David Gottlieb v. Kalman Liebowitz ( 2018 )

NOT FOR PUBLICATION FILED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.
5