David Gottlieb v. Kalman Liebowitz

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 30, 2018
• Docket: 16-56738
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 30 2018 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

In re: KSL MEDIA, INC., No. 16-56738

Debtor, D.C. No. ______________________________ 2:15-cv-02143-AB-GJS

DAVID K. GOTTLIEB, as Chapter 7 Trustee for KSL Media, Inc., MEMORANDUM *

Plaintiff-Appellant,

v.

KALMAN S. LIEBOWITZ; et al.,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Andre Birotte, Jr., District Judge, Presiding

Argued and Submitted April 10, 2018 Pasadena, California

Before: SCHROEDER and M. SMITH, Circuit Judges, and DRAIN,** District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Gershwin A. Drain, United States District Judge for the Eastern District of Michigan, sitting by designation.

1 Plaintiff-Appellant David Gottlieb, as Chapter 7 Trustee for KSL

Media, Inc. (“KSL”), brought the instant action alleging that Defendants-

Appellees Kalman Liebowitz, Harold Cohen, and Russell Meisels violated

their fiduciary duties and caused KSL to file for bankruptcy. Defendants-

Appellees moved for summary judgment, arguing that Plaintiff-Appellant’s

complaint was a Caremark1 claim under Delaware law and that Plaintiff-

Appellant did not allege bad faith, a component necessary to hold them

liable under Caremark. The district court granted Defendants-Appellees’

motion, finding that Plaintiff-Appellant asserted a Caremark claim and made

no showing of bad faith.2 Plaintiff-Appellant timely appealed.

We review the district court’s grant of summary judgment de novo.

Brunozzi v. Cable Commc’ns, Inc., 851 F.3d 990, 995 (9th Cir. 2017). We

likewise review the district court’s interpretation of state law de novo. Id.

We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

The parties agree that Delaware law governs this case, as KSL was

incorporated in Delaware.

Plaintiff-Appellant first argues that a Caremark claim for lack of

oversight applies only to corporate directors, and not officers. He argues that

1 In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996) (“Caremark”). 2 Plaintiff-Appellant conceded in the district court that Defendants did not act in bad faith.

2 Caremark is therefore inapplicable here because Defendants-Appellees were

sued in their capacity as officers. We disagree. Under Delaware law, the

fiduciary duties of officers are identical to the fiduciary duties of directors.

Gantler v. Stephens, 965 A.2d 695, 708–09 (Del. 2009); In re World Health

Alternatives, Inc., 385 B.R. 576, 592 (Bankr. D. Del. 2008) (applying

Delaware law). The World Health court also observed that “the Caremark

decision itself suggests that the [Caremark] test would be applicable to

officers.” World Health, 385 B.R. at 592. Specifically, the Caremark court

reasoned that “neither corporate boards nor senior officers can be charged

with wrongdoing simply for assuming the integrity of employees and the

honesty of their dealings on the company’s behalf.” Caremark, 698 A.2d at

969 (emphasis added). Plaintiff-Appellant has cited no authority holding that

officers cannot be held liable under Caremark.

Plaintiff-Appellant further argues that the district court incorrectly

characterized his complaint as a Caremark claim rather than a claim for

breach of the duty of care. A Caremark claim alleges that the “directors

allowed a situation to develop and continue which exposed the corporation

to enormous legal liability and that in so doing they violated a duty to be

active monitors of corporate performance.” Id. at 967. The majority of the

complaint’s allegations amount to purported failures to oversee and actively

3 monitor, which unmistakably fall within the ambit of a Caremark claim. For

instance, the complaint alleges that Defendants-Appellees implemented

reporting systems, but failed to oversee KSL’s operations, thus disabling

them from being informed. The complaint also alleges that Defendants-

Appellees failed to implement proper oversight procedures. These are

characteristic Caremark claims.

In contrast, a claim for breach of the duty of care asserts that directors

or officers made an uninformed business decision. See In re Walt Disney Co.

Derivative Litig., 906 A.2d 27, 52 (Del. 2006) (requiring breach of duty of

care claims to rebut the presumption that “in making a business decision the

directors of a corporation acted on an informed basis”) (citation omitted);

see also In re Fedders N. Am., Inc., 405 B.R. 527, 539 (Bankr. D. Del. 2009)

(holding that a breach of the duty of care “generally requires directors and

officers to fail to inform themselves fully and in a deliberate manner.”)

(citing Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 368 (Del. 1993)).

Absent from the complaint is any allegation that Defendants-

Appellees made an uninformed business decision. To the contrary, the

complaint criticizes Cohen’s decision to use client prepayments to fund

KSL’s operations after he had all of the material information necessary to

make an informed decision.

4 Plaintiff-Appellant’s list of genuine issues of disputed fact asserts that

Liebowitz did not fully apprise himself of all material information related to

KSL. However, Plaintiff-Appellant did not link this failure to any specific

business decision. Plaintiff-Appellant’s list of facts amount to a claim that

Liebowitz failed to adequately oversee KSL’s business as a result of his

failure to inform himself. This, too, is effectively a Caremark claim.

The complaint’s claims against Meisels also fail to persuade. These

allegations assert Caremark violations rather than violations of the duty of

care. The complaint alleges that Meisels failed to oversee KSL’s business

performance adequately, which are characteristic Caremark claims.

AFFIRMED.