Free Opening Brief in Support - District Court of Delaware - Delaware

/ Case 1 :04-cv—00955-GIVIS Document 79 Filed 08/31 /2006 Page 1 of 3
I UNITED STATES DISTRICT COURT
`I ” ‘ FOR THE DISTRICT OF DELAWARE
DENNIS J. BUCKLEY, Trustee of the DVI
Liquidating Trust,
Piaintifi
~against— No. 04~955»~GMS `'`‘ t. __
MICHAEL A. O’I—IANLON, STEVEN R.
GAREINKEL, RICHARD E. MILLER, QFOITN P.
BOYLE, ANTHONY LF. TUREK, RAYMOND D.
FEAR, WILLIAIVI S. GOLDBERG, GERALD L.
COHN, JOHN E. MCHUGH, HARRY T. J.
ROBERTS, and NATHAN SHAPIRO,
Defendants.
DEFENDANTS’ J OINT SUPPLEMENTAL BRIEF PURSUANT TO LOCAL RULE 7. 1 .2(c)
IN SUPPORT OF THEIR RESPECTIVE MOTIONS TO DISMISS
Pursuant to Local Rule 7.l.2(c), Defendants Michael A. O’I~Ianlon, Steven R. Gariinkel,
Richard E. Miller, John P. Boyle, Anthony QF. Turek, Raymond D. Fear, William S. Goldberg,
Gerald L. Cohn, John E. McHugh, Harry T,]. Roberts, and Nathan Shapiro submit this
Supplemental Brief in order to bring to the Court’s attention an important and pertinent case
decided after briefing on Defendants’ motions to dismiss was completed.
in Trenwick America Litigation Trust v. Ernst & Young, L.L.P., N0. Civ. A. l57l~N,
2006 WL 2333201 (Del. Ch. Aug. l0, 2006), Vice Chancellor Strine ofthe Delaware Chancery
Court granted a motion to dismiss claims against, inter alia, fonner directors of an insolvent
corporation. In several respects, his decision reinforced the reasons why Defendants’ motions to
dismiss this case should be granted.
First, in Trenwic/c, Vice Chancellor Strine stated that “federal bankruptcy law is clear that
litigation trusts do not have standing to pursue the direct claims of creditors? 2006 WL

Case 1 :04-cv—00955-GIVIS Document 79 Filed 08/31/2006 Page 2 of 3
2,333201, at *19. Vice Chancellor Strine discussed Caplin v. Marine Midland Grace Trust C0.,
406 U.S. 416 (1972), in which the Supreme Court held that the bankruptcy statute "did not vest
with trustees or litigation trusts standing to pursue separate claims belonging to others, such as
the direct claims of individual creditors? Id. According to Vice Chancellor Strine, "[t]he rule
articulated in Caplin holds true even in cases where a creditor has assigned her claims to a
trustee or Trust." ld. Thus, although Dennis J. Buckley, Trustee of the DVI Liquidating Trust,
has claimed that he has received assignments of certain creditors’ claims, neither these
assignments nor his substitution as plaintiff (if it had the effect of an assignment) provides him
with standing to pursue claims on behalf of the creditors. All those claims should therefore be
dismissed.
Second, Vice Chancellor Strine held that Delaware does not recognize the tort of
deepening insolvency and rejected federal cases (including federal cases from within this Circuit)
holding that there is such a cause of action under Delaware law. Id. at *28-29. Accordingly, all
claims based on deepening insolvency (the Twentieth Claim for Relief) should be dismissed.
See Falco v. Alpha Ajjiliares, Inc., No. Civ. A. 97—494, 2000 WL 727116, at *3 (D. Del. Feb. 9,
2000) (relying upon Delaware Chancery Court to predict Delaware law and noting that "we do
not disregard a decision of an intermediate appellate state court on an issue of controlling state
law unless we are ‘eonvinced by other persuasive data that the highest court of the state would
decide otherwise.’” (quoting Chem. Learnan Tank Lines, Inc. v. Aetna Cas. & Sur. C0., 177 F .3d
210, 227 (3d Cir. 1999)).
Third, Vice Chancellor Strine’s analysis of exculpatory clauses authorized by 8 Del. C. §
l02(b)(7) (like the one DVI’s directors have raised in their defense),l the business judgment rule,
l The exculpatory clause defense applies to all ofthe defendants sued in their capacity as former
directors of DVI: O’l~lan1on, Cohn, Goldberg, McHugh, Roberts, and Shapiro. See Comp}. il 28.
2

Case 1 :04-cv—00955-GIVIS Document 79 Filed 08/31/2006 Page 3 of 3
andthe right of directors to rely on professional advisors (8 Del. C. § l41(e)) compel the
conclusion that the Conip1aint’s allegations are legally insufficient to survive Det`endants’
motions to dismiss. Trenwic/c, 2006 WL 2333201, at *21~22, 26 ("[T]he complaint is entirely
devoid of pled facts regarding what the '1`renwick America board did that was either a breach of
the duty of care or the duty of loyalty?)
Respectfully submitted,2
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* i1i` Q 3 3 3 3 ltari.
OF COUNSEL: 33 _3__= ; -· . . ‘=i»3.33.ll 1’ ‘‘·3-·‘l<·-=“ 3·· ‘c‘· ’ ‘··‘
William P. Quinn, Jr. Arthur G. Connolly, r
Karen Pieslak Pohlrnann CONNOLLY BOVE LODGE &
MORGAN, LEWES & BOCKIUS LLP HUTZ LLP
1701 Market Street The Nemours Building
Philadelphia, PA 19103-2921 1007 North Orange Street
Tel. (215) 9636775 Wilmington, DE 19801
Fax. (2}.5) 963-5299 Tel. (302) 658-914%
Fax. (302) 6586614
Attorneys for Nathan Shapiro,
William S. Goldberg and
John E. McHugh
2 For purposes of this Joint Supplemental Brief only and with the consent of all defendants, this Joint
Supplemental Brief is signed on behalf of all defendants.
3