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In re PMTS Liquidating Corp.

United States District Court, D. Delaware

July 28, 2014

In re: PMTS LIQUIDATING CORP., et al., Debtors. NHB ASSIGNMENTS LLC, LIQUIDATING TRUSTEE, ON BEHALF OF THE LIQUIDATING TRUST, Plaintiff,
v.
GENERAL ATLANTIC LLC and BRADEN KELLY, Defendants

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[Copyrighted Material Omitted]

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Chapter 11. Bank. No. 08-11551 (BLS). (Jointly Administered).

Norman M. Monhait, Esquire of Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware, Counsel for Plaintiff. Of Jeffrey Klafter, Esquire and Rachel Berlin, Esquire of Klafter Olsen & Lesser LLP and Kevin T. Hoffman, Esquire of Law Offices of Kevin T. Hoffman.

Gregory V. Varallo, Esquire, Steven J. Fineman, Esquire, and Robert L. Burns, Esquire of Richards, Layton & Finger, PA, Wilmington, Delaware, Counsel for Defendants. Of Allan J. Arffa, Esquire and Roberta Kaplan, Esquire of Paul, Weiss, Rifkind, Wharton & Garrison, LLP.

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MEMORANDUM OPINION

Sue L. Robinson, District Judge.

I. INTRODUCTION

The instant action was originally filed on December 21, 2010 as an adversary proceeding [1] in the United States Bankruptcy Court for the District of Delaware (" the bankruptcy court" ). Plaintiff NHB Assignments LLC (" plaintiff'), as liquidating trustee on behalf of a liquidating trust, alleges that defendants General Atlantic LLC (" GA LLC" ) and Braden Kelly (" Kelly" ) (collectively, " defendants" ) breached their fiduciary duties to ProxyMed, Inc. (" ProxyMed" ), formerly the subject of a chapter 11 bankruptcy case (" the bankruptcy case" ) in the bankruptcy court. (Adv. Dkt. 1)[2] In the adversary proceeding, the bankruptcy court issued a ruling on defendants' motion to dismiss on the merits, which dismissed GA LLC from the case but allowed certain claims to go forward against Kelly. (Adv. Dkt. 36, 37)

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Following that decision, Kelly asserted that the bankruptcy court lacked subject matter jurisdiction. (D.I. 17)[3] The jurisdictional issue prompted multiple filings by both parties, including several proposed amended complaints by plaintiff, as well as a motion to withdraw the reference so that the case could be adjudicated by and tried in this court. ( See Adv. Dkt. 53, 57, 61, 70, 72, 89; D.I. 1, 27) The bankruptcy court subsequently issued an order and determination that the matter is a non-core proceeding (D.I. 13), and this court granted plaintiff's motion to withdraw the reference on January 9, 2013. (D.I. 14)

On April 15, 2013, this court granted plaintiff's motion for leave to amend its complaint to cure deficiencies of subject matter jurisdiction. (D.I. 42) On July 31, 2013, plaintiff again moved to amend its complaint. (D.I. 47) On August 29, 2013, the court granted plaintiff's motion. (D.I. 57) Plaintiff filed its third amended complaint that same day, bringing claims of breach of fiduciary duty against Kelly and GA LLC, and a claim of aiding and abetting against GA LLC. (D.I. 59) Presently before the court is defendants' motion to dismiss for failure to state a claim. (D.I. 61) This court has jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).

II. BACKGROUND

On March 27, 2002, GA LLC, a private equity investment firm, acquired an approximately 29 percent ownership interest in ProxyMed, a healthcare transaction processing services company, for $25 million. (D.I. 59 at ¶ ¶ 1, 10-11) This acquisition entitled GA LLC to appoint two designees to the ProxyMed board as long as it maintained at least 5 percent ownership of outstanding common stock. ( Id. at ¶ 12) Kelly, who was a managing director of GA LLC, served as the sole GA LLC designee on ProxyMed's board of directors (" the Board" ) from April 2002 to October 2006, and became chairman of the Board in February 2006. ( Id. at ¶ ¶ 4, 9, 13, 31, 39) At that time, the Board had between five and eight directors. (D.I. 63, ex. 5 at 41, ex. 6 at 37) As a director, plaintiff alleges that Kelly was privy to ProxyMed's confidential business plans and " actively controlled" ProxyMed's major decisions. (D.I. 59 at ¶ 4)

Between 2003 and 2006, ProxyMed posted net losses each year. ( See D.I. 63, ex. 4 at 29 (2004 10K form, showing $5 million loss in 2003 and $3.8 million loss in 2004); ex. 5 at 19 (2005 10K form, showing $105.3 million loss in 2005); ex. 6 at 8 (2006 10K form, showing $6.6 million loss in 2006)). At the end of 2006, ProxyMed's accumulated deficit was $216 million. ( Id., ex. 6 at 8)

In March 2004, GA LLC was a " significant participant" in a $24.1 million financing for a ProxyMed acquisition. (D.I. 59 at ¶ 17) After this acquisition, GA LLC owned 26.8 percent of ProxyMed's outstanding shares. ( Id. at ¶ 19)

On May 10, 2005, John Lettko (" Lettko" ) became CEO of ProxyMed after being " vetted" by Kelly and other GA LLC officers. ( Id. at ¶ ¶ 23, 29) During his meetings with Lettko before Lettko was hired, plaintiff alleges that Kelly promised that GA LLC would continue to provide funding for ProxyMed's continued operation and growth. ( Id. at ¶ 24) Once Lettko became CEO of ProxyMed, plaintiff alleges that " [GA LLC] required Lettko to provide periodic updates at its headquarters in Greenwich, CT, [where] [c]onfidential information, including strategic plans,

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concerning [ProxyMed] was discussed . . . ." ( Id. at ¶ 37) Lettko also spoke with Kelly frequently for approval of various managerial decisions for the company. ( Id. at ¶ ¶ 30-31) In 2006, when Lettko did not seek Kelly's approval for ProxyMed to acquire a small company, plaintiff alleges that Kelly " rebuked" ...


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