Not a Lexis Advance subscriber? Try it out for free.

Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P.

Court of Chancery of Delaware, New Castle

June 2, 2006, Submitted ; August 10, 2006, Decided ; August 10, 2006, Filed

C.A. No. 1571-N

Opinion

 [*172]  OPINION

STRINE, Vice Chancellor.

This case is unusual. The primary defendants in this case were directors of a publicly listed insurance holding company. All but one of the eleven directors was an independent director. The other director was the chief executive officer of the holding company.

In 1998, the holding company embarked on a strategy of growth by acquisition. Within a span of two years, the holding [**3]  company acquired three other unaffiliated insurance companies in arms-length transactions. The two transactions at issue in this case involved the acquisition of publicly-traded entities and were approved by a vote of the holding company's stockholders. The holding company's stockholder base was diverse and the company had nothing close to a controlling stockholder.

In connection with the last acquisition, the holding company redomiciled to Bermuda, for the disclosed reason that tax advantages would flow from that move. Consistent with the objective of reducing its tax burden, the holding company reorganized its subsidiaries by national line, creating lines of United States, United Kingdom, and Bermudan subsidiaries. As a result of that reorganization, the holding company's top U.S. subsidiary came to be the intermediate parent of all of the holding company's U.S. operations. The top U.S. subsidiary also continued and deepened its role as a guarantor of the holding company's overall debt, including becoming a primary guarantor of $ 260 million of a $ 490 million line of credit, a secondary guarantor of the remainder of that debt, and assuming the holding company's responsibility for [**4]  approximately $ 190 million worth of various debt securities. Nonetheless, after that reorganization, the financial statements of just the top U.S. subsidiary indicated that it had a positive asset value of over $ 200 million.

In 2003, the holding company had to place its insurance operations in run-off globally. The holding company and its top U.S. subsidiary filed for bankruptcy. The cause of the failure was that the claims made by the insureds against the holding company's operating subsidiaries (including the insureds of the companies it had acquired) exceeded estimates and outstripped the holding company's capacity to service the claims and its debt.

Read The Full CaseNot a Lexis Advance subscriber? Try it out for free.

Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.

906 A.2d 168 *; 2006 Del. Ch. LEXIS 139 **

TRENWICK AMERICA LITIGATION TRUST, Plaintiff, v. ERNST & YOUNG, L.L.P.; PRICEWATERHOUSECOOPERS, L.L.C.; BAKER & MCKENZIE L.L.P.; MILLMAN, INC.; JAMES F. BILLETT, JR.; STEPHEN H. BINET; ANTHONY S. BROWN; RICHARD E. COLE; ROBERT M. DEMICHELE; NEIL DUNN; PAUL FELDSHER; ROBERT A. GIAMBO; FRANK E. GRZELECKI; ALAN L. HUNTE; P. ANTHONY JACOBS; JAMES E. ROERTS; JOSEPH D. SARGENT; FREDERICK D. WATKINS; and STEPHEN R. WILCOX, Defendants.

Subsequent History: Affirmed by Trenwick Am. Litig. Trust v. Billett, 2007 Del. LEXIS 357 (Del., Aug. 14, 2007)

Disposition: The court granted the dismissal motion.

CORE TERMS

subsidiary, merger, insolvent, entity, advisors, acquisition, reorganization, holding company, cause of action, reinsurance, stockholders, allegations, estimates, restructuring, fails, wholly-owned, fiduciary duty, business strategy, complaint alleges, fraud claim, transferred, fraudulent, deepening, supporting facts, breach of fiduciary duty, reasons, fiduciary, options, pled, top

Business & Corporate Law, Management Duties & Liabilities, Fiduciary Duties, Duty to Third Parties, Causes of Action, Fraud & Misrepresentation, General Overview, Business Judgment Rule, Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Pleadings, Complaints, Requirements for Complaint, Bankruptcy Law, Examiners, Officers & Trustees, Duties & Functions, Capacities & Roles, Estate Property, Avoidance, Limitations on Trustee Powers, Duty of Good Faith, Heightened Pleading Requirements, Corporations, Corporate Formation, Torts, Fraud & Misrepresentation, Constructive Fraud, Elements, Fraudulent Transfers, Directors & Officers, Scope of Authority, Duty of Care, Duty of Loyalty, Reorganizations, Dissolution & Receivership, Evidence, Burdens of Proof, Allocation, Actual Fraud, Fraud Claims, Business Torts, Concerted Action, Civil Conspiracy, Nondisclosure, Causes of Action & Remedies, Breach of Fiduciary Duty, Multiple Defendants, Civil Aiding & Abetting, Malpractice & Professional Liability, Professional Services