[co-author: Lauryn Morris]
On May 2, 2022, the U.S. Bankruptcy Court for the District of Delaware entered judgment, after a bench trial, for a lender on breach of fiduciary duty claims brought by the litigation trust for the borrower, finding that the trust failed to prove damages. ASHINC Corporation (“Allied”) was a unionized hauler for many major automobile manufacturers. Allied’s principal lender, Yucaipa, owned a majority of Allied’s secured debt and equity and also controlled Allied’s board. Two other lenders, Black Diamond and Spectrum (collectively, “BD/S”), were the minority holders of Allied’s secured debt. In 2008, after Allied defaulted on its secured debt for an extended period, Jack Cooper Transport entered into negotiations to buy Allied’s assets. Rather than dealing directly with Jack Cooper, the board deferred to Yucaipa, acting in its capacity as the majority lender. At the same time, Jack Cooper also engaged in parallel negotiations with BD/S over the purchase of its debt. While Yucaipa and BD/S were aware of each other’s negotiations with Jack Cooper, they were mostly unaware of the details, including the price offered for each other’s debt. In its negotiations, Yucaipa demanded a premium price for itself for first lien debt, which ultimately caused the transaction to fail. As a result, Allied’s bankruptcy litigation trust asserted that Yucaipa’s conduct constituted a breach of fiduciary duty that harmed Allied and its creditors and resulted in damages of $158.6 million, constituting the difference between the consideration set forth in a December 2011 term sheet and the ultimate purchase price Jack Cooper paid for Allied’s assets in 2013.
After a bench trial, the court issued findings of fact and conclusions of law in which it determined that, although Yucaipa had breached a fiduciary duty of loyalty based on evidence of self-delaing, the trust’s calculations of damages were “materially flawed and unreliable.” Specifically, because the trust’s damage calculations derived from preliminary and non-binding term sheets offered by Jack Cooper, the damages proved too speculative to impose liability. Even though the trust proved the merits of the claims, it failed to prove any damages arising from the Jack Cooper negotiations. As a result, the Court declined to award any damages in favor of the trust.
The case is Youngman v. Yucaipa Am. Alliance Fund I, L.P. (In re ASHINC Corp.), No. 13-ap-50530 (Bankr. D. Del. May 2, 2022). The plaintiff is represented by Fox Rothschild LLP, Landis Rath & Cobb LLP, and Stoel Rives, LLP. The defendant is represented by Ballard Spahr LLP, Pachulski Stand Ziehl & Jones LLP, and Glaser Weil Fink Howard Avchen & Shapiro. The order is available here.
