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January 2017

Texas-California Multi-Office Team Secures a Dismissal with Prejudice in Bankruptcy Case

In a cross-practice group effort, Jeffrey Cawdrey, Jeffrey Lilly, Megan Adeyemo and Lina Garcia from the San Diego, Austin and Dallas offices secured a dismissal with prejudice of one half of the director defendants and all but one of the several claims asserted against the directors on a Rule 12(b)(6) Motion to Dismiss.

In an entertaining, 53-page written opinion, Judge H. Christopher Mott, of  the United States Bankruptcy Court for the Western District of Texas, closely followed Gordon & Rees’s extensive arguments and authorities.  As to the lone remaining claim, Judge Mott expressed significant skepticism as to its viability, but determined that he was unable to fully dispose of the claim at the pleading stage.

With acknowledgement to Disney, Judge Mott commenced his written opinion as follows: “This type of lawsuit has become somewhat commonplace – directors of a now defunct corporation are sued for breach of fiduciary duties.  Here, the parties are currently “Frozen” in battle – as the defendants filed motions to dismiss under Rule 12(b)(6), echoing “Idina Menzel” to demand that the plaintiff just “let it go.”  For the most part, the Court agrees with the defendants and will send all but a single claim to a wintery grave.”  

The plaintiff Liquidating Trust sought $60 million in damages due to the alleged failure of the company’s directors to sell the business assets prior to the ultimate filing of the company’s bankruptcy. The plaintiff issued a Stowers demand seeking to bust the policy limits immediately after filing its initial complaint.

In response to Gordon & Rees's initial motion to dismiss, the plaintiff amended its complaint. The amended complaint asserted numerous claims, including breach of fiduciary duties, aiding and abetting and civil conspiracy against all seven of the company’s former board members. The amended complaint also sought application of the entire fairness standard, rather than the more deferential business judgment rule. In response to the amended complaint, Gordon & Rees filed a second motion to dismiss and, after hearing oral argument, the Court issued its written opinion, thereby eviscerating the plaintiff’s claims and turning the playing field in favor of Gordon & Rees's clients.


Megan M. Adeyemo
Jeffrey D. Cawdrey