FIL ED U.S. COURT OF APPEAL S EL EVENTHCI RCUI T APRI L30, 2010 J OHN L EY CL ERK [DO NOT PUBLISH]
IN THE UN ITED STATES COURT OF APPEALS FOR THE ELE VENTH CIRCUIT

__ __ __ __ __ __ __ __ __ __ __ __ No. 0 8- 14 34 6

__ __ __ __ __ __ __ __ __ __ __ __ D. C. Dock etNo. 0 7- 20 79 3- CV-ASG BARRY E. MUKAMAL, as Liqui da ti ng Trus te e an d Di rect oran d Offi cer Tru st ee o f Far & W id e Co rp or at io n, etal., Pl ai nt iff -Ap pe ll an t,
ve rs us PHIL BAKES, ANDREW

C. MCKEY, CRAIG TOLL, GEORGE GREMSE, LOAN CAPITAL FUNDING, LLC, et al ., Defen da nt s- App el le es .

__ __ __ __ __ __ __ __ __ __ __ __ App eal fro m

th e Uni te d S ta te s Di st ric t Co urt fo r th e So uthe rnDis tri ctof F lo rid a

__ __ __ __ __ __ __ __ __ __ __ __ _ (Ap ril 30 , 20 10 )Befo re EDMONDSON an d P RYOR, Ci rcu itJu dg es , andCAMP, * Dis tri ctJu dg e.

CAMP , Dis tri ctJu dg e: Thi s ap pe al is fro m

th e d is tri ctco urt’s p art ia l fi na l ju dg m en t i n apro ceed in g ari si ng fro m

th e b an krup tc y

of F ar & Wid e en te rp ris es (“ Far & W id e”), a
co ng lo m erat e o f tr av el co m pa ni es (co ll ect iv el y , th e “ Deb to rs ”). The Debt or s fi le d fo r ba nkrupt cy

inth e Uni te d S ta te s B an krup tc y Co urt fo r th e So ut he rnDis tri ctof Fl or id a in Mi am i i n S ep te m be r 20 03 . The b an krup tc y co urt co nf

irmed a li qu id at in g p la n o f reo rg an iz at io n, wh ic h app oi nt edApp el la nt , Barry Muk am al , (“ App el la nt ” o r “ Trus te e”) a s tru st ee o f two tru st s cr eat edto pu rs ue cla im s o n be ha lf o f th e Deb to rs an d Deb to rs ’ cred it or s wh o h advo te d t o a ccep t the li qu id at io n p la n. Ap pe ll ees , th e d efen dant s i n t he di st ric t co urt p ro ceed in g, ar e fo rm er d ire ct or s an d o ffi cers of F ar & Wid e (the “ In di vi du al Defen da nt s” ), as well
as Far & Wid e’s m ajor it y sh areh ol de r, W el ls pr in g C ap it al Man ag em en t, LLC (“ W el ls pr in g” ). The Trus te e b ro ug htth is act io n a ga in stW el ls pr in g, the Ind iv idua l Defen da nt s, an d s ev eral ot he r en ti ti es all eg in g avarie ty of cl ai m s. Th e cl ai m s o n th is ap pe al are b as edonall eg at io ns th atW el ls pr in g a ndth e In di vi du al Defen da nt s

________________ * Honora ble J ack T . Camp, United States District J udg e for the Northe rn District of Georg ia, sitting by

designation. 2br each edth ei r fi du ci ary du ti es to th e Far& W id e en ti ti es . W el ls pr in g a ndth e

In di vi du al Defen da nt s m ov edto di sm is s the se cla im s, an d t he di st ric t co urt fo un d th atth e Tru st ee fa il edto st at e a cl ai m forth e al le ge d b reac he s o f fi du ci ary du ty
an d g ran te d t he m ot io n t o d is m is s. Up on a rev ie w of t he reco rd , th e p art ie s’ br ie fs , andhavi ng th e b en efi t o f or al arg um en t, we co nc lu de th e d is tri ctco urt d id
no t err an d we a ffi rm . I. BACKG ROUND A. The Pa rt ies t o this Disp ut e The pri nc ip al Debt or , Far & Wid e, is a Dela ware co rp or at io n fo rm edin Mar ch19 99 to pu rch as e tr av el co m pa ni es . The Ind iv idua l Def en da nt s wer e of fic ers an d/ orserve d o n t he bo ardof d ire ct or s o f Far & W id e. Eve n t ho ug h F ar & Wide was i nc or

po rat edinDela ware, the m ajor it y of i ts op erat io ns were i n Fl or id a. W el ls pr in g i s a De la ware co rp or at io n t ha t m an ag es pri va te in ve stm en t pa rtn ers hi ps , su chas Lo anCap it al Fund in g, LLC, whi chfoc us on in ve st in g i n o r acqui rin g c om

pa ni es . W el ls pr in g a ndth e In di vi du al Defen da nt s fo rm edth e

1

L oan Capital F unding, LL C acted a s a conduit betwe en Wellspring a nd the Debtor s. 1 Although the Trustee also named L oan Capital F unding, LL C as a def endant in the unde rlying litigation, the Court re fer s to both W ellspringindividually and Wellspring a

nd L oan Capital Funding , L L C collectively as “Wellspring ”. 3Deb to r co m

pa ni es by co ns ol id at in g v ari ou s trav el co m pa ni es . W el ls pr in g in ve st ed$4 5 m il li on inth e Deb to rs an d a cqui reda m ajor it y of t he ir s to ck
. W el ls pr in g a ls o re qu ire d t he Debt or s t o app oi ntfou r of it s p artne rs to Far & W id e’s si x- m em

be r bo ardof d ire ct or s. Witha m ajor it y of t he bo ard , W el ls pr in g ex erci se d aco nt ro ll in g i nt eres t i n t he Debt or s. Fro m th e ti m e o f th e co m

pa ny’ s cr eat io n, Fa r & Wide pl an ne d t o p ur ch as e an d c on so li da te a nu m

be r of sm al le r tr av el co m

pa ni es an d t o s el l the res ul ti ng co ng lo m erat e to th e h ig he stbi dd er fo r a p ro fit . App el la ntall eg es th atW el ls pr in g an d t he Ind iv idua l Def

en da nt s v io la te d t he ir f

iduc ia ry du ty of lo y al ty to Fa r & W id e b y pu rs ui ng a pl anth atm ax im iz edth ei r own sel f-i nt eres t b utwas h arm fu l i n th e lo ng -te rm

to Far & Wid e’s cred it or s. Far & W id e es tabl is he d l in es of c red itwith anu m be r of ba nk s t o ra is e cap it al . In 1 99 9, the Debt or s en te redin to a lo anag reem en t wi tha gr oup o f ba nk s to in fu se $7 0 m il li onin to th e Deb to rs . The Deb to rs pro vi de d t he ir a ss et s as co ll at eral . A y ear l at er, the Debt or s o bt ai ne d a n a dd it io na l $ 20 m il li on in
un se curedfin an ci ng . B. The Dec li ne of Far &W ide Tim e an d c irc um st an ce, h owe ve r, in te rv en edinFar & Wid e’s pl an . Fewer tra ve le rs to okov ers eas tri ps aft er the Sep te m be r 11 , 20 01 , terro ris t at ta ck s an d t he
4subs eque ntou tb reakof t he SARS v iru s i n As ia . Far & Wide face d ali qu id it y

cri se s wh enth e co m

pa ni es itown edan d re li edup on forop erat in g fu nd s fa lt ered be cau se of the stru gg li ng tra ve l m ark et . As a res ul t, Fa r & Wide de fau lt edon th e $7 0 m il li on ba nklo an . After d efau lt in g, Well sp rin g a ndth e In di vi du al Defen da nt s re pr es en te d t o t he ba nk s tha t a s in gl e p ur ch as er co ul d s ti ll be fou ndto pu rch as e th e co ns ol id at edtra ve l en te rp ris es . Bas edon th es e rep res en ta ti on s, the ba nk s, wh ic h c ou ldha ve for ecl os ed , in st eaden te redin to a fo rb eara nc e ag reem en t. The bank s, h owe ve r, requi redth e Deb to rs to hi re co ns ul ta nt s t o a idinth e d ai ly op erat io ns of t he Debt or s’ bu si ne ss . In20 02 , Far & Wid e h ire d a n o ut si de co m pany to s ol ic itpo te nt ia l pu rch as ers . Pu rs ua ntto it s ag reem en t wi th th e b an ks , Far & Wid e al so hi red KPMG an d Th e Rec ov ery Gro up (“ TRG”), a fi rm sp eci al iz in g i n turna ro un d a nd cri si s m an ag em en t. KPMG was ret ai ne d t o re vi ew Far & W id e’s reco rd s an d t o advi se th e d ire ct or s an d o ffi cers on ho w bet te r to ke ep th e co m pa ny’ s b oo ks an d
reco rd s. Far& W id e’s m an ag em en t n ei th er i m pl em en te d TRG’s
reco m m en da ti on s, n orim

pl em en te d t he bo okke ep in g a ndot he r advi ce i t re cei ve d fro m KPMG. The Trus te e al le ge s tha t Well sp rin g a ndth e In di vi du al Defen da nt s, i n t he ir at te m ptto sel l the tra ve l en te rp ris es fora su ffi ci en t p ric e to ob ta in a return o n t he ir 5in ve st m en t, u se d fa ls e an d m is le ad in g i nd ic at or s o f th e Deb to rs ’ fin an ci al he al th
.

Inad di ti on , th e Tru st ee al le ge s tha t Well sp rin g a ndFar & Wid e ch os e n otto fil e fo r ba nkrupt cy

or wi nddo wn the Debt or s atth atti m e b ecau se itwou ldha ve cau se d t he m

to lo se th ei r $4 5 m il li on in ve st m en t. Th e Tru st ee al le ge d F ar & Wid e was in so lv en t b y

Apri l 2 00 2. InOcto be r 20 02 , th e Deb to rs be ga n areo rg an iz at io n. Pa rt o f th at
reo rg an iz at io n i nc lu de d t wo $ 10 m il li on lo an s. Th e Deb to rs so ug htan d o bt ai ne d
co ns en t t o t he lo an s an d t he res tru ctur in g fr om m ajorcred it or s. On e o f th e lo an s cam e fro m

W el ls pr in g, wh ic h c ha rg edanin te res t ra te of 1 0% o ve r pr im e an d n ot le ss th an14 .75 %. Add it io na ll y , W el ls pr in g i ns is te d tha t i ts lo anbe rep ai d b efo re al l the cla im s o f th e Deb to rs ’ ot he r cre di to rs were p ai d. Well sp rin g a ndth e In di vi du al Defen da nt s al so co nv ert eda po rti on of Well sp rin g’s equi ty pos it io n in to a de btcla im , whi chwou ldha ve hi gh er p rio rit y inth e ev en t o f a b an krup tc y . The se lo an s al lo wedth e Deb to rs to co nt in ue op erat in g the ir b us in es se s. Ev en th ou gh th e co nd it io ns were ar gu ab ly unf ai rly favo rab le to W el ls pr in g, the Debt or s do no t al le ge th atW el ls pr in g re cei ve d a ny ben efi t as a res ul t o f th e lo an ag reem en t, wh ic h was ne ve r rep ai d. Norwas t he re an y all eg at io n t ha t the lo an co ul d h av e b eenob ta in edon m or e fav or ab le term s. Ce rta inof t he Trus te e’s cl ai m s i n the di st ric t co urt, h owe ve r, se ekto subo rd in at e th e Wells pr in g l oan t o 6ot he r cre di to rs ’ ob li ga ti on s an d t o re ch arac te riz e Wells pr in g’s $ 12 m il li on do ll ar

de btcla im s as equi ty. The di st ric t co urt d en ie d the m ot io n t o d is m is s the se cla im s,
an d t he Trus te e co nt in ue s t o p ur su e th em indi st ric t co urt. InJu ly 200 3, wh enth e two $1 0 m il li on lo an s ca m e due , th e Deb to rs co ul d
no t re pa y th e lo an s. Des pi te be in g i ns ol ve nt , th e Deb to rs co nt in ue d o pe rat in g t he tra ve l b us in es se s, s el li ng tri ps to cu st om ers , andpu rch as in g s erv ic es fro m ve nd or s un ti l Se pt em

be r 23 , 20 03 . Betwe enJu ly 200 3 a ndSep te m be r 23 , 20 03 , th e Deb to rs us edcu st om ers ’ de po si ts to pa y op erat in g c os ts . So m e o f th os e cu st om ers lo stth ei r de po si ts an d d idno t re cei ve th ei r tr av el arra ng em en ts be cau se of t he ba nkrupt cy . Thes e cu st om ers ha ve pri or it y bankrupt cy

cla im s o f m or e th an$5 .6
m il li on . After

ba nkrupt cy , ass et s fo r whi chth e Deb to rs ha d p ai d $ 15 0 m il li on were s ol d fo r a n etof $ 14 m il li on . C. Th e Tr us te e’s All egat io ns in th e Co mpl ai nt an d Amen de d C

omp la in t The Trus te e b ro ug hta nu m be r of cla im s ag ai ns t Well sp rin g a ndth e In di vi du al Defen da nt s b as edonth ei r ha vi ng ex erci se d c on tro l o f th e Far& W id e en ti ti es . The Tru st ee s ta te d t he fol lo win g c la im s i n t he ori gi na l Co m pl ai nt : 1. The in di vi du al di rect or s an d o ffi cers of F ar & Wid e b reac he d t he ir f iduc ia ry du ti es to th e Deb to rs .

72. The se in di vi du al s al so bre ach edth ei r fi du ci ary du ti es to th e Deb to rs ’

cred it or s. 3. The se in di vi du al s ai de d a ndab et te d e ach ot he r in bre ach in g t he ir f iduc ia ry du ti es to th e Deb to rs an d t o Deb to rs ’ cred it or s. 4. W el ls pr in g a id edan d abe tt edth e In di vi du al Defen da nt s’ bre ach es of t he ir fiduc ia ry du ti es to bo th th e Deb to rs an d t he Debt or s’ cred it or s. 5. The cla im s o f th e In di vi du al Defen da nt s ag ai ns t the bankrupt cy est at e sh ou ldbe equi tabl y

subo rd in at edinth e b an krup tc y to th e cl ai m s o f ot he r cred it or s. 6. W el ls pr in g m is st at edit s p ur po rte d d eb t cl ai m s i n t he ba nkrupt cy an d the de btcla im s s ho ul d b e rec ha ract eri zedas e qu it y . 7. W el ls pr in g’s cl ai m s ag ai ns t the ba nkrupt cy est at e sh ou ldals o b e equi tabl y subo rd in at edto th e cl ai m s o f th e o th er cr ed it or s. 8. Erns t & You ng , LLP (“ Erns t & Young ”), wh o p rep aredau di te d fi na nc ia l st at em en ts forth e Deb to rs , aid edan d abe tt edth e b reac h o f fi du ci ary du ti es by W el ls pr in g andth e In di vi du al Defen da nt s, b reac he d t he ir dut y of c are t o th e Deb to rs an d t he Debt or s’ cred it or s, an d c omm it te d p ro fes si on al
m al pr act ic e.

8Subs eque nt ly, Erns t & You ng an d t he Trus te e ag reedto subm itth e cl ai m s

ag ai ns t Ern st& You ng to arb it rat io n, an d t he di st ric t co urt g ran te d Ern st& You ng ’s m ot io n t o c om

pe l arbi tra ti on . After Ern st& You ng was re m ov ed , W el ls pr in g a ndth e In di vi du al Defen da nt s m ov edto di sm is s the Co m pl ai ntinit s en ti rety pu rs ua ntto Ru le 12 (b )(6 ) of th e Fed eral Ru le s o f Ci vi l Pr oc edur e. The di st ric t co urt d en ie d Well sp rin g’s an d t he Ind iv idua l Def en da nt s’ m ot io n t o di sm is s the cla im s fo r subo rd in at io n a ndforrech arac te riz at io n o f de bt(nu m be rs fiv e, si x, an d s ev enab ov e), wh ic h c on ti nu e b efo re the di st ric t co urt. The di st ric t
co urt d is m is se d t he rem ai ni ng cla im s (n um be rs on e, two , th ree, an d fo urab ov e). W it h t he Co urt’s p erm is si on , App el la ntfil edan82 pa ge Am en de d C om pl ai nton Decem be r 5, 2 00 7, wh ic h i nc lu de d t he fol lo win g c la im s: a. Dire ctcla im s o f th e Deb to rs ag ai ns t Well sp rin g a ndth e In di vi du al Defen da nt s fo r br each of f iduc ia ry du ti es . b. Deri va ti ve cla im s o f th e Deb to rs ’ cred it or s al le gi ng th atW el ls pr in g a ndth e In di vi du al Defen da nt s b reac he d fi du ci ary du ti es to th e Deb to rs . c. Dire ctcla im s o f th e Deb to rs ag ai ns t Well sp rin g a ndth e In di vi du al Defen da nt s fo r de cep ti ve an d u nf ai r tr ad e p ract ic es .

9d. Dire ctCla im s b y th e Deb to rs ag ai ns t Well sp rin g a ndth e In di vi du al Defen da nt s fo r ai di ng an d abe tt in g e ach othe r’s br each of t he ir f iduc ia ry du ti es . e. Deri va ti ve Cla im s b y th e Deb to rs ’ cred it or s ag ai ns t Well sp rin g a ndth e In di vi du al Defen da nt s fo r ai di ng an d abe tt in g e achot he r’s br each of t he ir fiduc ia ry du ti es . W el ls pr in g a ndth e In di vi du al Defen da nt s m ov edto di sm is s the Am en de d Co m pl ai nt . The d is tri ctco urt g ran te d t he m ot io n, d is m is se d t he Am en de d Co m pl ai nt , anden te redpa rti al fin al jud gm en t p ur su an t t o R ul e 54 (b ) of

th e Fed eral Ru le s o f Ci vi l Pr oc edur e so th atth e Tru st ee co ul d app eal th e d is m is sa l o f th e b reac h o f fi du ci ary du ty clai m s wh il e th e cl ai m s fo r subo rd in at io n a ndfor rech arac te riz at io n o f de btpro ceed edinth e d is tri ctco urt. D. The I ss ues o n Ap

pe al App el la ntap pe al s the di stric t co urt’s d is m is sa l o f th e Deb to rs ’ di rectcla im s fo r br each of f

iduc iary du ty by App el le es , th e d is m is sa l o f th e Deb to rs ’ cred it or s’ di rectcla im s ag ai ns t Ap pe ll ees forbre ach of f iduc ia ry du ty owedto th em , andth e di sm is sa l o f th e cre di to rs ’ de riv at iv e cl ai m s ag ai ns t Ap pe ll ees . App el la ntals o ap pe al s the di sm is sa l o f th e rel at edaid in g a ndab et ti ng cla im s. Fi na ll y , App el la nt ap pe al s the di st ric t co urt’s d eci si on to ap pl y Dela ware ra th er tha n F lo rid a la w to 10th e fi du ci ary du ty clai m s. Ap pe ll an t d oe s n otap pe al th e d is m is sa l o f th e d ecep ti ve

tra de pra ct ic es cla im s (c la im c. ab ov e) o r th e d is m is sa l o f th e cl ai m s ag ai ns t Ern st & Yo un g (c la im

8. ab ov e), wh ic h wer e co m pe ll edto arb it rat io n. Th e equi tabl e subo rd in at io n c la im s, the cla im forrech arac te riz at io n o f W el ls pr in g’s (c la im s 5 ., 6., an d 7 . abo ve ) de btas e qu it y , anda cl ai m ag ai ns t Well sp rin g fo r di sa ll owa nc e of a cl ai m inba nkrupt cy

co nt in ue inth e d is tri ctco urt. II . JURIS DICTI ON The di stric t co urt h adjuri sd ic ti on ov er thi s ca se pu rs ua ntto 28 U.S.C. § 13 34 , whi chpro vi de s tha t d is tri ctco urts ha ve ori gi na l juris di ct io n o ve r ci vi l pr oc eed in gs rel at edto bankrupt cy cas es bro ug htun de r Tit le 11 . This Co urt h as juri sd ic ti on ov er an ap pe al fro m th e fi na l ju dg m en t o f th e d is tri ctco urt p ur su an t t o 12 U.S.C. § 1 29 1. Se e al so Thi gp env. Sm it h, 7 92 F.2d15 07 , 15 16 n.1 5 (1 1t h C ir. 19 86 ) (fed eral ap pe ll at e co urts have juri sd ic ti onto rev ie w parti al fin al jud gm en ts
en te redpu rs uantto Fed . R. Civ . P. 54 (b )).

II I. STANDARD OF REVIE W Thi s C ou rt r ev ie ws the di st ric t co urt’s d is mis sa l fo r fai lu re t o s ta te a cl ai m de no vo , acce pt in g the all eg at io ns inth e Co m pl ai ntan d Am en de d C om pl ai ntas tru e an d c on st ru in g t ho se fact s i n t he li gh t m os t fa vo rab le to th e Tru st ee. Mi ll s v . Fo rem os t In s. Co ., 51 1 F .3d13 00 , 13 03 (11 th Cir . 20 08 ). The C ou rt r ev ie ws a 11di st ric t co urt’s o rd er d is m is si ng cla im s fo r la ck of s ta nd in g de no vo . Mic co su ke e Trib e o f In di an s v . Flo rid a St at e Ath le ti c Co m ’n, 22 6 F .3d12 26 , 12 28 (11 th Cir
. 20 00 ). Fin al ly, th e d is tri ctco urt’s d eci si on to ap pl y Dela ware s ub st an ti ve law t o th e Tru st ee’s cl ai m s i s a l eg al qu es ti on , whi chth e Co urt al so rev ie ws de no vo . Grupo Tele vi sa , S.A. v. Tele m un do Co m

m . Group, In c., 48 5 F .3d12 33 , 12 39 (1 1t h C ir. 2 00 7)
. To s urvi ve a m ot io n t o d is m is s, a c om pl ai ntne edno t co nt ai n “ de ta il ed factua l al le ga ti on s,” b utitm us t co nt ai n s uf

fic ie ntfactua l al le ga ti on s t o s ug ge stth e requi redele m en ts of acau se of a ct io n. Be ll Atl an ti c Co rp . v. Twom bl y , 55 0 U.S. 54 4, 1 27 S. Ct. 1 95 5, 1 96 4- 65 (20 07 ); Watt s v . Fla . Int ’l Uni v., 4 95 F.3d12 89 , 12 95 -9 6 (1 1t h C ir. 2 00 7) . “ [A] form ul ai c rec it at io n o f th e el em en ts of acau se of act io n wi ll no t d o.” Twom bl y , 55 0 U.S. at55 5- 56 . Nor wi ll m ere l ab el s an d l eg al
co nc lu si on s wi th st an d a12 (b )(6 ) m ot io n t o d is m is s. Id . This is a st ric te r st an da rd th anth e Supr em e Co urt d es cri be d i n C on le y v. Gi bs on , 35 5 U.S. 4 1, 4 5- 46 , 79 S. Ct . 99 , 10 2 (1 95 7) , whi chhe ldth ata co m pl ai ntsh ou ldno t b e d is m is se d fo r fai lu re to st at e a cl ai m

“un le ss itap pe ars be y on d d oubtth atth e p la in ti ff ca n p ro ve no set of fact s i n s up po rt o f hi s cl ai m whi chwou lden ti tl e h im to rel ie f.” Twom

bl y , 55 0 U.S. at 5 77 . Und er the st an da rdart ic ul at edby the Supr em e Co urt i n Two m bl y , th e

12co m

pl ai ntcan no t s ug ge stth e ex is te nc e o f a cl ai m ; the co m pl ai ntm us t co nt ai n

“ en ou gh fact s t o s ta te a cl ai m to rel ie f th atis pl au si bl e o n i ts face .” Id . at 5 70
. IV. DIS CUSSI ON A. Cho ic e o

f Ap pl ic ab le La w The Tru st ee b ro ug htth is cas e inFlo rid a, al le gi ng th atth e In di vi du al Defen da nt s an d Well sp rin g b reac he d fi du ci ary du ti es owedto Far & Wid e an d i ts cred it or s. Altho ug h t he act s fo rm in g t he ba si s o f th e Tru st ee’s cl ai m s o ccu rred la rg el y inFlo rid a, bo th Far & Wid e an d Well sp rin g wer e in co rp or at edin Dela ware. Th e d is tri ctco urt h el d t ha t Del aware law, n otFlo rid a law, app li edto th e subs ta nt iv e cl ai m s as se rte d b y th e Tru st ee. On Ap pe al , App el la ntco nt en ds th atth e d is tri ctco urt erredby app lying Dela ware l aw. The di stric t co urt h adjuri sd ic ti on of t hi s m at te r pu rs ua ntto 28 U.S.C. § 13 34 . Fed eral co urts si tt in g i n d iv ers it y ap pl y th e fo rum

st at e’s ch oi ce o f la w ru le s. Un it edSta te s Fi d. & Guar . Co. v . Lib erty Surp lu s In s. Co rp ., 55 0 F .3d 10 31 , 10 33 (11 th Cir . 20 08 ); Grupo Tele vi sa , 48 5 F .3dat 1 24 0. Fe de ral co urts ha ve ad op te d thi s p rin ci pl e in cas es ari si ng un de r 28 U.S.C. § 1 33 4, wh enth e un de rlyin g ri gh ts an d o bl ig at io ns of t he pa rti es are d efi ne d b y st at e la w. See Offi ci al Co m

m . of Un se cu redCred it or s v . Don al ds on , Lufk in& Je nr et te Sec.

13Co rp ., No. 00 -8 68 8, 2 00 2 WL 36 27 94 , *5 (S.D.N.Y. Mar. 6, 2 00 2) . The Tru st ee

fil edth is act io n i n F lo rid a; th eref or e, Fl or id a’s ch oi ce o f la w rul es ap pl y . The fiduc iary

du ti es owedto a co rp or at io n b y it s o ffi cers an d d ire ct or s co nc ernth e in te rn al affa irs of aco rp or at io n. Se e Edg ar v . Mit e Co rp ., 45 7 U.S. 62 4, 6 45 , 10 2 S . Ct. 2 62 9, 2 64 2 (1 98 2) (“ m at te rs pe cu li ar t o t he rel at io ns hi ps am on g o r be twee n t he co rp or at io n a ndit s cu rren t o ffi cers , di rect or s, an d sh areh ol de rs ” are a co rp or at io n’s i nt ern al affa irs ); s ee al so Nagy v. Rib le t Pr od s. Co rp ., 79 F.3d57 2, 5 76 (7t h C ir. 1 99 6) (ap pl y in g t he in te rn al affa irs do ctrin e to cl ai m s o f br each of f

iduc ia ry du ty by a co ntro ll in g s ha reh ol de r). The Flo rid a Bu si ne ss Co rp or at io n Actpro vi de s tha t the in te rn al affa irs of aco rp or at io n a re go ve rn edby the laws of t he st at e o f in co rp or at io n. Fl a. St at . § 6 07 .15 05 (3 ); Ch at lo s Fo un d., In c. v. D’Arata , 88 2 S o. 2 d 1 02 1, 1 02 3 (F la . 5th DCA 2 00 4) (ap pl y in g t he in te rn al affa irs do ctrin e as co di fie d b y th e Fl or id a NotforPro fit Co rp or at io n Act , whi chis id en ti cal to Fla . Sta t. § 60 7.1 50 5( 3) ). [The Flo rid a Bu si ne ss Co rp or at io n Act ] do es no t au th or iz e th is st at e to reg ul at e th e o rg an iz at io n o r in te rn al affa irs of afor ei gn co rp or at io n au th or iz edto tra ns actbu si ne ss inth is st at e. Fl a. St at . § 6 07 .15 05 (3 ). The R es ta te m en t (S eco nd ) of Co nf li ctof Laws als o pr ov id es th atth e in te rn al affa irs of c or po rat io ns are g ov ern edby the laws of t he

14st at e o f in co rp or at io n. Se e Res ta te m en t (S eco nd ) of Co nf li ctof Laws §§ 30 2- 9 (1 97 1)
. As cl ai m s co nc ern in g the in te rn al affa irs of F ar & Wid e, th e fi du ci ary du ty cl ai m s as se rte d b y

th e Tru st ee ar e g ov ern edby the law o f Del aware , th e st at e o f in co rp or at io n. Fl a. St at . § 6 07 .15 05 (3 ); C ha tl os , 88 2 S o. 2 d a t 1 02 3. An
ex cep ti on to th e in te rn al affa irs do ctrin e ex is ts inth e “ unus ua l ca se ” whe re the fo ru m st at e h as a m or e si gn ifi can t re la ti on sh ip to th e p art ie s an d the oc cu rren ce. Res ta te m en t (S eco nd ) of

Co nf li ctof Laws §§ 30 2, 3 06 , 30 9. Th e Tru st ee co nt en ds th atFlo rid a h as a m or e si gn ifi can t re la ti on sh ip to th is di sp ut e, an d, thu s, th e in te rn al affa irs do ctrin e sh ou ldno t ap pl y to th is cas e. As the di st ric t co urt
no te d, h owe ve r, th e Tru st ee h as no t s ho wn tha t Fl or id a h as th e type o f ov erri di ng in te res t i n app lying it s l aws to th is di sp ut e so as t o re bu t the pre su m pt io n tha t the la ws o f th e st at e o f in co rp or at io n app ly to cl ai m s fo r br each of f iduc ia ry du ty by of fic ers , di rect or s, an d am ajor it y sh areh ol de r. See Re st at em en t (S eco nd ) of Co nf li ctof Laws § 6 (19 71 ) (s etti ng forthfact or s t o c on si de r fo r de te rm in in g whe th er a fo ru m

ot he r th anth e st at e o f in co rp or at io n h as a m or e si gn ifi can t rel at io ns hi p t o t he pa rti es or o ccurren ce). Acc or di ng ly, th e d is tri ctco urt was
co rrec t t o app ly D el aware law t o t he subs ta nt iv e cl ai m s i n t hi s d is pu te .

15B. Appe ll an t’s Att emp t t o Br in g C re di to rs ’ Clai ms Di re ct lyAga in st W el ls pr in g an d the Ind iv id

ua l Def en da nt s Inth e o rig in al Co m

pl ai nt , th e Tru st ee s ou gh t t o b rin g c la im s ag ai ns t the In di vi du al Defen da nt s an d Well sp rin g fo r br each in g afiduc ia ry du ty oweddi rect ly to th e cre di to rs aft er the Debt or s b ecame ins ol ve nt . See s up ra Part I .C.cl ai m s 2 -4
. Inth e Am en de d C om

pl ai nt , th e Tru st ee at te m

pt edto bri ng de riv at iv e cl ai m s o n be ha lf o f th e cre di to rs ba se d o n t he Ind iv idua l Def en da nt s’ andW el ls pr in g’s br each es of f

iduc iary du ti es owedto th e Deb to rs . See s up ra Pa rt I .C. cla im s b ,d. The di st ric t co urt d is m is se d t he di rectcred it orcla im s i n t he ori gi na l Co m pl ai nt , ho ld in g Del aware law d idno t re co gn iz e d ire ctcred it orcla im s u nd er No rth Am eri canCatho li c Edu cat io na l Pr og ram m in g F ou nd at io n, In c. v. Gh eewal la , et al ., 93 0 A.2 d 9 2, 1 01 (Del . 20 07 ). The d is tri ctco urt al te rn at iv el y he ldth atth e Trus te e d idno t h av e st an di ng to bri ng di rectcred it or s’ cla im s o n b eh al f of les s th anall cred it or s u nd er Capl inv. Ma rin e Mi dl an d Gra ce Tru stCo ., 40 6 U.S. 4 16 , 92 S. Ct. 1 67 8 (1 97 2) , andE.F. Hutt on & Co . v. Had le y , 90 1 F .2d97 9, 9 86 (11 th Ci r. 19 90 ). The d is tri ctco urt d is m is se d t he de riv at iv e cl ai m s as dupl ic at iv e an d a
was te of ju di ci al res ou rces . W e fi ndth atth e d is tri ctco urt was co rrec t fo r th e fo ll owi ng reas on s.
161. Delaw ar e La w Doe s N ot Reco gn iz e Dir ect

Cla ims fo r Br ea ch of

Fid uc ia ry Dut y b y th e Deb to rs ’ Cr edit or

s. The ori gi na l Co m

pl ai ntass ert edth ree d ire ctcla im s o n b eh al f of th e Deb to rs ’ cred it or s ag ai ns t Well sp rin g a ndth e In di vi du al Defen da nt s fo r br each of fiduc ia ry du ty. The Trus te e arg ue d t ha t b ot h t he Ind iv idua l Def en dant s an d W el ls pr in g o wedfiduc ia ry du ti es di rect ly to the Debt or s’ cred it or s o nc e Far& W id e b ecame ins ol ve nt . The di st ric t co urt d is m is se d the cred it or s’ di rectcla im s fo r br each of f

iduc iary du ty und er Del aware law. App el lantap pe al s the di sm is sa l
as erro r. Dela ware l aw reco gn iz es th atoff ic ers an d d ire ct or s ar e g iv enwid e la ti tu de to run a co rp or at io n a s the y see fitforth e b en efi t o f sh areh ol de rs . Mic he ls on v. Dun can , 40 7 A.2 d 2 11 , 21 7 (De l. 1 97 9) . App el la ntarg ue s, the refo re, tha t the di rect or s’ andoff

ic ers ’ du ti es ch an ge on ce a c or po rat io n b eco m es in so lv en t be cau se Delaware co urts ha ve lo ng reco gn iz edth at , when a co rp or at io n b eco m es in so lv en t, i ts pro pe rty m

us t b e ad m in is te redas atru stfun d fo r th e b en efi t o f cred it or s. See Cred itLy on na is Ban k Ned erl an d, N.V. v. Pa th e Co m m un ic at io ns Co rp ., 19 91 W L 27 76 13 , at * 11 55 n.5 5 (De l. Ch . 19 91 ) (d es cri bi ng th e “ curio us ”

17in cen ti ve s an d d iv erg en ce o f in te res ts cred it or s an d d ire ct or s fa ce dur in g

in so lv en cy ); B ov ay

v. H.M. Bylle sb y

& Co . 38 A.2d80 8, 8 13 (Del .19 44 ). App el la ntco nt en ds th at , up on in so lv en cy , th e o ffi cers an d d ire ct or s o we a fiduc ia ry du ty dire ct ly to cr ed it or s, wh ic h re qu ire s the m to m ax im iz e th e co m pa ny’ s v al ue forth e cre di to rs , as t he co rp or at io n’s re si du al va lu e h ol de rs . See, e.g ., Gey er v . Ing ers ol l Publ ic at io ns Co ., 62 1 A.2 d 7 84 , 78 7- 88 (Del . Ch. 19 92 ) (s ug ge st in g t ha t a f iduc ia ry du ty to cr ed it or s ar is es at i ns ol ve nc y); s ee ge ne ral ly Rich ardM. Ci eri & Mi ch ael J. Ri el a, Pro te ct in g Di rect or s an d Off ic ers of Co rp or at io ns ThatAre In so lv en t: Im po rtantCo ns id erat io ns , Pract ic al So lu ti on s, 2 DePau l Bu s. & C omm . L.J. 29 5, 3 01 -0 2 (2 00 4) (dr awin g t he in fere nc e fro m

pri orDela ware au th or it y th atin so lv en cy

alt ers th e n atur e o f fiduc ia rie s’ du ti es ); Lau ra Lin , Shi ft o f Fi du ci ary Dut y Upo n C or

po rat e In so lv en cy : Pr op er Sc op e o f Dire ct or s’ Duty to Cred it or s, 4 6 Van d. L. Rev . 14 85 , 15 12 (19 93 ) (s am e). The Dela ware Supr em e Co urt p ro vi de d c le ar g ui da nc e o n t hi s i ss ue in Ghe ewal la , 93 0 A.2 d a t 1 01 . In Gh eewal la , a cred it orof aDela ware co rp or at io n br ou gh t d ire ctcla im s fo r br each of f iduc iary du ty agai ns t thr ee o f th e co rp or at io n’s d ire ct or s. Id . at 9 4. Th e co m pl ai ntall eg edth atth ree d ire ct or s u se d 18th ei r co nt ro l o f th e co rp or at io n t o fa vo r Gol dm anSach s i n v io la ti on of t he ir

fiduc ia ry du ti es to th e co rp or at io n. Id
. The di rect or s m ov edto di sm is s the
co m pl ai ntforfai lu re t o s ta te a cl ai m . Id. The Dela ware Supr em e Co urt h el d t ha t cr ed it or s o f anin so lv en t co m pa ny do no t h av e a d ire ctcla im ag ai ns t d ire ct or s o r m an ag ers forbre achof f iduc ia ry du ty. Id. Th e Co urt ex pl ai ne d t ha t u nd er Del aware law, “ [d ]irect or s o we th ei r fiduc ia ry ob li ga ti on s t o the co rp or at io n a ndit s s ha reh ol de rs .” Id . at 9 9. Be cau se di rect or s an d o ffi cers do no t o we a fi du ci ary du ty to cr ed it or s, ev enaft er in so lv en cy , th e d is tri ctco urt co rrec tl y di sm is se d t he Debt or s’ cred it or s’ di rect cl ai m s fo r br each of f

iduc ia ry du ty. C. Th e Cr edit or

s’ Deri va ti ve Clai ms Ar e Mir ro r Ima ges o f the Debt or

s’Cla ims an d C an no t b e Bro ught

in th e S ame Acti on . Inth e Am en de d C om

pl ai nt , th e Tru st ee al so bro ug htde riv at iv e cl ai m s b y th e Deb to rs ’ cred it or s. Th es e cl ai m s at te m ptto ass ertde riv at iv el y

th e id en ti cal di rectcla im s o f th e Deb to rs forbre ach es of f iduc ia ry du ty andde pe ndon th e sa m e fac tu al all eg at io ns . The di st ric t co urt re ferr edto th em as “ m irr orim ag es ” o f th e Deb to rs ’ cl ai m s an d, i n awell -rea so ne d a na lysis , di sm is se d t he se de riv at iv e cl ai m s as dupl ic at iv e o f th e Deb to rs ’ di rectcla im s.
19A pl ai nt iff m ay on ly recov er fro m

a de fen da nton ce fo r a s in gl e cl ai m . See St . Luk e’s Cat arac t & Lase r In st ., P.A. v. San de rs on , 57 3 F .3d11 86 , 12 03 (11 th Ci r. 20 09 ). If th e Deb to rs su ccee d o n t he di rectcla im s ag ai ns t the Ind iv idua l Defen da nt s the n t he cred it or s’ der iv at iv e cl ai m s m us t fa il be cau se th e In di vi du al Defen da nt s ca nn otbe li ab le twi ce fo r th e sa m e cl ai m . See Gen . Tel. Co . v. EEOC, 44 6 U.S. 3 18 , 33 3, 1 00 S. Ct. 1 69 8, 1 70 8 (1 98 0) (“ co urts canan d s ho ul d pr ecl ud e d oubl e rec ov ery by an i nd iv idua l” ); Whi te v. Un it edSta te s, 5 07 F.2d 11 01 , 11 03 (5t h C ir. 1 97 5) (“ no dupl ic at in g re co ve ry of d am ag es forth e sa m e in jury m ay be ha d” ). If, ho wev er, the Debt or s’ di rectcla im s fa il to st at e a cl ai m

2 th enth e cre di to rs ’ de riv at iv e cl ai m s m us t al so fai l b ecau se th e cl ai m s ar e b as ed
on th e sa m e fac tu al all eg at io ns . Accor di ng ly, th is Co urt af firm s the di st ric t
co urt’s d is m is sa l o f Co un ts III, IV, V, VI, andVII of th e Am en de d C om

pl ai nt . D. App el la nt ’s Co mpl ai nt an d Amen de d C

omp la in t Fa il ed

to Stat e a Cla im f

or Brea ch of Fid uc ia ryDut

y byDefe nd

an ts . The Trus te e d oe s h av e st an di ng to bri ng di rectcla im s fo r br each of fiduc ia ry du ty on b eh al f of

th e Deb to rs . The Am en de d C om pl ai ntall eg es th at W el ls pr in g a ndth e In di vi du al Defen da nt s b reac he d b ot h t he fiduc ia ry du ty of
Fifth Circuit dec isions rendere d on or bef ore Septe mber 30, 1981, a re bindingprec edent 2 on this court. See B onner v. City of Prichard, 661 F.2d 1206, 1209 ( 11th Cir. 1981) (en ba nc). 20lo y al ty andth e fi du ci ary du ty of care owedto th e Deb to rs . The cl ai m s ar e b as ed

on all eg at io ns th atth e In di vi du al Defen da nt s an d Well sp rin g o pe rat edFar & W id e wit h t he go al of c on ti nu in g i ts op erat io ns un ti l i t co ul d b e so ldfora pr of it
an d re fu se d t o t ak e o th er m eas ur es th atm ay ha ve be tt er p res erv edit s v al ue forth e cred it or s. The Trus te e sp eci fic al ly focu se s o n the sec ur edlo antrans act io n be twee n the Debt or s an d Well sp rin g i n Oct ob er 2 00 2 a s a p rimary ex am pl e o f th is bre ach of dut y . The Trus te e co nt en ds th atW el ls pr in g was pre ferr edov er o th er sh areh ol de rs , andth atth e In di vi du al Defen dant s, as in te res te d i ns id e d ire ct or s, are n oten ti tl edto th e p ro te ct io n o f th e b us in es s ju dg m en t ru le
. The Trus te e co nt en ds th atbe cau se th e In di vi du al Defen da nt s ar e n otpro te ct edby the bu si ne ss jud gm en t ru le , th e b ur de n s hi fts to th e In di vi du al Defen da nt s an d Well sp rin g t o de m on st rat e th atth e lo anwas “ en ti rel y fai r.” Fo r th e fo ll owi ng reas on s, thi s Co urt fi nd s tha t the di st ric t co urt d idno t err in di sm is si ng th e b reac h o f fi du ci ary du ty clai m s as se rte d a ga in stth e In di vi du al Defen da nt s an d Well sp rin g s in ce the Co m pl ai ntfai le d t o s ta te su ffi ci en t fa ct s “ to st at e a cl ai m to rel ie f th atis pl au si bl e on it s fa ce.” Two m

bl y , 55 0 U.S. at57 0.

1. Th e Dut

y o f Lo ya lt y 21Und er Del aware law, “ [t]he ess en ce o f th e dut y of l oyalty

is th at‘ co rp or at e of fic ers an d d ire ct or s ar e n otpe rm it te d t o u se th ei r po si ti on of tru stan d
co nf id en ce t o fu rth er the ir p riv at e in te res ts .’ ” 1 -4 Co rp or at e Gov ern an ce: Law
an d P ract ic e § 4.0 3 (quo ti ng Guth v . Loft , 5 A.2 d 5 03 , 51 0 (De l. 1 93 9) ). The du ty of lo y al ty requ ire s a f iduc ia ry to actinth e b es t i nt eres ts of t he co rp or at io n. Ced e & Co . v. Tech ni co lo r, In c., 63 4 A.2 d 3 45 , 36 1 (De l. 1 99 3) (“ th e duty of lo y al ty m an da te s tha t the be stin te res t o f th e co rp or at io n a ndit s s ha reh ol de rs tak e pr eced en ce o ve r an y

in te res t p os se ss edby a . . . con tro ll in g s hareh ol de r an d n ot sh aredby the st oc kh ol de rs ge ne ral ly.”) A clai m forbre ach of t he du ty of lo y al ty
un de r Del aware law ex is ts wher e (1 ) th e co m pa ny is h arm edor ( 2) a fi du ci ary pe rs on al ly pro fit s fr om

a co rp or at e o pp ortu ni ty. See Ob erl y v. Ki rb y , 59 2 A.2 d 44 5, 4 63 (Del . 19 91 ) (h ol di ng a br each of t he fiduc iary du ty of lo y al ty can ex is t whe re ei th er the be ne fic ia ry is ha rm edor t he fiduc ia ry us es kn owl ed ge ga in ed fro m hi s p os it io n t o a dv an ce h is in de pe nd en t i nt eres ts ). The Am en de d C om

pl ai ntall eg es th atth e In di vi du al Defen dant s an d W el ls pr in g b reac he d t he du ty of lo y al ty by fav or in g t he in te res ts of Well sp rin g ov er tho se of t he Debt or . Insh ort, the Am en de d C om pl ai ntall eg es th atth e In di vi du al Defen da nt s m an ag edFar & Wid e fo r th e b en efi t o f a m ajor it y 22sh areh ol de r an d t ha t Fa r & Wide ob ta in eda lo anfro m W el ls pr in g i n Oct ob er 20 02 , whi chall owe d t he co m pa ny to c on ti nu e to run it s tro ub le d b us in es se s rathe r th anpre se rv in g i ts va lu e fo r th e cre di to rs . As a t hr es ho ldm at te r, th e co nc lu so ry all eg at io ns co nc ern in g b reac h o f th e du ty of lo y al ty in b ot h c om pl ai nt s ar e n otsupp orte d b y th e n eces sa ry

factua l al le ga ti on s “ to st at e a cl ai m to rel ie f th atis pl au si bl e o n i ts face .” Twom bl y , 55 0 U.S. at 5 70 . Mor eo ve r, th e Tru st ee al le ge s i njury on ly to the Debt or s’ cred it or s. Fo r ex am pl e, th e Am en de d C om

pl ai ntall eg es th atth e d eci si on to acce ptth e lo an fro m W el ls pr in g i n 2 00 2 a ndco nt in ue op erat in g t he bu si ne ss “ res ul te d i n t he di m in ut io n i n v al ue of F ar & Wid e’s as se ts to a po in t wh ere F ar & Wid e d idno t ha ve any ab il it y to pa y it s l iabi li ti es to it s cr ed it or s wh enba nkrupt cy pro te ct io n was fin al ly sou gh t....” Inord er t o s ta te a cl ai m

forbre ach of the du ty of lo y al ty, th e Tru st ee m us t al le ge fact s tha t i nd ic at e ei th er Far & Wide or i ts m in or it y sh areh ol de rs , no t Fa r & W id e’s cred it or s, were in jure d b y th e act io n o f th e In di vi du al Defen dant s. See Ced e & Co ., 63 4 A.2 d a t 3 61 (st at in g t ha t a b reac h o f th e dut y of l oyalty

canex is t whe re a fi du ci ary pu rs ue s h is ownin te res t o ve r th atof t he sh areh ol de rs ). Neit he r th e Co m pl ai ntno r th e Am en de d C om pl ai ntco nt ai n s uf

fic ie ntfactua l al le ga ti on s to supp ort s uc h acla im . The Tru st ee d oe s n otall eg e fac ts de m on st rat in g tha t the 23m ajor it y

sh areh ol de rs were p refe rredinan y way ov er the m in or ity

sh areh ol de rs . No al le ga ti on s i nd ic at e th atth e lo anco ul d h av e b een ob ta in edon m or e fav or ab le te rm s, tha t the Ind iv idua l Def en da nt s p ers on al ly ben efi tt ed , or tha t Well sp rin g be ne fit te d a t al l s in ce the lo anwas n ev er re pa id
. The o nl y in jury alle ge d i n t he Am en de d C om pl ai ntwas t o t he Debt or s’ cred it or s as a res ul t o f Far & W id e st ay in g i n b us in es s l on ge r an d d eep en in g i ts in so lv en cy , whenitwou ldha ve be eninth e b es t i nt eres t o f th e cre di to rs forFar & W id e to ceas e b us in es s an d l iqui da te . Delawar e la w, ho wev er, d oe s n ot
reco gn iz e a caus e o f act io n fo r “ de ep en in g i ns ol ve nc y .” Tren wickAm . Liti g. Trus t v . Erns t & You ng , LLP, 90 6 A.2 d 1 68 , 17 4, 2 04 (Del . Ch. 2 00 6)
. Eve n wh ena fi rm

is in so lv en t, i ts di rect or s m ay , inth e ap pr op ria te ex erci se of t he ir b us in es s ju dg m en t, t ak e act io n t ha t m ig ht , if i t d oe s no t p anou t, re su ltinth e fi rm be in g p ai nt edina de ep er h ue of r ed
. The factth atth e res idua l cl ai m an ts of t he firm at t ha t t im e are cred it or s d oe s n otm ean th atth e d ire ct or s ca nn otch oo se to co nt in ue th e fi rm 's o pe rat io ns inth e h op e th atth ey canex pandth e in ad equa te pi e su chth atth e fi rm 's c red it or s g eta gr eat er re co ve ry . Id . at 1 74
. The Trus te e al le ge s tha t the act io ns tak enby the bo ardof d ire ct or s wer e do ne so th atth e co m

pany cou ldco nt in ue op erat in g i n a n a tt em ptto faci li ta te a sa le of t he co rp or at io n t o ath irdpa rty. T he sal e, ho wev er, wo ul d h av e

24m ax im iz edth e v al ue to all sh areh ol de rs . Rec en t Del aware cas es ho ldth at

of fic ers an d d ire ct or s d o n otbre ach th e dut y of l oyalty

by exerc is in g t he ir bu si ne ss jud gm en t an d c on ti nu in g t o o pe rat e anin so lv en t co rp or at io n ra th er tha n en te rin g b an krup tc y

an d p res erv in g a ss et s t o p ay cred it or s. Tren wick , 90 6 A.2 d at17 4; Ghee wall a, 93 0 A.2 d a t 9 9 (e xp la in in g t ha t the ge ne ral rul e is th at di rect or s o f a co rp or at io n d o n otowe c red it or s dut ie s b ey on d t he rel ev an t
co nt ractua l t erm s)
. Infact , Ghee wall a p res en ts anan al og ou s fa ctua l s itua ti on . In Gh eewal la , a cred it orof C le arwi re Ho ld in gs , Inc . (“ Cl earwi re”) su edsev eral di rect or s o f Cl earwi re fo r br each of f

iduc ia ry du ty. Ghee wall a, 93 0 A.2 d a t 9 4. Th e cre di to rs al le ge d t ha t the di rect or s b reac he d t he ir f iduc iary du ti es on ce Cl earwi re b ecame in so lv en t an d e ffec ti ve ly w en t o utof b us in es s b ecau se th e d ire ct or s al lo wedth e co rp or at io n t o c on ti nu e h ol di ng cert ai n l ic en se s. Id . at 9 7- 99 . Hol di ng on to th es e li cen se s re qu ire d l arg e ex pe nd itur es of c as h e ach m on th , whi chot he rwis e wou ld ha ve be enav ai labl e fo r cre di to rs ha d t he co rp or at io n l iqui da te d. Id . at 9 7- 99 The Dela ware Supr em e Co urt s ta te d: It i s wel l es tabl is he d t ha t the di rect or s o we th ei r fi du ci ary ob li ga ti on s to th e co rp or at io n a ndit s s ha reh ol de rs . Whi le sh areh ol de rs rel y on di rect or s ac ti ng as f

iduc ia rie s t o p ro te ctth ei r in te res ts , cred it or s ar e affo rd edpro te ct io n t hr ou gh co nt ractua l ag reem en ts , frau d a nd frau du le ntco nv ey an ce l aw, im pl ie d c ov en an ts of g oo d fa ith a ndfai r 25de al in g, b an krup tc y law, g en eral co m

m erci al law an d o th er s ou rces of cred it orrig ht s. Id . at 9 9. Al l the se rem ed ie s ar e av ai labl e to th e cre di to rs inth e p res en t s itua ti on , an d t he y co nt in ue to pu rs ue so m e in th e d is tri ctco urt. If the y were wro ng ed , th ey ha ve am pl e rec ou rs e, bu t the rem ed ie s d o n otin cl ud e b rin gi ng a cl ai m forbre ach of fiduc ia ry

du ty whe re the on ly alle ge d i nju ry is a de ep en in g i ns ol ve nc y whi ch ha rm edon ly credi to rs . Si nc e Del aware law d oe s n otreco gn iz e a dut y to li qu id at e, an d t he Am en de d C om

pl ai ntfai ls to all eg e su ffi ci en t fa ct s t o d em on st rat e th e n eces sa ry el em en ts of acla im

forbre achof t he du ty of lo y al ty to the Debt or s, the di stric t
co urt d idno t err in di sm is si ng App el lant ’s cla im for bre ach of t he fiduc ia ry

du ty of lo y al ty. 2. Th e Dut y o f Ca re

“ The fiduc ia ry

du ty of care requi res th atdi rect or s o f a Del aware co rp or at io n u se th atam ou ntof c are wh ic h o rd in ari ly carefu l an d p ru de ntm en wou ldus e in si m il ar ci rcu m st an ces , andco ns id er al l m at eri al in fo rm at io n reas on ab ly avai labl e in m ak in g b us in es s d eci si on s.” In re Walt Di sn ey Co ., 90 7 A.2d69 3, 7 49 (Del . Ch. 2 00 5) (in te rn al qu ot at io n a ndcit at io n o m it te d) . A de fic ie nc y

inth e p ro ces s emplo y edby the di rect or s i s o nl y act io nabl e as a br each

26of

th e dut y of c are i f th e d ire ct or ’s act io ns are “ gr os sl y ne gl ig en t.” Id . Gros s ne gl ig en ce i nc lu de s a d ire ct or ’s fai lu re t o i nf orm hi m or h ers el f of

av ai labl e
m at eri al fact s wh enm ak in g ade ci si on on be ha lf o f th e co rp or at io n. Se e Inre W al t Di sn ey

Co ., 90 6 A.2 d 2 7, 6 4- 64 (Del . Sup er. Ct . 20 06 ); S mit h v . Van Gorkh om , 48 8 A.2 d 8 58 , 87 4 (De l. 1 98 5) (ho ld in g t ha t b oa rdm em be rs who
vo te d t o app ro ve a m erg er wi th ou t re vi ewin g a ny do cum en ta ti on reg ard in g t he ad equa cy of t he pro po se d p ur ch as e p ric e v io la te d t he du ty of care ), ov erru le d o n othe r gro un ds byGant le r v. St ep he ns , 96 5 A.2 d 6 95 , 71 3 n .45 (Del . 20 09 ); C ed e & Co . v. Tech ni co lo r, 63 4 A.2 d 3 45 , 36 7- 68 (Del . 19 93 ) (h ol di ng th atth e dut y of
care requi res di rect or s t o a cton anin fo rm edba si s)
. Si m pl y pu t, the st an dardis pr oc edur al , rathe r th ansubs ta nt iv e. Infact , Delaware l aw al lo ws a c om pany’ s bo ardto ev enm ak e an“ irr at io na l” de ci si on , so lo ng as t he de ci si on -m ak in g pr oc es s emplo y edby the bo ard“ was eithe r rat io na l o r em pl oyed i n a go od

fa ith effo rt t o a dv an ce co rp or at e in te res ts .” Inre Car em arkInt ’l Deriv at iv e Lit ig ., 69 8 A.2d95 9, 9 67 (Del . Ch. 1 99 6) (em ph as is inori gi na l). Th us , di rect or s wh o m ak e a d eci si on aft er em

pl oyin g arat io na l d eci si on -m ak in g p ro ces s an d c on si de rin g t he pe rti ne ntin fo rm at io n wi ll no t b e li ab le fora br each of t he fiduc ia ry du ty of care
. Inre Car em ark , 69 8 A.3 d a t 9 67 ; Ce de & Co ., 63 4 A.2 d a t 3 67 -6 8. Mo reo ve r,

27ev enup on in so lv en cy , th e duty of c are t o the co rp or at io n re m ai ns th e sa m e. Ghe ewal la , 93 0 A.2 d a t 1 01
. The Am en de d C om

pl ai ntfai ls to all eg e th atth e In di vi du al Defen da nt s d id
no t em pl oy a rati on al de ci si on -m ak in g p ro ces s o r di d n otco ns id er m at eri al in fo rm at io n wh enm ak in g t he de ci si on to ob ta in ad di ti on al lo an s an d c on ti nu e op erat in g F ar & Wid e rat he r th anpro ceedin to bankrupt cy . The Am en de d Co m pl ai ntall eg es on ly tha t the Ind iv idua l Def en da nt s “ refu se d o r fai le d t o fo ll ow [th e] adv ic e” o f th e two in de pe nd en t co ns ul ta nt s h ire d b y Far & Wid e’s
m an ag em en t. To s ta te a cl ai m forbre ach of t he du ty of care un de r Del aware law, a p la in ti ff m

us t al le ge m or e th anth atth e d ire ct or s an d o ffi cers of aco rp or at io n rece iv edin fo rm at io n fr om ou ts id e co ns ul ta nt s, b utde ci de d n otfol lo w th is advi ce. Ced e & Co ., 63 4 A.2 d a t 3 67 -6 8. Her e, th e In di vi du al Defen da nt s d is ch arg ed th ei r ob li ga ti on s u nd er the du ty of care by hiri ng co ns ul ta nt s an d b y co ns id eri ng th e co ns ul ta nt s’ adv ic e, ev enif the y di d n otfol lo w th e ad vi ce. Id . Accor di ng ly, th e d is tri ctco urt p ro pe rly dis mis se d C ou nt s VI an d XI o f th e Am en de d Co m pl ai nt . E. The Amen de d C

omp la in t Fa il ed

To Stat e A Cla im f

or Aidin g a nd

Abet ti ng a Brea ch of Fid uc ia ryDut

y.

28Inord er t o s ta te a cl ai m foraid in g a ndab et ti ng a br each of f iduc iary du ty
un de r Del aware law, a p la in ti ff m us t al le ge : (1 ) th e ex is te nc e o f a fi du ci ary rel at io ns hi p, (2 ) th atth e fi du ci ary br each edit s dut y , (3) th ata de fen da nt , who is
no t a f iduc iary , kn owi ng ly part ic ip at edinth e b reac h, an d (4 ) th atda m ag es to th e pl ai nt iff res ul te d fr om

th e co nc ert edact io n o f th e fi du ci ary an d t he no n- fiduc ia ry . Got ham Part ne rs L.P. v. Hall woo d R eal ty Partn ers , et al ., 81 7 A.2 d 1 60 , 17 2 (De l. 20 02 ) (quo ti ng W al la ce v . W oo d, 7 52 A.2d11 75 , 11 80 (Del . Ch. 1 99 9) ). The Am en de d C om

pl ai ntall eg es th atth e In di vi du al Defen dant s an d the W el ls pr in g Defen da nt s ai de d a ndab et te d e ach ot he rs ’ br each es of f iduc ia ry du ti es . The un de rlyin g b reac he s o f fi du ci ary du ty tha t fo rm th e b as is forth e Deb to rs ’ cl ai m s fo r ai di ng an d abe tt in g a re the same brea ch es of f iduc ia ry du ty th atth e Co urt fi nd s fa il as am at te r of law. See supr a Part IV.D.1 -2 . Becau se th e un de rlyin g b reac h o f fi du ci ary du ty clai m s fa il , th e cl ai m s tha t Well sp rin g a ndth e In di vi du al Defen da nt s ai de d a ndab et te d t ho se bre ach es m us t fo ll ow s ui t. See Got ham Part ne rs , 81 7 A.2 d a t 1 72 (a cl ai m for aid in g a ndab etti ng a br each of fiduc ia ry du ty requ ire s tha t the fiduc iary bre achit s dut y ). The d is tri ctco urt
co rrec tl y di sm is se d t he aid in g andab et ti ng cla im s, an d t hi s C ou rt a ffi rm s the di st ric t co urt’s d is m is sa l o f Co un ts IV, VII, IX, andXII. V. CONCLUSIO N

29Fo r th e fo reg oi ng reas on s, thi s C ou rt AFFIRMS th e jud gm en t o f th e

di st ric t co urt.

30