On June 29, 2022, the U.S. District Court for the District of Oregon dismissed a bakery’s breach-of-fiduciary duty and other lender-based claims against a strategic investor and lender. In connection with an attempted reorganization, Svenhard’s Swedish Bakery, a producer of specialty baked goods, entered into a series of agreements with United States Bakery, another baked-goods producer and distributor, in which U.S. Bakery, among other things, made loans to Svenhard’s and guaranteed new loans from other lenders in an attempt to revitalize Svenhard’s operations. Following financial struggles, U.S. Bakery repossessed its collateral due to Svenhard’s unpaid debts and acquired Svenhard’s operations through a UCC foreclosure sale. Svenhard’s filed a chapter 11 bankruptcy petition soon after. In its bankruptcy case, Svenhard’s alleged that U.S. Bakery “took advantage of Svenhard’s weakened financial position” and exercised control beyond what typically occurs in a lender-debtor relationship, including by actively participating in the daily business operations and long-term management decisions. In doing so, Svenhard’s argued that U.S. Bakery assumed, and later breached, certain fiduciary obligations.

The court disagreed with Svenhard’s and held, on U.S. Bakery’s motion to dismiss, that “the mere exercise of control over a corporation’s affairs . . . does not impose fiduciary duties on the allegedly controlling parties.” Considering the issue under both Oregon and California law, the court determined the existence of fiduciary duties requires a “special relationship” in which the lender is obliged to pursue the debtor’s best interests. Svenhard’s complaint failed to allege a such a relationship” between U.S. Bakery and Svenhard’s, as the exercise of control over a debtor alone is not sufficient—the lender must assume a relationship similar to that of a principal and an agent or ­the relationship among partners.

The case is Svenhard’s Swedish Bakery v. U.S. Bakery, No. 20-1454 (D. Or. June 29, 2022). Svenhard’s Swedish Bakery is represented by Stoll Stoll Berne Lokting & Shlachter PC. U.S. Bakery is represented by Tonkon Torp LLP. The order is available here.