In Re Biolitec, Inc.

2013 WL 1352302 (2013)

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Nature of the Case

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Facts

D is a member of a multi-national group of companies in the business of manufacturing and distributing fiber optic devices, medical lasers and fibers, photo-pharmaceuticals, and industrial fiber optics. P is the United States affiliate. Biolitec AG is the parent to Biolitec AG Austria, Biolitec FZ, and until December 2011, was the 90% owner of D. The remaining 10% of D is held by Ps. P, and D were parties to a Supply and Distribution Agreement. D had duties to indemnify and defend P against patent infringement claims. P was sued by two different parties for patent infringement. From 2004 through 2008, AngioDynamics incurred $4 million in legal costs defending itself against the patent infringement suits. The two suits settled out of court but required AngioDynamics to pay $13 million in a settlement. P brought suit against D for breach of the indemnification provisions of the Supply and Distribution Agreement. The Court awarded P $23 million. D appealed. Fearing that D was systematically funneling assets to certain of the Related Entities to make any potential judgment uncollectible, AngioDynamics (P) brought suit alleging that Ds fraudulently removed assets amounting to $18 million to render D judgment proof. The complaint seeks to pierce the corporate veil, collect the judgment from the parent and related entities of D, and void the alleged $18 million in fraudulent transfers. P sought a preliminary injunction to freeze D's assets. In June of 2009, New Jersey Plaintiffs, Moran and Morello, former officers of D, filed an action against Ds. they claimed to have been harmed by the oppressive and illegal conduct of D's majority shareholders. Specifically, it alleges that Ds acted fraudulently, mismanaged the corporation for his personal benefit, abused their authority as an officer and director, and acted oppressively to the New Jersey Plaintiffs as minority shareholders. They contend that more than $15 million in cash and assets were fraudulently and illegally transferred from D. In their brief in support of the appointment of a trustee, they advise that D failed to comply with discovery orders of the New Jersey Chancery Court and that its non-compliance resulted in its answer being struck without prejudice, $470,000 in sanctions for discovery violations. D filed its petition for Chapter 11 relief on January 22, 2013. D stated that it was forced to file bankruptcy due to a series of errors made by Kelly Moran, the former Chief Operating Officer and one of the New Jersey Plaintiffs, that resulted in almost $10 million in losses and $12 million in litigation defense fees between 2008 and 2009. The Court granted relief from the automatic stay to allow the New Jersey Plaintiffs to proceed with their claims of shareholder oppression against D and the other New Jersey Litigation defendants. The Court noted that the automatic stay did not affect nor prevent the Related Entities in the Massachusetts Litigation from continuing with their appeal of the Massachusetts Injunction. AngioDynamics (P) supported by the New Jersey plaintiffs argues that the appointment of a trustee is required under 11 U.S.C. § 1104(a). Alternatively, AngioDynamics (P) seeks the appointment of an examiner pursuant to § 1104(c)(2). D claims P has not met its burden.