Jiaxing Super Lighting Electric Appliance Co., LTD. v. Bruggeman

Background

Super Lighting alleged that it entered a purchase and development agreement in 2016 to become Lunera Lighting, Inc.’s largest supplier of traditional light-emitting diode products. Lunera allegedly became insolvent no later than December 31, 2017, stopped paying Super Lighting in February 2018, and owed more than $11 million in past-due invoices. Super Lighting continued accepting purchase orders under a payment plan until Lunera defaulted in April 2018, then terminated the agreement and pursued a breach-of-contract action in arbitration. The arbitrator later issued an award for Super Lighting, a federal court confirmed the award and entered judgment against Lunera, and the award remained unpaid.

Lunera dissolved in July 2019. Super Lighting alleged that, while the arbitration was pending, substantially all of Lunera’s inventory was transferred through Advanced Trading LLC and Outback Equipment Company to OEO Energy Solutions, LLC, and that Lunera’s patents were sold to Tynax, Inc. Super Lighting asserted claims for fraudulent transfer of inventory, fraudulent transfer of patents, breach of fiduciary duties, and alter ego or corporate veil piercing. The motion addressed in this order was filed by Lunera’s former directors John Bruggeman, Steve Westly, Frank Creer, Dave Coglizer, Susan McArthur, Alan Greenberg, and Richard Rock.

Legal standards and analysis

The court applied Rule 12(b)(6), which allows dismissal when a complaint lacks a legally recognized theory or does not allege enough facts to make relief plausible. The court generally had to accept the complaint’s material factual allegations as true and view them favorably to Super Lighting, but it did not have to accept legal conclusions presented as facts.

The directors argued that section 281(c) of the Delaware General Corporation Law protected them from personal liability because Lunera had adopted a plan of distribution. The court found that Super Lighting’s allegations—that Lunera had transferred substantially all of its assets before adopting the plan and that the arbitration award remained unpaid—raised a litigable question about whether the plan was reasonably likely to provide compensation for Super Lighting’s claim. The court therefore did not treat the alleged safe harbor as a basis for dismissing the claims at this stage.

Breach of fiduciary duty

Super Lighting brought the fiduciary-duty claim derivatively, meaning on behalf of Lunera. The court concluded that the alleged injury was to Lunera as a corporation because the alleged asset transfers reduced the value available to all creditors, and any recovery would go to Lunera. The court also concluded that a pre-suit demand on Lunera’s directors was excused because Lunera had dissolved and no longer had a board to receive the demand.

The court held that Super Lighting adequately alleged non-exculpated bad-faith conduct by Greenberg, Bruggeman, and Westly. The allegations included Greenberg’s statements about walking away from Super Lighting, Bruggeman’s and Westly’s threats to liquidate Lunera’s assets at extremely low prices, Bruggeman’s refusal to negotiate further, and conduct allegedly aimed at retaliating against Super Lighting rather than advancing Lunera’s and its creditors’ interests. The court found the allegations insufficient as to McArthur, Creer, Coglizer, and Rock because the complaint did not adequately allege their knowing participation in the alleged bad-faith conduct. The court also found that the allegations sufficient to plead a fiduciary-duty claim rebutted the business-judgment-rule presumption for those claims.

Fraudulent-transfer claims

Super Lighting alleged actual and constructive fraudulent transfers under the Delaware Uniform Fraudulent Transfer Act and the California Uniform Voidable Transaction Act. An actual fraudulent-transfer claim requires allegations that the debtor transferred property with actual intent to hinder, delay, or defraud a creditor. A constructive fraudulent-transfer claim generally requires allegations that the debtor received less than reasonably equivalent value and was insolvent at the time or became insolvent because of the transfer.

The court found the allegations sufficient against Bruggeman and Westly. Super Lighting alleged that Lunera was insolvent, was involved in arbitration and attachment proceedings, transferred substantially all of its assets, sold inventory valued at approximately $2 million for $75,000, sold patents for $125,000, and concealed some transfers. The court also considered allegations that the transfers occurred rapidly, involved an intermediary purchasing entity, and were connected to statements about making it more difficult for Super Lighting to enforce its arbitration award. The court found the allegations insufficient against Greenberg, McArthur, Creer, Coglizer, and Rock because they did not specifically allege that those directors caused or otherwise participated in the transfers.

Disposition

Judge Maxine M. Chesney ordered that the motion to dismiss was granted in part and denied in part. For the Third Cause of Action, breach of fiduciary duty, the motion was granted as to McArthur, Creer, Coglizer, and Rock and denied as to Greenberg, Bruggeman, and Westly. For the First and Second Causes of Action, fraudulent transfer of inventory and fraudulent transfer of patents, the motion was granted as to Greenberg, McArthur, Creer, Coglizer, and Rock and denied as to Bruggeman and Westly. The court granted Super Lighting leave to amend, set July 6, 2022, as the deadline for a possible Second Amended Complaint, and continued the case-management conference to August 19, 2022.