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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Examining the Interplay Between Exculpation Clause and Fiduciary Duty

By Lawrence J. Kotler 
February 01, 2020

In the case of Liquidation Trust of Solutions Liquidation v. David Stienes (In re Solutions Liquidation), Case No. 16-10627 (CSS), Adv. Pro. No.: 18-50304 (CSS) (Bankr. D. Del. Oct. 21, 2019), the U.S. Bankruptcy Court for the District of Delaware examined the interplay between the scope and extent of a company's exculpation clause versus the scope and extent of Delaware law regarding breach of fiduciary duty claims. In particular, the court's decision adjudicated a motion to dismiss filed by the debtors' former managers and officers in connection with the breach of fiduciary duty complaint filed against them by the trustee of the debtors' liquidating trust.

Case Background

In this case, the debtors, SDI Solutions and its parent company SDI Opco Holdings (together, the debtors), filed voluntary petitions for relief under Chapter 11 of Title 11 of the U.S. Code on March 13, 2016. On Aug. 29, 2016, the court confirmed the debtors' second modified combined disclosure statement and Chapter 11 plan of liquidation (collectively, the plan). Pursuant to the plan, a liquidation trust was created and certain assets vested in the liquidation trust. Those assets included "causes of action against any current or former directors and officers of the debtors, in their capacities as such," which were to be pursued by a liquidating trustee also appointed pursuant to the plan. In particular, the plan also vested the liquidation trustee the exclusive right to "investigate, prosecute, compromise and settle" the causes of action that were transferred to the trust.

On March 12, 2018, the liquidation trustee filed a complaint against the former managers and officers of each of the debtors (the defendants) seeking, among other things, to recover damages caused by their asserted breaches of fiduciary duty. The complaint was eventually amended and the defendants filed a motion to dismiss the amended complaint in early 2019. On Aug. 20, the court heard oral argument on the motion to dismiss and, at the conclusion of that hearing, the court took the matter under advisement. On Oct. 21, the court issued its decision, granting in part and denying in part the motion to dismiss.

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