VFB Ltd. Liab. Co. v. Campbell Soup Co. - 482 F.3d 624 (3d Cir. 2007)

Rule:

Normally, simultaneously serving two transacting companies will trigger heightened scrutiny. However, scrutiny is unnecessary when the two companies are a parent and its wholly-owned, solvent corporate subsidiary. Directors must act in the best interests of a corporation's shareholders, but a wholly-owned subsidiary has only one shareholder: the parent. There is only one substantive interest to be protected, and hence no divided loyalty of the subsidiary's directors and no need for special scrutiny of their actions.

Facts:

In 1998, Campbell Soup Co. incorporated a wholly-owned subsidiary, Vlasic Foods International, Inc. (VFI), and sold it several food companies in exchange for borrowed cash. It subsequently issued the subsidiary's stock to Campbell shareholders as an in-kind dividend, making VFI an independent company. Within three years of this transaction, VFI filed for bankruptcy and sold the food companies for less than it had paid for them. VFI has since reorganized into the bankruptcy creature VFB, LLC, and acting on behalf of VFI's disappointed creditors, claimed that the transaction was a constructively fraudulent transfer and that Campbell aided a breach of fiduciary duty by VFI's directors. The district court entered judgment for Campbell after a bench trial. VFB appealed both from the judgment and from the district court's decision to strike a motion to amend the judgment.

Issue:

Under the circumstances, did the district court err in ruling in favor of the parent company? 

Answer:

No.

Conclusion:

The court affirmed the district court's judgment, holding that the district court did not err in choosing to rely on the objective evidence from the public equity and debt markets. Nor did it err in concluding that the subsidiary was solvent and that the claim for aiding and abetting a breach of fiduciary duty had to fail.