Zazzali v. Minert (In re DBSi, Inc.)

Decision Date30 December 2011
Docket NumberAdversary No. 10–56163 (PJW).,Bankruptcy No. 08–12687 (PJW).
Citation468 B.R. 663,55 Bankr.Ct.Dec. 271
PartiesIn re DBSI, INC., et al., Debtors.James R. Zazzali, as Litigation Trustee for the DBSI Estate Litigation Trust, Plaintiff, v. David Ryan Minert, Roy L. Nelson and Nelson & Minert PLLC, Defendants.
CourtU.S. Bankruptcy Court — District of Delaware

OPINION TEXT STARTS HERE

Thomas E. Hanson, Jr., Eric J. Monzo, Brett M. McCartney, Morris James LLP, Wilmington, DE, for Defendants David Ryan Minert, Roy L. Nelson and Nelson & Minert PLLC.

Natasha Songonuga, Gibbons P.C., Wilmington, DE, Brian J. McMahon, Debra A. Clifford, Gibbons P.C., Newark, NJ, for James R. Zazzali, Litigation Trustee for the DBSI Estate Litigation Trust.

MEMORANDUM OPINION

PETER J. WALSH, Bankruptcy Judge.

This opinion is with respect to the motion to dismiss (the “Motion”) filed by David Ryan Minert (Minert), Roy L. Nelson (Nelson), and Nelson & Minert PLLC (“N & M”, and together with Nelson and Minert, Defendants). (Doc. # 8.) The Motion is seeking to dismiss the complaint (the “Complaint”) of James R. Zazzali, Litigation Trustee (Plaintiff) for the DBSI Estate Litigation Trust. (Doc. # 1.) For the reasons described below, I will grant the Motion in part and deny it in part.

Background

In November 2008, DBSI Inc. (DBSI) and several of its affiliates (collectively “Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. (Case No. 08–12687(PJW).) Pursuant to the confirmed Second Amended Joint Chapter 11 Plan of Liquidation (the “Plan”) (Doc. # 5699, Case No. 08–12687(PJW)), Plaintiff was appointed as the representative of the DBSI Estate Litigation Trust. (Doc. # 5924, Case No. 08–12687(PJW).) Plaintiff subsequently filed approximately 850 avoidance actions (the “Avoidance Actions”) against more than 1300 defendants (“Avoidance Action Defendants) seeking to recover allegedly preferential and fraudulent transfers. (Compl. ¶ 21.)

Prior to the commencement of the Debtors' bankruptcy cases, Nelson and Minert were employees of Debtors.1 Both are certified public accountants. Minert was employed as the Debtors' tax manager, and Nelson was a staff accountant. In November 2008, Minert and Nelson formed N & M, an Idaho professional limited liability company. Approximately one month later, Nelson and Minert were terminated from their positions with Debtors.

As part of their employment, Nelson and Minert each executed a Confidentiality and Non–Solicitation Agreement (the “CNA” or the “CNAs”). The CNAs provide that

Employee shall not, at any time, either during or subsequent to employment, directly or indirectly, misappropriate, disclose to any person not then employed by Employer, or use for any purpose other than to benefit Employer, any Confidential Information, as defined herein, except that Employee may provide Confidential Information to a third person when specifically authorized and directed to do so by Employer. (Defs.' Ex. A. ¶ 1.) In the CNAs, Confidential Information is defined as “any and all confidential or proprietary information in any form that Employer treats or regards as confidential if: (a) the information has actual or potential commercial or economic value; or (b) the unauthorized disclosure of the information could be harmful to the interests of Employer....” ( Id. ¶ 3.) The term includes “financial and organization information, including ... financial statements ... and all other financial information not disseminated to the public” and [a]ny other information not generally known to the public which, if misused or disclosed, could reasonably be expected to adversely affect Employer's business.” ( Id. ¶ ¶ 3(e) & (h).) The Confidential Information is considered “the sole property of Employer.” ( Id. ¶ 4.) The CNA also provides that “Employee will not during employment with Employer and for six (6) months following termination of such employment for any reason solicit ... any of Employer's customers ... with whom Employee first worked or developed a relationship with during Employee's employment with Employer, or the business or patronage of any such customers....” ( Id. ¶ 5.)

Around the time of their termination from Debtors, Nelson and Minert each executed a Separation Agreement and Release of Claims with DBSI, in which DBSI agreed to give Nelson and Minert the company-issued computer equipment and accessories that they had used during their employment. (Defs.' Ex. B. 2) These Separation Agreements were never approved by the bankruptcy court.

In a letter dated December 5, 2008 (herein the December 5 Letter”)—the same date as Nelson's and Minert's terminations from Debtors—N & M offered to prepare tax returns for certain of the DBSI companies, and asked for DBSI's consent to solicit investors in non-debtor DBSI affiliates for their business. (Pl.'s Ex. A.) DBSI responded in a letter dated December 8, 2008 (the December 8 Letter”) and gave N & M permission to contact investors “regarding the preparation of the [investor] entity tax returns.” (Defs.' Ex. C.) DBSI also granted, subject to permission from the investors, “access to the books and records of the respective companies to allow [N & M] to complete the tax returns.” ( Id.) Plaintiff alleges that the December 5 Letter and the December 8 Letter, taken together, formed a “Tax Solicitation Agreement” pursuant to which DBSI granted permission to solicit former customers and to have access to Debtors' confidential financial information for the limited purpose of preparing investor tax returns. As a result of this access to Debtors' records, Minert spent approximately 1,590 hours logged into DBSI's accounting system from January to August 2009.

At some point during this same time period, N & M was retained by certain ad hoc committees (“Ad Hoc Committees”) representing the interests of investors in certain Debtors and non-debtor affiliates. As investors in several series of notes issued by the various Debtors and non-debtor affiliates, the investors stand to gain from the recovery of money in the Avoidance Actions instituted by Plaintiff. After Debtors learned of the services that N & M was providing to the Ad Hoc Committees, Defendants' access to the system was terminated on August 14, 2009. As of the filing of the Complaint, N & M continued to provide administrative and consulting support to the Ad Hoc Committees.

In November 2009, N & M was retained by the chapter 11 trustee's ordinary course accountants to prepare tax returns for certain Debtors. In the course of preparing these returns, Defendants again gained access to Debtors' confidential financial, tax, and accounting information.

At some point after the Avoidance Actions had been filed by Plaintiff, Defendants, through their website www. nelsonminert. com, began to solicit the Avoidance Action Defendants to participate in a joint defense to Plaintiff's claims. The website states that the firm is “assisting in the administration of a defense for individuals and businesses that have been named as defendants in complaints (lawsuits) filed by the Trustee of the DBSI Litigation Trust, James R. Zazzali.” (Compl. ¶ 50.) As noted above, any recovery from the Avoidance Action Defendants would inure to the benefit of the estates, and thus to creditors—including the investors represented by the Ad Hoc Committees—under the Plan.

Following the confirmation of the Plan in October 2010, Plaintiff filed this action in December 2010.

Jurisdiction

This court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1334 and 157.

Standard of Review

In order to survive a motion to dismiss under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Evaluating a complaint under this standard is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 1950. In the Third Circuit, the analysis is a two-step process: the court must look first at the factual allegations, as separate from the legal conclusions drawn by the plaintiff, and then determine whether those facts, which must be taken as true, are sufficient to state a “plausible claim for relief.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210–11 (3d Cir.2009). Lastly, the court must “construe the [c]omplaint in the light most favorable to [the plaintiff], and determine whether, under any reasonable reading of the [c]omplaint, [the plaintiff] is entitled to relief.” Rea v. Federated Investors, 627 F.3d 937, 940 (3d Cir.2010).

Discussion
Count One—Turnover of Property of the Estate

Plaintiff's first cause of action is for turnover of property of the estate, pursuant to § 542 of the Bankruptcy Code. Plaintiff alleges that the computer equipment that was purportedly given to Nelson and Minert under the Separation Agreements, and Debtors' confidential financial, tax, and accounting information, including books and records, are all property of Debtors' estates under § 541. Further, Plaintiff asserts that the Separation Agreements were never approved by this Court, and thus Nelson's and Minert's retention of the property is wrongful. Plaintiff also alleges that the property is “of substantial value, benefit, and use to the Debtors' estates and the Estate Litigation Trust.” (Compl. ¶ 65.)

In their Opening Brief In Support of Defendants' Motion to Dismiss, Defendants

argue that Plaintiff has “fail[ed] to identify any confidential or proprietary information that the Defendants possess.” (Opening Br. at 9.) Defendants allege...

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