Are claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty against an officer and director of a debtor core proceedings under 28 U.S.C. Section 157(b)? Are such claims subject to trial by jury? In The Official Committee of Unsecured Creditors of Allied Systems Holdings v. Black Diamond Opportunity Fund II LP (In re Allied Systems Holdings), Adv. Pro. No. 13-50530 (CSS) (Bankr. D. Del. Jan. 28, 2015), a recent decision by U.S. Bankruptcy Judge Christopher Sontchi of the District of Delaware, the court held that such claims were not core proceedings and were legal in nature, rather than equitable, such that they were amenable to a jury demand.
The bankruptcy proceedings in question began as an involuntary proceeding against Allied Systems Holdings Inc. and its subsidiary, but thereafter the alleged debtors consented to the involuntary petitions. The U.S. trustee appointed an official committee of unsecured creditors, which commenced an adversary proceeding against Mark Gendregske, the chief executive officer and a director of Allied, for breach of fiduciary duty and aiding and abetting breach of fiduciary duty. The gravamen of the committee’s claims was that Gendregske acted at the behest of and in concert with several investment funds (Yucaipa) that held a majority of Allied’s equity and were responsible for appointing him as CEO and a director of Allied, in furtherance of a scheme to take control of the debtors. The committee alleged that Gendregske failed to take steps to protect Allied’s interests. Specifically, as a member of the board and a special committee of independent directors, he failed to exercise appropriate control over Yucaipa’s actions, failed to educate himself in reviewing proposed transactions, and failed to seek independent advice when reviewing transactions involving Yucaipa. Along with other directors, he failed to consider alternative transactions to save Allied that would potentially adversely affect Yucaipa’s interests.
