Eugene Lockhardt, Jack L. Messman, and Edwina D. United States Bankruptcy Court, N. Texas, Fort Worth Division. WarnerCole Schotz P. BarrowRobert F. CarangeloAlfredo R. PerezAmanda K. NelmsUnited States Bankruptcy Judge. In this case, the plaintiff, a trust created for the benefit of RadioShack's creditors, alleges that chief executive officer and director Joseph Rsh liquidating trust phone number engineered a transaction that delivered RadioShack into the hands of Standard General, its largest shareholder, in order to further Magnacca's personal ambitions.
It also alleges that RadioShack's independent directors were fully aware of Magnacca's conflicted loyalties and yet permitted him to pursue his personal agenda, knowing that it likely would spell disaster for the company. According to the Trust, Standard General's attempts to co-opt Magnacca's loyalty manifested themselves both Rsh liquidating trust phone number actions and assurances.
First, Standard General and its chief investment officer, Soohyung Kim, caused Magnacca to be appointed to the board of American Apparel, a struggling affiliate of Standard General. Then, they led him to believe that other opportunities awaited him. In return, Magnacca allegedly guided RadioShack into an ill-fated recapitalization transaction with Standard General and away from other alternatives that would have brought more value to the company. The Trust "Rsh liquidating trust phone number" that the independent directors breached their duty of loyalty when they approved Magnacca's appointment to the board of American Apparel, and then made him the point man to negotiate with Standard General with respect to the financing that allegedly led to RadioShack's demise.
The complaint raises two nagging questions. First, why would Magnacca sacrifice his position as head of one of America's most "iconic" retailers in exchange for such paltry and illusory consideration?
Second, why would the independent directors knowingly sacrifice the company so that Magnacca could achieve his personal agenda? It never answers these questions. One might say that it is not the plaintiff's job to explain the personal motivations of men and women; that the facts speak for themselves.
But, where, as here, the directors are said to have breached their duty of loyalty, it is fair to ask why. That is because if there is no satisfactory answer, it suggests that the duty at issue is not loyalty, but care.
I find no cognizable claim that any of the directors of RadioShack, including Magnacca, breached his or her duty of loyalty. It is possible that the directors may have breached their duty of care.
But, duty-of-care claims are exculpated by RadioShack's charter. So, all claims against parties in their capacities as directors must be dismissed. But, Delaware law provides no exculpation for claims against officers.
Count two states a claim for breach of the duty of care against Magnacca in his capacity as CEO.
So, the motion to dismiss that claim is denied. RadioShack Corporation was a well-established retailer of consumer electrical goods for almost a century. Those operations ceased when the company closed more than half its operations, and sold substantially all of its remaining locations to Standard General.
Standard General is an investment firm that manages "event driven" opportunity funds. Standard General and Kim beneficially owned 9.
Magnacca is the former chief executive officer and a former member of the board of RadioShack. Woodbury are former members of RadioShack's board. But Salus refused to consent to the closures. By July the company's liquidity prospects still had not improved. Standard General had "standing to push things.
In those messages, Magnacca assured Kim that, "I'm there for you" and that all in with you. Let me know what you need. I'll be anyplace anytime. According to the Trust, Kim reciprocated Magnacca's loyalty. He caused Standard General to appoint Magnacca to the board of directors of American Apparel, a Rsh liquidating trust phone number company in which Standard General had a substantial interest.
Even though RadioShack's financial condition was fragile, Kim opposed a bankruptcy alternative. Instead, Kim proposed that Standard General purchase a participation in the G.
RadioShack's management and advisors worked to assess whether this proposal was viable. Standard General's plan to purchase a participation interest in the G.
Capital Loan failed to materialize because G. Capital refused to sell an interest to Standard General. Standard General and the hedge fund lenders would also agree to forbear from imposing discretionary borrowing base reserves until March 15, This would allow RadioShack to purchase inventory for the holiday season, although, in fact, that never happened.
The amended credit agreement would replace discretionary borrowing base reserves with additional events of default if certain steps did not occur before Rsh liquidating trust phone number 16, At a two-hour board meeting on October 2,all of the independent directors approved the Standard General proposal. Unfortunately, the transaction with Standard General which I refer to herein as the "Transaction" did nothing to reverse RadioShack's insolvency.
The unsecured creditors' committee of RadioShack filed this lawsuit in the United States District Court for this district and division on August 31, Immediately thereafter, the District Court referred the lawsuit to me. Those claims have been settled. The defendants have moved to dismiss the complaint in its entirety pursuant to Federal Rule of Civil Procedure 12 b 6. The defendants have agreed that I may enter a final judgment in this case.
The Trust has not yet agreed to trial in my court or the entry of a final judgment by me. But, it does agree that I may enter a final order on this dispositive motion.
In count one, the Trust alleges that all defendants breached their fiduciary duties by abdicating their responsibilities as directors. It alleges that, even though RadioShack was undergoing a change of control, the directors made no attempt to survey available alternatives or seek out the best price for the company, steps they should have taken under the Delaware Supreme Court's ruling in Revlon v. Next, it alleges that even though they knew that Magnacca was conflicted by his relationship with Standard General, the directors nevertheless permitted him to act as chief negotiator on behalf of RadioShack.
And, despite knowing that Magnacca was pushing aside and undermining other professionals hired by Rsh liquidating trust phone number, the directors yielded their responsibilities to him and followed him down the only path he would permit the company to pursue.
That path led to the Transaction, a refinancing that the directors not only knew would not solve RadioShack's liquidity problem, but which was, in fact, reverse-engineered by Standard General to ensure RadioShack's failure and Standard General's control of the company when that failure occurred. In count two, the Trust alleges that Magnacca breached his fiduciary duty as an officer of RadioShack. Relying on essentially the same facts as in count one, the contends that as chief negotiator of the Transaction, Magnacca acted under a conflict of interest and allowed RadioShack to enter into a transaction that he knew favored Standard General and operated to the detriment of RadioShack.
In count three, the Trust alleges that the directors received a fraudulent transfer. Under the Recapitalization and Investment Agreement, RadioShack purported to release the directors from any claims related to the Transaction. The Trust alleges that the release was constructively fraudulent because RadioShack received no consideration for the release. It also alleges that the release was procured by actual fraud because the directors bargained for the release with the intent to hinder, delay and Rsh liquidating trust phone number creditors.
The Trust does not seek damages against the directors in count three, but requests that the release be avoided. In their motion to dismiss count one, the defendants contend that: Magnacca moves to dismiss count two because even though it is directed at his actions as an officer, it fails to allege facts Rsh liquidating trust phone number distinguish his actions as an officer from those where he acted as a director.
All defendants move to dismiss count three as moot because inasmuch as they have no liability under count one, they have no need to rely on the release provision. The defendants have moved to dismiss the complaint under Federal Rule of Civil Procedure 12 b 6which applies to this adversary proceeding pursuant to Rule of the Federal Rules of Bankruptcy Procedure.
To survive the motion, the complaint must contain sufficient factual allegations, which, if accepted as true, state a claim for relief that is plausible on its face. When considering a motion to dismiss, I accept all well-pleaded facts as true and view them in the light most favorable to the plaintiff.
In re Katrina Canal Breaches Litig. But I do not accept conclusory allegations or legal conclusions as true. Because RadioShack is a Delaware corporation, Delaware law governs the duties of the directors with respect to the Transaction.
Under Delaware law, directors owe two fiduciary duties — care and loyalty. But, directors of Delaware corporations enjoy the protections of the business judgment rule.
As such, they are presumed to have "acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.
So strong is this presumption that its application is Rsh liquidating trust phone number outcome determinative. A plaintiff who alleges that directors have breached their fiduciary duties can overcome the business of judgment rule in one of two ways. First, it can allege facts showing that the "Rsh liquidating trust phone number" is one as to which the business judgment rule does not apply in the first place.