Most Read Contributor in United States, August 2016
On February 19, 2016, Judge Brendan L. Shannon of the Delaware
Bankruptcy Court granted in part the motion of K. Ivan F. Gothner
(the "Defendant") to dismiss a complaint filed by JLL
Consultants, the Liquidating Trustee (the "Trustee") in
the AgFeed bankruptcy. I summarized that opinion in a prior post:
Opinion in AgFeed USA – Another (Mostly) Successful Motion to
Since publishing that post, the Trustee filed his amended
complaint, to which the Defendant filed another motion to dismiss
(the "Motion"). On September 13, 2016, Judge Shannon
issued an opinion (the "Opinion") deciding this Motion.
The "Opinion" is available here.
Because of the length of the complaint and the Motion, the
Opinion weighs in at 32 pages. The analysis in this Opinion is
substantially similar to that of the prior opinion. The Opinion
indicates several times that no new information was provided in
support of, or against, several of the claims of the complaint.
Thus, for purposes of this post I'll focus on the single
largest issue of new analysis provided by the Court –
The Third Circuit precedent that is followed in the Delaware
Bankruptcy Court is provided in Seville Indus. Machinery Corp.
v. Southmost Machinery Corp., 742 F.2d 786, 791 (3d
Cir. 1984), cert. denied, 469 U.S. 1211, 105 S.Ct. 1179, 84 L.Ed.2d
327 (1985). For those of you without ready access to Lexis or
Westlaw, here is a link to the case in Google Scholar.
As Judge Shannon provided in the course of dismissing the
Trustee's allegation of Intentional Misrepresentation by
Nondisclosure (which is a common law fraud claim), "Fraud
requires: (1) a false representation of material fact; (2) the
knowledge or belief that the representation was false, or made with
reckless indifference for the truth; (3) the intent to induce
another party to act or refrain from acting; (4) the action or
inaction taken was in justifiable reliance on the representation;
and (5) damage to the other part as a result of the
representation." Opinion at *28.
In this claim, the Trustee failed to allege with particularity
that any action was taken in reliance of the Defendant's
representations. Judge Shannon includes a quote from the Delaware
Chancery Court that the "conclusory statement [that plaintiff
'relied upon' a statement] is insufficient; to plead
reliance with particularity, plaintiff must explain what he did or
refrained from doing, in justifiable reliance upon the
statement." Opinion at *29 (quoting Smith v. Smitty
McGee's, Inc., 2998 WL 246681, 15 *5 (Del. Ch. May 8,
1998)). In this case, the Trustee includes only the conclusory
statement that shareholders relied upon the Defendant's
representations without providing any specific instance in which
In the end, the result of the amended complaint was essentially
identical to the original complaint. The same causes of action
survived the Motion and no new actions survived the Motion. Judge
Shannon closed the Opinion with what should be considered a firm
warning to the Trustee – "the Court has previously
expressed and now reiterates its profound concerns with respect to
the dissipation of monies otherwise available for distribution to
stakeholders being burned up in litigation of dubious merit and
questionable collectability." Opinion at *32.
Having already provided the Trustee a second bite at the apple,
Judge Shannon declined to allow them another opportunity to amend
the complaint. The Delaware Bankruptcy Court, like other courts
across the U.S., takes a hard look at allegations of fraud, and
requires them to comply with the elevated pleading standard of Fed.
R. Civ. P. 9(b). Counsel looking to defeat a motion to dismiss may
want to consider having a fresh set of eyes review complaints
containing fraud allegations. Ideally, this 'fresh set of
eyes' will handle the review with no more background than the
Judge would have, and with either no bias or with a bias towards
dismissal. This will help ensure that the complaint complies with
the enhanced requirements of Fed. R. Civ. P. 9(b). It is said that
you can't make any shot you don't take — but you also
can't make any shot you take with 1/2 the force needed to reach
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
A number of towage and bunker suppliers have requested the intervention of a district court judge to clarify whether the U.S. Bankruptcy Court has authority to "effectively extinguish... maritime liens" on chartered vessels.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).