceeding was filed against Think3 in Italy and a trustee had been appointed by the Italian court (“Italian Trustee ”). The Italian Trustee subsequently filed a Chapter 15 petition in this Court in case no. 11–11925 seeking recognition of the Italian proceeding. Recognition of the Italian foreign proceeding was ultimately denied by this Court, and the Chapter 15 case was dismissed on September 12, 2011. See Chapter 15 Petition; Order (case no. 11925, dkt. # 1, 79).
The voluntary Chapter 11 case filed by Think3 remained pending in the United States in this Court. On July 3, 2010, this Court entered a Confirmation Order which confirmed the Modified Amended Plan of Reorganization filed by Think3 (“Plan ”). In part, the Plan created the Think3 Litigation Trust (Plaintiff in this adversary proceeding) to pursue causes of action of Think3 for the benefit of creditors. On September 28, 2012, the Plan became effective. See Confirmation Order (case no. 11–11252, dkt. # 533, pp. 1–14); Plan (case no. 11–11252, dkt. # 533, pp. 16–108); Litigation Trust Agreement (case no. 11–11252, dkt. # 533, pp. 73–104); Notice of Effective Date (case no. 11–11252, dkt. # 572).
This adversary proceeding no. 13–1081 was commenced on May 15, 2013 by the Think3 Litigation Trust, as Plaintiff (“Plaintiff Trust ”) by the filing of its Complaint (“Complaint ”). See Complaint (dkt. # 1).
The Complaint named seven Defendants, most of which are former directors and officers of Think3, as follows: Filipo Zuccarello (“Defendant Zuccarello ”); Joseph Costello (“Defendant Costello ”); Sy Kaufman (“Defendant Kaufman ”); Mark Perry (“Defendant Perry ”); Fabrizio Giudici (“Defendant Giudici ”); Thomas Davis (“Defendant Davis ”); and Nest Consulting Ltd. (“Defendant Nest ”).
Four of the seven named Defendants reside in foreign countries (primarily Italy), and three of the named Defendants reside in the United States. As a result, it took time to serve the foreign-based defendants with process through the Hague Convention.
Four separate Motions to Dismiss were filed by various groups of Defendants, described as follows.
On August 14, 2013, Defendants Costello, Kaufman, and Perry (“US Director Defendants ”) filed an Amended Motion to Dismiss or Alternatively Transfer Venue with brief in support (dkt. # 20) (“US Directors Motion ”). On October 14, 2013, Plaintiff Trust filed a Response to the U.S. Directors Motion; and on November 4, 2013, the U.S. Director Defendants filed a Reply (dkt. # 39, 42).
On November 1, 2013, Defendant Davis filed a Motion to Dismiss with brief in support (dkt. # 41) (“Davis Motion ”). On November 22, 2013, Plaintiff Trust filed a Response to the Davis Motion; and on November 27, 2013, Defendant Davis filed a Reply (dkt. # 45, 46).
On March 13, 2014, Defendant Giudici filed a Motion to Dismiss with brief in support (dkt. # 54) (“Giudici Motion ”). On April 11, 2014, Plaintiff Trust filed a Response to the Giudici Motion; and on April 12, 2014, Defendant Giudici filed a Reply (dkt. # 55, 57).
On May 16, 2014, Defendant Zuccarello filed a Motion to Dismiss or Transfer Venue (dkt. # 62) (“Zuccarello Motion ”). On July 7, 2014, Plaintiff Trust filed a Response to the Zuccarello Motion; and on July 17, 2014, Defendant Zuccarello filed a Reply (dkt. # 69, 70).
The Motions to Dismiss filed by the Defendants sought dismissal on multiple grounds—including lack of personal jurisdiction and insufficiency of service of process under Rule 12(b)(2) and Rule 12(b)(5) of the Federal Rules of Civil Procedure (“Rules ”), which is incorporated by reference into Rule 7012 of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules ”).
As a result, the Court bifurcated the hearing on the Motions to Dismiss—to first address the request for dismissal for lack of personal jurisdiction (which also involved challenges to subject matter jurisdiction) and insufficiency of service of process. On February 5, 2014, the Court entered an Order permitting Plaintiff Trust to conduct limited discovery on the issues of personal jurisdiction (dkt. # 52).
On August 21, 2014, this Court conducted a hearing on the Motions to Dismiss filed by the Defendants with respect to lack of personal jurisdiction and insufficiency of service of process. On September 19, 2014, the Court issued a lengthy oral ruling on the record in open Court on these portions of the Motions to Dismiss (dkt. # 79). In short, the Court denied the Motions to Dismiss on the grounds of lack of personal jurisdiction, lack of subject matter jurisdiction, and insufficiency of process—with one exception. The Court granted the Motion to Dismiss filed by Defendants Davis for lack of personal jurisdiction under Rule 12(b)(2). As a result, Defendant Davis has been dismissed as a party to this adversary proceeding. See Order entered September 19, 2014 (dkt. # 71, 72, 73, 74). Defendant Nest has also been dismissed as a party to this adversary proceeding.1
The net result is that now there are five remaining Defendants in this adversary proceeding—Defendants Costello, Kaufman, and Perry (the “US Director Defendants ”): Defendant Giudici; and Defendant Zuccarello (collectively hereafter “Defendants ”).
The Court then conducted a hearing on November 5, 2014 on the remaining grounds set forth in the Defendants' Motions to Dismiss—i.e., the U.S. Directors Motion, the Giudici Motion, and the Zuccarello Motion (collectively hereafter “Motions ”). The remaining grounds set forth in the Motion are primarily a request for dismissal under Rule 12(b)(6) and to some extent Rule 9, and a request to transfer venue of this adversary proceeding to Delaware. This Opinion addresses these remaining grounds set forth in the Motions.
In general, Plaintiff Trust's Complaint paints a picture of a company (Think3) that went from a global leader in niche areas of the software market, to a company that suffered tremendous financial distress resulting from the Defendants' gross negligence, self-dealing transactions, and utter failure to monitor Think3's business risk.
The Complaint is comprised of 24 pages with 86 paragraphs, and sets forth nine causes of actions (Counts) against the Defendants. See Complaint (dkt. # 1). Following is a summary of the primary allegations in the Complaint filed by Plaintiff Trust against the Defendants.
The Defendants held various roles with Think3, according to the Complaint. Defendant Zuccarello is alleged to be a founder of Think3, the former Chief Executive Officer and a former director of Think3, and then later a consultant and “de facto officer” of Think3. Defendants Costello, Kaufmann and Perry are alleged to all be former directors of Think3. Defendant Giudici is alleged to be the former Chief Operating Officer of Think3, but never a director. See Complaint ¶¶ 4, 7–10, 19, 22, 40. Defendants Zuccarello, Costello, Kaufmann and Perry are collectively referred to as the “Board ” in the Complaint, and will sometimes be referred to in this Opinion as the “Director Defendants .”
After a series of name changes and mergers, Think3 became a Delaware corporation in 2000. The Complaint alleges that Think3's principal place of business is located in Austin, Texas and that it has a worldwide presence through five-wholly owned subsidiaries based in Germany, France, Japan, India, and China. In addition, Think3 is alleged to have conducted business in Italy through a branch office as a division of Think3.See Complaint...
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