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Nature of Suit Code: 423
Nature of Suit: Bankruptcy Withdrawal 28 USC 157
Cause of Action: 

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

File Name: 15a0778n.06

No. 14-3790

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

ANTIOCH COMPANY LITIGATION 

TRUST, W. Timothy Miller, Trustee,

Plaintiff-Appellant,

v.

LEE MORGAN; ASHA MORGAN MORAN; 

LEE MORGAN GDOT TRUST #1; 

LEE MORGAN GDOT TRUST #2; 

LEE MORGAN GDOT TRUST #3; 

LEE MORGAN POUROVER TRUST #1; 

LEE MORGAN POUROVER TRUST #2;

Defendants-Appellees,

and

CHANDRA ATTIKEN, et al.,

Defendants.

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On Appeal from the United States 

District Court for the Southern 

District of Ohio

Before: GUY, MOORE, and KETHLEDGE, Circuit Judges.

RALPH B. GUY, JR., Circuit Judge. The Antioch Company Litigation Trust brought 

this adversary proceeding against a number of former directors, officers, trustees, and 

professionals, asserting claims that were transferred to it by the bankruptcy court’s order 

confirming the plan of reorganization of The Antioch Company (and related affiliates). Having 

settled some claims and abandoned others, plaintiff’s appeal challenges several of the district 

court’s orders but only to the extent that those orders granted summary judgment to defendants 

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Case No. 14-3790, The Antioch Company Litigation Trust v. Lee Morgan, et al.

Lee Morgan (“Morgan”), Asha Morgan Moran (“Moran”), and five trusts established by Lee 

Morgan (“Morgan Trusts”). We accordingly limit our discussion to the claims at issue in this 

appeal.1

For the reasons that follow, we affirm the district court’s orders granting the defendants’ 

motions for partial summary judgment on the claims for equitable subordination (Count 11) and 

with respect to the state law claims arising out of the failed efforts to sell the company during 

2007 and 2008 (Counts 6, 8, 10, and 13). However, because we grant plaintiff’s motion to 

certify a question of state law to the Supreme Court of Ohio, we reserve decision with respect to 

the district court’s order granting partial summary judgment to defendants on claims for breach 

of fiduciary duty in connection with the tender offer transaction that closed December 16, 2003 

(“ESOP Transaction”) (Count 1).

I.

The Antioch Company began as a bookplate printer, later sold bookstore items and photo 

albums, and grew into one of the largest direct marketers of scrapbooks and accessories through

independent sales consultants. That growth is illustrated by the increase in domestic sales 

revenue from $1 million in 1991 to approximately $298 million in 2002—driven almost entirely 

by the direct marketing business operated by its Creative Memories Division. Throughout that 

period of growth, Antioch was a privately held S-corporation with an established Employee 

Stock Ownership Plan (ESOP).

Lee Morgan (“Morgan”) (son of one of the company’s co-founders) was Antioch’s longtime President and CEO, and served as Chairman of the Board of Directors. Asha Morgan 

 

1The Morgan Trusts, which were unsecured creditors in the bankruptcy proceeding, are identified as follows: Lee 

Morgan GDOT Trust #1, Lee Morgan GDOT Trust #2, Lee Morgan GDOT Trust #3, Lee Morgan Pourover Trust 

#1, and Lee Morgan Pourover Trust #2. The only claim against the Morgan Trusts is for equitable subordination. 

Because the parties do not distinguish between the Morgan Trusts, it is assumed that their interests are aligned for 

purposes of this appeal.

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Case No. 14-3790, The Antioch Company Litigation Trust v. Lee Morgan, et al.

Moran (“Moran”) (Morgan’s daughter) joined the company in 1999, was a member of the Board 

of Directors, served as a President of the Creative Memories Division, and later succeeded 

Morgan as CEO. Morgan and Moran also served on the three-member ESOP Advisory 

Committee.

A. 2003 ESOP Transaction

The ESOP held roughly 43% of Antioch’s outstanding shares in 2003, while the 

remaining “non-ESOP” shareholders were primarily members of the Morgan family, trusts 

controlled by them, and other directors or officers of the company. In fact, the non-ESOP 

shareholders included six of the company’s nine directors and the ESOP Trustee. 2003 would be 

Antioch’s best year, although plaintiff contends that there were signs of slowing growth by mid2002. Whether or not a downturn was anticipated at that time, there is no dispute that Morgan 

began looking into estate planning options with an eye to getting out of the company’s stock. To 

that end, Morgan proposed in early 2003 that the company be converted to 100% ESOP 

ownership.

Ultimately, the Board approved a tender offer transaction that closed on December 16,

2003. That transaction—the fairness of which was not addressed by the district court and 

remains contested in a related legal malpractice action—resulted in the leveraged buy-out of all 

of the non-ESOP shareholders and conversion to 100% ESOP ownership (through the ESOP’s 

agreement not to tender its shares). The tender offer was for $850 per share, or a “package” 

consisting of (i) $280 in cash, (ii) $280 in subordinated notes, and (iii) a warrant valued at $290 

for the purchase of one share in the future. Among other terms, Antioch agreed to a guaranteed

minimum share price for all ESOP participants who left or retired over the next three years.

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Case No. 14-3790, The Antioch Company Litigation Trust v. Lee Morgan, et al.

The Company financed the ESOP Transaction by taking bank loans, issuing unsecured 

subordinated notes, and spending down the cash on hand. Plaintiff alleged that Antioch’s 

directors and officers, including Morgan and Moran, breached their fiduciary duties to the 

corporation by approving an overpriced, highly leveraged transaction that benefitted the nonESOP shareholders and left the corporation with too little cash and too much debt.2

B. 2007-2008 Sale Process

Antioch’s sales began declining in 2004, and continued to decline over the next several 

years. The deterioration in the business would later be attributed to changes in the market—such 

as the growth of digital photography, competition from mass retailers, and waning interest in 

scrapbooking—as well as insufficient capital to meet those challenges. The company’s

workforce shrank substantially between 2004 and 2006, and the associated stock repurchase 

obligations required further borrowing and the issuance of additional subordinated notes to 

former employees.

In early 2007, the Board concluded that the company’s financial situation was 

unsustainable and engaged financial advisors to market the company for sale or recapitalization. 

Plaintiff alleged that defendants undermined those efforts in several ways, including by 

involving a second firm in the process to pursue options in the Morgan family’s interests. In 

May 2008, Antioch received the J.H. Whitney Company’s Letter of Intent offering to purchase 

Antioch’s assets for $54 million. Whitney had done some due diligence, but its Letter of Intent 

(LOI) was subject to further due diligence and the negotiation of an asset purchase agreement. 

When Antioch’s financial advisors recommended going forward, Morgan, Moran, and the ESOP 

 

2

Plaintiff contends that the district court erred by refusing to extend or toll the limitations period for this claim on the 

grounds of adverse domination, equitable tolling, or equitable estoppel. As noted, we reserve our review of that 

decision until after the Supreme Court of Ohio answers or declines to answer the separately certified question of 

state law.

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Case No. 14-3790, The Antioch Company Litigation Trust v. Lee Morgan, et al.

Trustee allegedly ousted several board members in order to scuttle the deal and the LOI was 

allowed to lapse. When no other buyer or lender was found, Antioch’s secured lenders forced

the company to file a prepackaged Chapter 11 bankruptcy petition on November 13, 2008.

C. Court Proceedings

The bankruptcy court confirmed the Second Amended Joint Prepackaged Plan of 

Reorganization on January 27, 2009, under which lenders provided $31 million in new loans and 

received preferred stock in the reorganized company. Among other things, the Plan classified 

the holders of all of the unpaid subordinated notes as “Class 5 Allowed Impaired Unsecured 

Claims.” Those Class 5 Claims, including those belonging to Morgan, Moran, and the Morgan 

Trusts, received no distributions and were discharged following confirmation.

In addition, the Plan transferred certain litigation claims and rights to The Antioch 

Company Litigation Trust for it to pursue on behalf of its beneficiaries. The holders of Class 5 

Claims were provided an opportunity to become primary beneficiaries of the Litigation Trust by 

executing a “Class 5 Release Form,” which would release any and all claims against various 

lenders and their agents (not the soon-to-be discharged unsecured claims). Morgan, Moran, and 

the Morgan Trusts all executed Class 5 Release Forms and became primary beneficiaries of the 

Litigation Trust (collectively representing 72.4% of the Class 5 primary beneficiaries). It was 

this beneficial interest that plaintiff argued should be subject to equitable subordination under 

11 U.S.C. § 510(c).3

The Litigation Trust filed this action in the bankruptcy court on December 23, 2009. The 

bankruptcy judge issued a report and recommendation addressing the defendants’ motions to 

dismiss the non-core claims, which was adopted by the district court in August 2011. Plaintiff 

 

3Although not at issue in this appeal, the Plan also created a Creditor/Equityholder Trust that received common 

shares of the newly reorganized company. The holders of Class 5 Claims also received an interest in that Trust by 

executing the Class 5 Release Form. (Plan § 5.12(d)).

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Case No. 14-3790, The Antioch Company Litigation Trust v. Lee Morgan, et al.

filed an amended complaint, and discovery proceeded. The district court withdrew the reference 

to the bankruptcy court, and entered the orders granting defendants’ motions for partial summary 

judgment that are relevant to this appeal. Judgment was entered after the remaining claims were 

settled, and plaintiff appealed.

II.

The Amended Complaint alleged breaches of fiduciary duty and tortious interference 

with contract in connection with the failed sales process during 2007 and 2008, and made a 

demand for attorney fees incurred in connection with those claims (Counts 6, 8, 10, and 13). The 

district court (1) granted defendants’ motion to exclude the testimony of plaintiff’s expert 

witness, Mark Greenberg, regarding the damages incurred because of defendants’ conduct; and 

(2) entered summary judgment in favor of defendants for failure to present proof of damages 

sufficient to establish those claims. We affirm.

The decision to exclude testimony from plaintiff’s expert witness is reviewed for abuse of 

discretion. Gen. Elec. Co. v. Joiner, 522 U.S. 136, 141 (1997). The Daubert “gate-keeping” 

function requires that a trial judge determine whether expert testimony is both relevant and 

reliable. Kumho Tire Co. Ltd. v. Carmichael, 526 U.S. 137, 147 (1999) (quoting Daubert v. 

Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993)).

The district court accepted Greenberg’s qualifications as an expert based on his 

“experience in business valuation, deal structuring, [and] financial and investment analysis,” and 

because he had “successfully led and completed numerous mergers and acquisitions, capital 

sourcing, recapitalization, and restricting transactions in a wide variety of industries.” However, 

if an expert witness relies “solely or primarily on experience, then the witness must explain how 

that experience leads to the conclusion reached, why that experience is a sufficient basis for the 

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Case No. 14-3790, The Antioch Company Litigation Trust v. Lee Morgan, et al.

opinion, and how that experience is reliably applied to the facts.” Fed. R. Evid. 702 advisory 

committee’s notes to 2000 amendments. “The trial court’s gatekeeping function requires more 

than simply ‘taking the expert’s word for it.’” Id. (citing Daubert v. Merrell Dow Pharms., Inc., 

43 F. 3d 1311, 1319 (9th Cir. 1995)).

Greenberg’s report concluded that “[m]ismanagement of, and interference with, the sale 

process by the directors and their advisors caused the Company to lose the opportunity to realize 

between $20 million and $30 million in value[.]” The only support for that opinion in 

Greenberg’s report was his statement that the directors “sat idly by until a bankruptcy filing was 

the only option and the value of the company had deteriorated to $31-$38 million (as estimated 

by CRG [Partners] in the bankruptcy), a significant drop in value over the May J.H. Whitney 

offer.” Greenberg conceded, however, that there was no way to know whether Antioch would 

have realized $54 million if it had pursued Whitney’s offer and that he had not reviewed the 

work underlying CRG’s estimated valuation.

The district court did not abuse its discretion in finding that Greenberg’s calculation of 

the value lost as a result of defendants’ conduct was without reliable basis. Greenberg did not 

explain how his experience informed his opinion, or why, in his experience, he thought it likely 

that Antioch would have sold for at least $54 million after the completion of due diligence if the 

Board had moved forward on Whitney’s offer. Nor did Greenberg explain why he accepted the 

valuation by CRG that was included in Antioch’s bankruptcy disclosures. It is not sufficient to 

argue that Greenberg was qualified to provide this expertise since he did not.

Plaintiff argued, in the alternative, that it could rely on non-expert witness testimony to 

prove the same lost value calculation. The district court found, however, that the evidence of 

both Whitney’s Letter of Intent and CRG’s valuation were inadmissible hearsay that could not be 

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Case No. 14-3790, The Antioch Company Litigation Trust v. Lee Morgan, et al.

considered in deciding a motion for summary judgment. See Back v. Nestle USA, Inc., 694 F.3d 

571, 580 (6th Cir. 2012). Plaintiff counters on appeal that Whitney’s Letter of Intent could have 

been admitted either as a statement of “then-existing state of mind (such as motive, intent, or 

plan)” under Fed. R. Evid. 803(3), or as a business record under Fed. R. Evid. 803(6). However, 

those arguments were forfeited because they were not made in the district court. See Greco v. 

Livingston Cnty., 774 F.3d 1061, 1064 (6th Cir. 2014). Absent evidence to establish the top-end 

value of the calculation, there was insufficient proof of damages sustained as a result of 

defendants’ conduct. The district court did not err in granting summary judgment to defendants 

on the claims arising from the failed sale process.

III.

Finally, the district court granted summary judgment to Morgan, Moran, and the Morgan 

Trusts on the claim for equitable subordination under 11 U.S.C. § 510(c)(1). Equitable 

subordination does not challenge the existence or validity of a claim or interest, but challenges 

the priority of an allowed claim or an allowed interest for purposes of distribution. See In re 

Insilco Techs., Inc., 480 F.3d 212, 218 (3d Cir. 2007); Bayer Corp. v. MascoTech, Inc. (In re 

AutoStyle Plastics, Inc.), 269 F.3d 726, 744 (6th Cir. 2001).

Here, the Class 5 Claims that arose from the unpaid subordinated notes were deemed 

“allowed” but were expressly “subject to the Equitable Subordination Rights of the Litigation 

Trust.” (Plan § 1.1124.) However, as with all of the “Class 5 Allowed Impaired Unsecured 

Claims,” Morgan, Moran, and the Morgan Trusts received no distributions and their claims were 

discharged in the bankruptcy proceeding. The district court found that this made it futile to 

subordinate defendants’ Class 5 Claims to the other Class 5 Claims, and plaintiff does not 

challenge that conclusion. Instead, plaintiff contends that it was error to conclude that 

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Case No. 14-3790, The Antioch Company Litigation Trust v. Lee Morgan, et al.

defendants’ interests as primary beneficiaries of the Litigation Trust were not subject to equitable 

subordination under § 510(c)(1). Questions of statutory construction are reviewed de novo. 

Deutsche Bank Nat. Trust Co. v. Tucker, 621 F.3d 460, 462 (6th Cir. 2010).

Section 510(c)(1) provides that the court may “under principles of equitable 

subordination, subordinate for purposes of distribution all or part of an allowed claim to all or 

part of another allowed claim or all or part of an allowed interest to all or part of another allowed 

interest[.]” 11 U.S.C. § 510(c)(1). An allowed claim or allowed interest is a “claim or interest, 

proof of which” has been filed in the bankruptcy court under 11 U.S.C. § 501. See 11 U.S.C. 

§ 502(a). Creditors of a debtor file a proof of claim, and equity security holders of the debtor file 

a proof of interest. See 11 U.S.C. § 501(a). Defendants’ interests in the Litigation Trust, which 

were received in consideration for executing the Class 5 Releases, were neither “allowed 

interests” nor “allowed claims” that may be equitably subordinated under § 510(c)(1). Summary 

judgment was properly entered in favor of defendants.

IV.

Accordingly, we AFFIRM the district court’s orders granting partial summary judgment 

to defendants on the claim for equitable subordination and with respect to the state law claims 

arising from the failed sale process; but, because we GRANT plaintiff’s motion to certify a 

question of law, we RESERVE decision with respect to plaintiff’s appeal from the order 

granting partial summary judgment to defendants on Count 1 until after the Supreme Court of 

Ohio either answers or declines to answer the separately certified question of state law.4

 

4A separate order of certification is being entered in this case pursuant to the Ohio Supreme Court Practice Rules.

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