In re S.S. Body Armor Inc.
- Summarized by Thomas Horan , U.S. Bankruptcy Court, District of Delaware
- 4 years 7 months ago
- Case Type:
- Business
- Case Status:
- Affirmed in part and Reversed in part
- Citation:
- Nos. 19-2313, 19-2314, 19-2315 and 19-2316 (3rd Circuit, Jun 04,2020) Published
- Tag(s):
-
- Ruling:
- First, the Court reversed the Bankruptcy Court's finding that appellant was entitled to a contingent fee award for objecting to a derivative action settlement and thereby improving the outcome, and found that appellant was entitled to attorneys' fees and expenses, but did not determine the fee to which the appellant is entitled. Second, the Court affirmed the Bankruptcy Court ruling that appellant was not entitled to a substantial contribution claim because the derivative action settlement.to which appellant objected took place several years before the bankruptcy case.
- Procedural context:
- The procedural context is complex. In 2005, prior to the filing of the debtor's bankruptcy case, it was defendant in a shareholders class action in the United States District Court for the Eastern District of New York (EDNY). The class action was consolidated with a related derivative case against certain officers and directors of the debtor, and eventually settled. Appellant objected to the settlement, but his objection was overruled. Later, the United States Court of Appeals for the Second Circuit reversed, and the settlement was renegotiated, resulting in a better outcome for the plaintiffs.
In 2010, the debtor filed its petition. in the United States Bankruptcy Court for the District of Delaware. As a result, approval of a revised settlement came before the Bankruptcy Court. The Bankruptcy Court denied appellant's petition for a fee award and further denied appellant's substantial contribution claim. The District Court affirmed, and this appeal followed.
- Facts:
- Under the original settlement, the debtor agreed to release and indemnify its founder, and former Chairman and Chief Executive Officer, David H. Brooks, from any liability he might incur should the Securities and Exchange Commission (SEC) commence an action against him under § 304 of the Sarbanes-Oxley Act, Appellant, who was a shareholder and General Counsel of the debtor intervened in the derivative action and objected to the portions of the settlement that released and indemnified Brooks. Not long after, the SEC commenced a section 304 action against Brooks. Brooks also was criminally charged for fraud, insider trading, and other crimes.
In April 2010, the debtor commenced its bankruptcy case. In September 2010, Brooks was convicted of a number of financial crimes. He was later sentenced to seventeen years in prison and ordered to pay restitution to the debtor and his investor victims. That same month, the Second Circuit affirmed appellant's objection to the settlement and reversed the EDNY, finding that the settlement impermissibly released and indemnified Brooks.
Following the Second Circuit decision, the parties renegotiated the settlement and, in 2015, the Bankruptcy Court approved the settlement over several objections of the appellant. Appellant filed a claim for $1.86 million in attorneys’ fees and expenses relating to his work in objecting to the original EDNY settlement. The Bankruptcy Court approved appellant's claim, but conditioned any recovery on the debtor receiving funds on account of the Sarbanes-Oxley Act section 304 claims. The Bankruptcy Court also denied appellant's substantial contribution claim..
- Judge(s):
- Circuit Judges Restrepo, Roth, and Fisher
ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!
