Lefoldt v. Frankel

Filing 50

ORDER ADOPTING 28 REPORT AND RECOMMENDATIONS. IT IS ORDERED that Defendant's Motion to Dismiss 22 is DENIED in its entirety. Signed by Judge Jane Triche Milazzo on 09/23/2020.(am)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
H. KENNETH LEFOLDT, JR.

CIVIL ACTION

VERSUS

NO: 18-5303

SCOTT FRANKEL

SECTION: “H”

ORDER
Having reviewed the Complaint, Defendant Scott Frankel’s Motion to
Dismiss,

the

applicable

law,

the

Bankruptcy

Judge’s

Report

and

Recommendation, and all objections and responses thereto, the Court approves
the Report and Recommendation and adopts it as its opinion herein with the
following modifications:
This Court finds that Plaintiff’s Complaint adequately pleads a claim for
(1) breach of the duty of care as to Defendant’s decision not to pursue Apollo’s
failure to fund the restructuring agreement and (2) breach of duty of loyalty
for Defendant’s decision to drill the Erato Well.
The bankruptcy court recommended dismissal of Plaintiff’s claim for
breach of the duty of care as to Defendant’s decision not to pursue the $19.6
million payment from Apollo because the Complaint alleges that Defendant
1

sought a legal opinion about his right to pursue such a payment. The
bankruptcy court held that this allegation forecloses a claim that Defendant
was uninformed in his decision-making. This Court disagrees. The Complaint
also alleges that Defendant did not consider this legal opinion before
unilaterally deciding not to pursue payment from Apollo but to instead
liquidate Whistler’s assets to create sprinkle money. Further, the allegations
of the Complaint do not reveal “any rationally conceivable basis” for such a
decision. 1 Accordingly, Plaintiff has pleaded sufficient facts to maintain a claim
against Defendant for breach of the duty of care on this theory.
Second, the bankruptcy court recommended dismissal of Plaintiff’s claim
that Defendant breached his duty of loyalty to Whistler when he decided to
drill the Erato Well. The bankruptcy court held that the Complaint set forth
no facts upon which it could infer that Defendant lacked independence in
making this decision. This Court disagrees. The Complaint states that
Defendant’s loyalty shifted to Apollo after Commerce indicated that it would
not provide additional funding; that Apollo pressured Defendant to begin work
on the Erato Well; and that Defendant failed to separate Whistler’s interests
from Apollo’s. These allegations, along with the allegation of Defendant’s
irrational refusal to seek the $19.6 million from Apollo, create at least the

In re Orchard Enterprises, Inc. Stockholder Litig., 88 A.3d 1, 34 (Del. Ch. 2014)
(“Only when a decision lacks any rationally conceivable basis will a court infer bad faith
and a breach of duty.”).
1

2

inference that Defendant lacked independence or acted for some purpose other
than the best interest of Whistler in his decision to drill the Erato Well. 2
Accordingly;
IT IS ORDERED that Defendant’s Motion to Dismiss is DENIED in its
entirety.

New Orleans, Louisiana this 23rd day of September, 2020.
____________________________________
JANE TRICHE MILAZZO
UNITED STATES DISTRICT JUDGE

“[T]he fiduciary duty of loyalty is not limited to cases involving a financial or other
cognizable fiduciary conflict of interest. It also encompasses cases where the fiduciary fails
to act in good faith. As the Court of Chancery aptly put it in Guttman, “[a] director cannot
act loyally towards the corporation unless she acts in the good faith belief that her actions
are in the corporation’s best interest.” Stone ex rel. AmSouth Bancorporation v. Ritter, 911
A.2d 362, 370 (Del. 2006).
3
2