Petroleum Enhancer, LLC v. Woodward

Summarized by Jason Stitt , Keating Muething & Klekamp PLL
13 years 6 months ago

Citation:

___ F. 3d. ___ (6th Cir. 2012), Case No. 11-1167 (August 10, 2012)

Tag(s):

Ruling:

Sixth Circuit affirms district court dismissal of third-party plaintiff Polar Holding’s tortious interference that was addressed by the district court, but reverses the dismissal of its breach-of-fiduciary-duty claim against former director on the grounds that a directors fiduciary duties ran until he resigned from the board and its civil-conspiracy claim against the individual third-party defendants, and remands the case for further proceedings on the breach-of-fiduciary-duty claim and civil-conspiracy claim, as well as on Polar Holding’s tortious-interference claim not addressed by the district court.

Procedural context:

Appeal from district court decision granting summary judgment in favor of third party defendants on claims of breach-of-fiduciary-duty claim civil-conspiracy claim, and tortious-interference claim. In August 2010, the Petroleum parties filed a motion for summary judgment with respect to all of Polar Holding’s claims. The district court granted the motion in its entirety in January 2011. Polar Holding appealed the decision of the district court. The district court granted summary judgment in favor of Petroleum Enhance on the claim breach of fiduciary duty on the ground that Socia’s fiduciary duty to Polar Holding had been legally extinguished by the end of January 2007, when the board voted to demand his resignation as a director and after which Socia helped hatch the plan to foreclose on the PMC loan and form a competing company. The district court reasoned that although Socia technically remained on the board of directors until his resignation in April 2007, he was effectively terminated as a director at the January 26, 2007 board meeting and thus owed no fiduciary duty to Polar Holding after that date. The Sixth Circuit reversed, holding that under Michigan law Polar Holding’s directors did not have the authority to remove Socia as a director simply through board action. Because Socia did not resign and was not effectively removed, his fiduciary duty to Polar Holding continued until he did so on April 18, 2007. The Sixth Circuit made clear that it was not finding there was a breach of fiduciary duty, but only that the district court erred in holding as a matter of law that Socia had no such duty after the January 26, 2007 board meeting. Polar Holding’s second claim was that the individual parties committed the tort of civil conspiracy. The district court determined that Polar Holding lacked standing to bring the claim because the company could not show that it had suffered an injury that was distinct from that suffered by PMC. The Sixth circuit reversed holding that Polar Holding had standing to bring the civil-conspiracy claim, just as it had standing to bring the breach-of-fiduciary-duty claim and did not need to show an independent injury. Finally, the district court failed to consider a separate tortious-interference claim raised by Polar Holdings against Socia. Because Polar Holding was correct that this tortious-interference claim was raised below but not considered, it remanded that claim as well.

Facts:

Polar Molecular Holding Corporation (Polar Holding) was a publicly held Delaware corporation and the sole shareholder of Polar Molecular Corporation (PMC). In 2006, PMC was in default on a loan for which it had pledged valuable intellectual property as collateral, and Polar Holding was in the midst of an internal dispute between two members of its board of directors regarding the business strategy of PMC. A dispute concerning the business strategy of PMC between Polar Holdings CEO, on the one hand, and director Richard Socia, on the other hand, came to a head during a January 27, 2007 board meeting of Polar Holding. The CEO and two other directors voted to remove Socia as the company’s secretary and demand his resignation from the board. Socia refused to resign. Instead, Socia formed Petroleum Enhancer on March 22, 2007. Socia submitted his resignation from the board on April 18, 2007 and eight days later used Petroleum Enhancer to purchase the senior debt of PMC Polar Holding and PMC intervened in the lawsuit and filed counterclaims against Petroleum Enhancer and a third party-complaint against Socia and certain others. Polar Holding and PMC alleged claims under Michigan law for breach of fiduciary duty, civil conspiracy, and tortious interference. The gist of their allegations is that Petroleum was formed by fiduciaries of Polar Holding for the sole purpose of acquiring PMC’s promissory note and collateral. In January 2008, PMC filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Colorado. The petition automatically stayed the sale of the collateral, but the petition was later dismissed when PMC’s counsel withdrew because of an ethical conflict. PMC then filed a second Chapter 11 bankruptcy petition in the same court in August 2008, which again caused the sale of the collateral to be stayed. The bankruptcy court lifted the automatic stay in July 2009 and authorized Petroleum Enhancer to proceed with the foreclosure sale. When the sale took place in September 2009, Petroleum Enhancer was the only bidder.

Judge(s):

Martin, Gilman, and White, opinion by Gilman

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