Miller v. Dutil et al

UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
TOTAL CONTAINMENT, INC. 	:
Debtor
: 	Bankruptcy No. 04-13144
____________________________________
GEORGE L. MILLER, Chapter 11 trustee 	:
Plaintiff
v. 	:
MARCEL DUTIL, et al. 	: 	Adversary No. 05-0145
Defendants
____________________________________
MARCEL DUTIL, et al._ 	:
Third-Party Plaintiffs
v. 	:
GEORGE MILLER, Individually and as 	:
Trustee
Third-Party Defendant :
____________________________________
GEORGE MILLER, Individually and as 	:
Trustee
Third-Party Plaintiff 	:
v. 	:
ANDRE MARSAN 	:
GROUPE CONSEIL MARSAN, INC.
Third-Party Defendants 	:
____________________________________
..............................................................
MEMORANDUM
..............................................................
The chapter 11 trustee, George L. Miller, previously commenced an
adversary proceeding asserting seven counts against 11 defendants, and seeking in excess
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Mr. Miller alleges that Finloc, Inc. filed a counterclaim against him on November1
23, 2005. Third-Party Complaint, ¶ 10. The docket in this proceeding does not reflect such a
filing.
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of $23 million in damages along with declaratory relief. Among the causes of action
raised by the trustee are those of negligence and breaches of fiduciary duty against the
officers and directors of the corporate debtor, Total Containment Inc. (“TCI”), in
connection with the entry of two prepetition judgments against the debtor.
Those defendant officers and directors, Messrs. Dutil, Gouin, DesJardins
and Wright then filed counterclaims and third-party complaints against Mr. Miller, both
individually and in his capacity as chapter 11 trustee. 	In their pleadings they allege that1
Mr. Miller was himself negligent, and also breached his fiduciary duties, in not seeking to
set aside the two prepetition judgments against TCI mentioned in his amended complaint.
They further assert that Mr. Miller was negligent and also breached his fiduciary duties in
conduct involving the post-bankruptcy sale of two assets of TCI: a sales office in Oaks,
Pennsylvania; and an office and manufacturing facility in Bakersfield, California.
Mr. Miller filed answers opposing these claims against him. He then filed a
third-party complaint against Mr. Andre Marsan and Groupe Conseil Marsan, Inc. In this
third-party complaint, Mr. Miller contends that if he is liable—either as trustee, or
individually, for negligence or breach of fidicuary duty—then Mr. Marsan and Groupe
Conseil Marsan are liable over to him for contribution or indemnity. Third-Party
Complaint, ¶¶ 27, 33, 41, 47. Mr. Miller bases his indemnity and contribution claims on
the alleged negligence and/or breach of fiduciary duty of these two third-party defendants.
The third-party defendants have now filed a motion to dismiss the
complaint for its failure to plead any cause of action against them.
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I.
It is well understood that in order to dismiss a claim for failure to state a
cause of action under Rule 12(b)(6) (incorporated by Fed. R. Bankr. P. 7012(b)), it must
appear beyond doubt that the plaintiff can prove no set of facts in support of that claim
which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45 (1957). A trial
court must accept as true all of the well-pleaded facts alleged in the complaint and any
reasonable inferences therefrom. Scheuer v. Rhodes, 416 U.S. 232 (1974); Conley v.
Gibson.
A motion to dismiss pursuant to Rule 12(b)(6) may be granted
only if, accepting all well pleaded allegations in the complaint
as true, and viewing them in the light most favorable to
plaintiff, plaintiff is not entitled to relief. Bartholomew v.
Fischl, 782 F.2d 1148, 1152 (3d Cir. 1986). “The issue is not
whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claims.”
Scheuer v. Rhodes, 416 U.S. 232, 236 . . . (1974).
In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410, 1420 (3d Cir. 1997).
In determining whether the trustee in this third-party proceeding has stated a
cause of action, I note that procedural rule Fed. R. Bankr. P. 7008 (incorporating Fed. R.
Civ. P. 8), requires only “‘notice’ pleading, rather than detailed fact pleading.” 2 Moore’s
Federal Practice, § 12.34[1][b], at 12-60 (3d ed. 1999). Accordingly, a plaintiff is not
required to plead each and every element of every claim with “precision.” Rose v. Bartle,
871 F.2d 331, 356 (3d Cir. 1989); accord In re Tower Air, Inc., 416 F.3d 229, 237 (3d
Cir. 2005); Bonsall Village, Inc. v. Patterson, 1990 WL 139383, at *7 (E.D. Pa. 1990);
Atlass v. Texas Air Corp., 1989 WL 51724, at *5 (E.D. Pa. 1989).
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The relevant factual allegations made against Mr. Marsan and Groupe
Conseil Marsan are as follows:
13. At least as early as, but no later than, January 15, 2004,
and prior to Mr. Miller’s appointment as Trustee, Andre
Marsan and Groupe Conseil Marsan, Inc. (collectively
Marsan), were in charge of, and made decisions related to, the
day to day operations of TCI, in conjunction with the TCI
Board of Directors, and other insiders and their affiliates
(collectively the Board).
14. Specifically, Marsan performed various duties for TCI,
which included, but were not limited to:
a. Manage the day-to-day operations of the
Debtor on an overall basis;
b. Oversee and analyze the financial situation of
the Debtor;
c. Direct the Debtor[’]s restructuring during the
Chapter 11 case, including, without limitation,
the sale of the Debtor’s various operations as
going concerns;
d. Negotiate with the Debtor[’]s various
creditors, secured and unsecured, and other
parties in interest; and
e. Perform such additional financial,
management and business consulting services as
may be required by the Debtor.
15. Marsan performed some or all of these functions between
January and March 2004, including after TCI filed for
bankruptcy.
Third-Party Complaint, ¶¶ 13-15.
Mr. Miller further avers that “the position of running the day to day
operations of the company in conjunction with the board” established a fiduciary duty to
TCI and its creditors. Id., ¶ 23; see also ¶ 37. He also asserts that this position created a
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“duty to exercise reasonable diligence and care in the management of TCI and in the
performance of their duties . . . .” Id., ¶ 29; see also ¶ 43. In their motion to dismiss, the
third-party defendants disagree.
II.
Mr. Marsan and Groupe Conseil Marsan contend that an individual or entity
who oversees the day-to-day operations of a corporation does not, by virtue of that
engagement, hold a fiduciary duty to the corporation or its creditors.
Pennsylvania law, which is relevant in this proceeding, imposes a fiduciary
duty upon corporate officers and directors. See 15 Pa. C.S.A. §§ 512, 1712. A
shareholder who controls or dominates the corporation may also be a fiduciary.
See Pepper v. Litton, 308 U.S. 195, 306 (1939). The third-party defendants are not
alleged to be directors, officers or dominant shareholders of TCI; they managed the
debtor’s day-to-day operations in conjunction with the corporate board.
In addition, a fiduciary relationship may sometime arise from a
principal/agency relationship. See generally SHV Coal Inc. v. Continental Grain Co., 376
Pa. Super. 241, 248-49 (1988). This relationship requires that the agent not act for his
own benefit to the detriment of his principal. Id. The trustee does not suggest in this
third-party complaint that the defendants acted in such a manner concerning the entry of
judgments against TCI. It is unclear whether his complaint implies self-dealing with
regard to the possible asset sales.
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State common law also provides that a fiduciary relationship may arise
where “one person has reposed a special confidence in another to the extent that the
parties do not deal with each other on equal terms, either because of an overmastering
dominance on one side or weakness, dependence or justifiable trust, on the other.” In re
Johnson, 292 B.R. 821, 828 (Bankr. E.D. Pa. 2003) (citing Destefano & Associates, Inc.
v. Cohen, 2002 WL 1472340, at *3 (Pa. Ct. Com. Pl. 2002), quoting Commonwealth
Dept. of Transp. v. E-Z Parks, Inc., 153 Pa. Commw. 258, 268, 620 A.2d 712, 717
(1993)); see also Lichtman v. Taufer, 2004 WL 1632574, at *7 (Pa. Com. Pl. Jul. 13,
2004) (same). The trustee argues that evidence in discovery may reveal such a special
confidence.
Finally, an outside lender can become a fiduciary under state law by
assuming significant control of a borrower-corporation. See Academy Industries, Inc. v.
PNC Bank, N.A., 2002 WL 1472342, at *12-13 (Pa. Com. Pl. 2002); see also James E.
McFadden, Inc. v. Baltimore Contractors, Inc., 609 F. Supp. 1102, 1105 (E.D. Pa. 1985).
An individual who oversees the day-to-day operations of a corporation does not, by virtue
of that managerial position, necessarily exert significant control over the corporation.
As the third-party defendants observe, a hotel employee who was “responsible for the
day-to-day operation of the hotel, human resources management (including hiring and
firing of staff), strategic planning, and financial performance” was held not to be a
fiduciary under Illinois law by virtue of his position or duties alone. Riad v. 520 South
Michigan Ave. Associates Ltd., 78 F. Supp. 2d 748, 750 (N.D. Ill. 1999).
Conversely, in In re J.F.D. Enterprises, Inc., 223 B.R. 610 (Bankr. D. Mass.
1998), aff'd, 215 F.3d 1312 (1st Cir. 2000), a bankruptcy court determined under federal
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common law that an individual who exercised day-to-day authority for the debtor’s post-
bankruptcy operations had sufficient corporate control to be considered a fiduciary:
Dialessi was an employee first of JFD [the debtor], as the
debtor-in-possession, and then of Stern once he was
appointed. His level of involvement in the Debtor's affairs is
fully documented in the record before the Court and is not the
subject of dispute. Prior to Stern's appointment, Dialessi
possessed, pursuant to the Conversion Stipulation, ‘without
limitation, all powers and authority of the Debtor to act for
and on its behalf in the operation of the business of the
Debtor-in-Possession and in the Chapter 11 proceedings of
the Debtor.” After Stern’s appointment, Dialessi was still
substantially responsible for the day-to-day operations of the
Debtor, even accepting the DiStefanos’ allegations regarding
Berman’s exertion of control as true. An estate
representative’s agent with this level of authority and
responsibility must be deemed a fiduciary of the estate and a
debtor's shareholders.
Id., at 623. In this proceeding, the trustee also contends that the third-party defendants
acted in a post-bankruptcy capacity.
Given the trustee’s prior allegations in his amended complaint that various
defendants controlled the actions of TCI, it may be difficult for him to also prove that the
third-party defendants exercised sufficient control of the debtor to be treated as
fiduciaries. His complaint also acknowledges oversight of the third-party defendants’
activities by the corporate board. Nonetheless, at this early stage of the third-party
proceeding, it would be inappropriate to deprive him of the opportunity to examine the
third-party defendants’ relationship to TCI and their control and/or self-dealing, if any.
Accordingly, their motion to dismiss counts I and III, asserting a breach of
fiduciary duty, shall be denied.
Insofar as the negligence counts II and IV are concerned, the third-party
complaint does not specify the basis by which the third-party defendants provided
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services to TCI. An independent contractor may be held liable for negligence. See
generally Dugan v. Niglio, 436 Pa. 22 (1969). In certain circumstances, an employee can
negligently perform his duties and be liable to his employer. See generally Brown v.
United Cerebral Palsy, 278 N.J. Super. 208 (1994).
As noted in an earlier memorandum, federal notice pleading requirements
do not demand much detail to state a cause of action for negligence. See In re Tower Air,
Inc., 416 F.3d at 237 (discussing Appendix Form 9 to Rule 84, illustrating a simple
negligence complaint); Lewis v. U.S. Slicing Machine Co., 311 F. Supp. 139, 140 (W.D.
Pa. 1970) (same). Again, the trustee should be given some opportunity to investigate the
scope of the third-party defendants’ duties and their performance thereof, and prove their
alleged negligence.
Accordingly, the third-party defendants’s motion to dismiss negligence
counts I and III must also be denied.
An appropriate order shall be entered.
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UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
TOTAL CONTAINMENT, INC. 	:
Debtor
: 	Bankruptcy No. 04-13144
____________________________________
GEORGE L. MILLER, Chapter 11 trustee 	:
Plaintiff
v. 	:
MARCEL DUTIL, et al. 	: 	Adversary No. 05-0145
Defendants
____________________________________
MARCEL DUTIL, et al._ 	:
Third-Party Plaintiffs
v. 	:
GEORGE MILLER, Individually and as 	:
Trustee
Third-Party Defendant :
____________________________________
GEORGE MILLER, Individually and as 	:
Trustee
Third-Party Plaintiff 	:
v. 	:
ANDRE MARSAN 	:
GROUPE CONSEIL MARSAN, INC.
Third-Party Defendants 	:
____________________________________
..............................................................
ORDER
..............................................................
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AND NOW, this 17th day of August 2006, for the reasons stated in the
accompanying memorandum, it is hereby ordered that the motion to dismiss filed by the
third-party defendants is denied.
__________________________
BRUCE FOX
United States Bankruptcy Judge
copies to:
Mark J. Friedman, Esq.
Jeffrey D. Herschman, Esq.
Susan S. Maher, Esq.
DLA Piper Rudnick Gray Cary US LLP
6225 Smith Avenue
Baltimore, MD 21209
Steven M. Coren, Esq.
David Dormont, Esq.
Kaufman, Coren & Ress, P.C.
1525 Locust Street, 17th floor
Philadelphia, PA 19102
Joseph M. Toddy, Esq.
Zarwin, Baum, DeVito, Kaplan,
Schaer & Toddy PC
1515 Market Street, Suite 1200
Philadelphia, PA 19102
Christopher W. Wasson, Esq.
Louis J. Schwartzberg, Esq.
Linda J. Casey, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Sts.
Philadelphia, PA 19103-1799
Alan S. Miller, Esq.
Picadio Sneath Miller & Norton, P.C.
4710 U.S. Steel Tower
600 Grant Street
Pittsburgh, PA 15219
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