On September 5, 2023, the Delaware Chancery Court largely denied a motion dismiss a trade creditor’s successor liability and fraudulent transfer claims against the buyer of a manufacturer’s assets and the manufacturer’s secured lender and majority owner. On Christmas Eve 2020, Black Diamond Capital Management, L.L.C.—which had been a secured lender to and had become the majority owner of tubular goods manufacturer Boomerang Tube, LLC—announced a public foreclosure sale of Boomerang’s assets at which PTC Liberty Tubulars, LLC, a Black Diamond affiliate, was the winning bidder. PTC thereafter began producing and selling the same products as Boomerang using the same equipment in the same facilities to the same customers. Cleveland-Cliff Burns Harbor LLC, an unsecured trade creditor of Boomerang, then sued Black Diamond, PTC, and Boomerang, asserting a variety claims on the theory that the foreclosure sale was fraudulent or invalid under governing New York Law.
In assessing the adequacy of the complaint, the court first determined that the plaintiff’s “veil piercing” or “alter ego” allegations were insufficient and, thus, dismissed claims based on the assertion that Boomerang, Black Diamond, and PTC were the same entity. Nevertheless, the court held that the plaintiff adequately pleaded that the defendants paid less than reasonably equivalent value for Boomerang in the foreclosure sale—and thus stated a claim for constructive fraudulent transfer. The court noted that “a below market price is not unusual in a foreclosure sale. But whether the encumbrances or the circumstances of a foreclosure sale affected the value of Boomerang’s assets is a factual question that I cannot presently resolve.” On the plaintiff’s claim for actual fraudulent transfer—requiring allegations that Boomerang intended to defraud creditors through the foreclosure sale—the court found the complaint sufficient based on allegations of Black Diamond executives’ intent. The court explained that, even though the plaintiff had failed to establish that Boomerang was an alter ego of Black Diamond, the intent necessary for fraudulent transfer liability may turn on the intent of officers and directors of the entity that controlled the transfer. Finally, the court refused to dismiss the claim of successor liability because it found that the complaint supported a reasonable inference that Boomerang was effectively dissolved and replaced by PTC Liberty.
The case is Cleveland-Cliff Burns Harbor LLC v. Boomerang Tube, LLC, No. 2022-0378 (Del. Ch. Sept. 5, 2023). The plaintiff is represented by Benesch, Friedlander, Coplan & Aronoff LLP. PTC is represented by Chipman Brown Cicero & Cole, LLC. Black Diamond is represented by Ross Aronstam & Moritz LLP. The opinion is available here.
