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Kirschner v. Large S'holders (In re Tribune Co. Fraudulent Conveyance Litig.)

Kirschner v. Large S'holders (In re Tribune Co. Fraudulent Conveyance Litig.)

United States Court of Appeals for the Second Circuit

August 24, 2020, Argued; August 20, 2021, Decided

Docket Nos. 19-3049-cv; 19-449-cv

Opinion

 [*155]  Chin, Circuit Judge:

In 2007, the Tribune Company ("Tribune"), then-publicly traded, executed a leveraged buyout (the "LBO") to go private. Less than a year later, Tribune filed for Chapter 11 bankruptcy. Plaintiff-appellant Marc Kirschner, the bankruptcy litigation trustee (the "Trustee"), brought fraudulent conveyance and other claims on behalf of creditors against shareholders who sold their stock in the LBO and against the financial advisors that helped Tribune navigate and complete the LBO. In several orders and decisions, the district court dismissed the Trustee's claims for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

For the reasons set forth below, we AFFIRM [**4]  in part, VACATE in part, and REMAND for further proceedings.

BACKGROUND

I. The Facts

The facts alleged in the operative complaints are assumed to be true for purposes of this appeal.2

Prior to its bankruptcy in 2008, Tribune was a media company that owned numerous radio and television stations and major national newspapers, including The Chicago Tribune, The Los Angeles Times, and The Baltimore Sun. In 2005, the newspaper publishing industry faced severe decline and, by 2006, Tribune, which derived approximately 75% of its total revenues from such publishing, started faltering financially. In September 2006, Tribune's board of directors (the "Board") created a special committee (the "Special Committee") to consider ways to return value to Tribune's shareholders. The Special Committee was comprised of all seven of the Board's independent directors (the "Independent Directors").

A. Tribune Retains Advisors

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10 F.4th 147 *; 2021 U.S. App. LEXIS 24952 **

IN RE: TRIBUNE COMPANY FRAUDULENT CONVEYANCE LITIGATION; MARC S. KIRSCHNER, AS LITIGATION TRUSTEE FOR THE TRIBUNE LITIGATION TRUST, Plaintiff-Appellant, - against - LARGE SHAREHOLDERS, FINANCIAL ADVISORS, FINANCIAL INSTITUTION HOLDERS, FINANCIAL INSTITUTION CONDUITS, PENSION FUNDS, INDIVIDUAL BENEFICIAL OWNERS, MUTUAL FUNDS, Defendants-Appellees.MARC S. KIRSCHNER, AS LITIGATION TRUSTEE FOR THE TRIBUNE LITIGATION TRUST, Plaintiff-Appellant, - against - CITIGROUP GLOBAL MARKETS INC., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, Defendants-Appellees.

Subsequent History: US Supreme Court certiorari denied by Kirschner v. Fitzsimons, 2022 U.S. LEXIS 1062 (U.S., Feb. 22, 2022)

Prior History:  [**1] ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK.

Appeals from a judgment and orders of the United States District Court for the Southern District of New York (Sullivan and Cote, JJ.) dismissing claims arising out of the leveraged buyout of the Tribune Company in 2007 and its bankruptcy filing in 2008. The bankruptcy litigation trustee contends on appeal that the district court erred in dismissing his claims against the Tribune Company's shareholders and financial advisors for fraudulent transfer, breach of fiduciary duty, and related causes of action. The bankruptcy litigation trustee also contends that the district court erred in denying leave to amend his complaint.

In re Tribune Co. Fraudulent Conveyance Litig., 2019 U.S. Dist. LEXIS 69081, 2019 WL 1771786 (S.D.N.Y., Apr. 23, 2019)In re Tribune Co. Fraudulent Conveyance Litig., 2019 U.S. Dist. LEXIS 10983, 2019 WL 294807 (S.D.N.Y., Jan. 23, 2019)

Disposition: AFFIRMED IN PART, VACATED IN PART, AND REMANDED.

CORE TERMS

district court, shareholders, fraudulent conveyance, allegations, special committee, insolvent, solvency, financial adviser, equivalent value, Projections, engagement, badges, fiduciary, aiding and abetting, fraudulent transfer, collapse, billion, shares, breach of fiduciary duty, steps, actual intent, transactions, quotation, imputed, marks, pari delicto, letters, stock, fiduciary duty, defraud

Civil Procedure, Appeals, Standards of Review, De Novo Review, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Abuse of Discretion, Pleadings, Amendment of Pleadings, Leave of Court, Bankruptcy Law, Procedural Matters, Adversary Proceedings, Commencement of Adversary Proceedings, Heightened Pleading Requirements, Fraud Claims, Avoidance, Fraudulent Transfers, Intent, Liquidations, Denial of Discharge, Concealment & Fraudulent Transfers, Estate Property, Fraudulent Transfers, Evidence, Inferences & Presumptions, Inferences, Business & Corporate Law, Management Duties & Liabilities, Causes of Action, Fraud & Misrepresentation, Judgments, Enforcement & Execution, Contracts Law, Defenses, Illegal Bargains, Mergers & Acquisitions Law, Mergers, Duties & Liabilities of Directors & Officers, Fiduciary Duties, Duty to Third Parties, Shareholder Duties & Liabilities, Controlling Shareholders, Fiduciary Duties, Record on Appeal, Elements, Value, Complaints, Requirements for Complaint, Constructively Fraudulent Transfers, Causes of Action & Remedies, Breach of Fiduciary Duty, Torts, Multiple Defendants, Concerted Action, Civil Aiding & Abetting, Intentional Torts, Duties & Liabilities, Breach of Fiduciary Duty, Equity, Maxims, Clean Hands Principle, Affirmative Defenses, Unclean Hands, Unauthorized Acts, Agency Relationships, Fiduciaries, Directors & Officers, Malpractice & Professional Liability, Attorneys, Own Wrongs Principle, Judicial Officers, Judges, Discretionary Powers, Reviewability of Lower Court Decisions, Preservation for Review, Labor & Employment Law, Employment Relationships, Duty of Care, Business & Corporate Compliance, Contract Formation, Consideration, Adequate Consideration, Professional Services, Retention of Professionals, Compensation, Limitations on Trustee Powers, En Banc Determinations, Governments, Courts, Judicial Precedent