Bridgeport Holdings Inc. Liquidating Trust v. Boyer: Delaware Directors and Crisis Manager Face Breach of Loyalty and Due Care Claims for Fire Sale of Company’s Assets to Competitor Prior to Bankruptcy

On May 30, 2008, the United States Bankruptcy Court for the District of Delaware issued an opinion in Bridgeport Holdings Inc. Liquidating Trust v. Boyer denying in part and granting in part the motions of the directors and officers of Bridgeport Holdings Inc. and its affiliates to dismiss breach of fiduciary duty claims based on the sale of a substantial portion of the distressed company’s US assets on the eve of its bankruptcy filing. Significantly, the court allowed claims alleging breaches of loyalty against the directors and a crisis manager to proceed based on the individuals’ purported lack of good faith in authorizing the sale – on a hurried and uninformed basis – in the absence of any allegations of self-interest or lack of independence. The court also held that an exculpatory clause in the corporation’s charter was not a sufficient basis for dismissal of separate fiduciary duty of care claims in light of the breach of loyalty claims.

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