At Home Claims, LLC v. Equinix, Inc. et al

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-1-	MEMO RE MOTION TO DISMISS SAC
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
AT HOME CORPORATION,
Debtor.
AT HOME CLAIMS, LLC,
Plaintiff,
vs.
EQUINIX, INC. PACIFIC SHORES
DEVELOPMENT, LLC, and TICKETS.COM,
Defendants.
____________________________________
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No: 01-32495 TEC
Chapter 11
Adv. Proc. No. 09-3205 TC
MEMORANDUM RE JOINT MOTION TO DISMISS SECOND AMENDED COMPLAINT
On March 26, 2010, the court held a hearing on Defendants’
Joint Motion to Dismiss the Second Amended Complaint Pursuant to
Rule 12(b)(6). 	Maureen A. Harrington appeared for Plaintiff.
Jeffry A. Davis appeared for Defendants. 	Donald Cram appeared as
associate counsel for Defendants. 	Upon due consideration, and for
the reasons stated below, the court determines that the Second
Amended Complaint (SAC) must be dismissed without leave to amend,
Signed and Filed: April 23, 2010
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
April 26, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-03205 Doc# 43 Filed: 04/23/10 Entered: 04/26/10 09:35:46 Page 1 of 4

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-2-	MEMO RE MOTION TO DISMISS SAC
because Plaintiff has not alleged facts sufficient to establish
standing to prosecute the complaint.
FACTS
Created in connection with the joint plan of liquidation of At
Home Corporation and its subsidiaries, the General Unsecured
Creditors Liquidating Trust (the Trust) is a liquidating trust, the
purpose of which is to “resolve, liquidate, and realize upon the
assets, Rights of Action and such other claims and property
transferred to it” pursuant to the joint plan. 	SAC, Exh. 2. 	The
Trust does not bar holders of the Trust interests from selling such
interests. 	Id. 	The Trust is governed by California law. 	Id.
Plaintiff At Home Claims LLC (AHC) is the present holder of
over $6 million in allowed unsecured claims against Debtors. 	SAC,
¶ 1. 	The Second Amended Complaint does not allege, however, that
AHC held trust interests on the date the alleged breaches of
fiduciary duty occurred. 	AHC is a current beneficiary of the
Trust, and brings its lawsuit on behalf of itself and all other
Trust beneficiaries. 	Id.
LAW
Under California law, a shareholder of a corporation may bring
a derivative action only if it owned shares on the date of
occurrence of the alleged harm, if it obtained its shares by
operation of law from a party that owned shares on the date of the
alleged harm, or if it acquired the shares before there was
disclosure to the public or to plaintiff of the wrongdoing of which
plaintiff complains. 	Cal. Corp. Code § 800(b)(1); Pacific Lumber
Co. v. Sup. Court, 226 Cal. App. 3d 371 (1990).
Federal Rule of Civil Procedure 23.1 independently conditions
a plaintiff’s standing to bring suit for harm to a corporation (or
Case: 09-03205 Doc# 43 Filed: 04/23/10 Entered: 04/26/10 09:35:46 Page 2 of 4

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-3-	MEMO RE MOTION TO DISMISS SAC
unincorporated association) upon the plaintiff owning the shares or
membership interests at the time the alleged harm occurred.
The logic behind the continuous-ownership doctrine has been
explained clearly and succinctly by the Delaware Chancery Court:
[W]here shareholders have purchased all or substantially
all of the shares of a corporation at a fair price, they
have personally sustained no injury from wrongs which
occurred prior to their purchase, and consequently, any
recovery on their part for such prior wrongs would
constitute a windfall and would enable such shareholders
to obtain funds to which they had no just title or claim.
In addition, to allow recovery to subsequent shareholders
for prior wrongs would permit them to recoup a large part
of the price they agreed to pay for their shares even
though they had received all they had bargained for.
Finally, to allow recover would be to permit after-
acquiring shareholders to profit from wrongs done to
others, and thus encourage speculative litigation.
Midland Food Svcs. LLC v. Castle Hill Holdings V, LLC, 792 A.2d
920, 928-29 (Del. Ct. Chanc. 1999)(citation omitted); accord Bangor
Punta Operations, Inc. v. Bangor & Aroostook Railroad Co., 417 U.S.
703 (1974).
I determine that the liquidating trust at issue here is a type
of unincorporated association for the purpose of California
Corporations Code section 800(b)(1) and Federal Rule of Civil
Procedure 23.1. 	First, the California Corporations Code defines
“unincorporated association” as an “unincorporated group of two or
more persons joined by mutual consent for a common lawful purpose,
whether organized for profit or not.” 	Cal. Corp. Code § 18035.
The Trust falls within the broad parameters of this definition.
Second, Bogert states that a liquidating trust for an insolvent
business debtor is a type of business trust. 	Bogert Law of Trusts
and Trustees § 254. 	The legislative history for the California
Corporations Code indicates that a business trust is a type of
unincorporated association. 	Cal. Corp. Code § 18020 (Law Review
Case: 09-03205 Doc# 43 Filed: 04/23/10 Entered: 04/26/10 09:35:46 Page 3 of 4

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-4-	MEMO RE MOTION TO DISMISS SAC
Commission Comments 2004 Addition). 	Third, and most important, the
Trust at issue here is like a corporation in that the interests of
claim holders are freely transferrable. 	It is appropriate to apply
the continuous-ownership requirement, because the price of the
transferred claim should reflect any prior bad acts of the trustee.
The Second Amended Complaint may not be prosecuted as a
derivative action, because it does not allege either that AHC owned
its claim at the time the complained-of acts occurred, acquired its
claim by operation of law, or acquired its claim before there was
disclosure of the alleged bad acts to the public or to the
plaintiff. 	AHC suffered no direct injury from the alleged conduct,
because it has not alleged that it owned any interest in the Trust
at the time of such conduct.
The motion to dismiss is granted without leave to amend,
because the subject complaint is already a second amendment to the
original complaint, and because the court has no reason to believe
that Plaintiff can amend to satisfy the continuous-ownership
requirement or its statutorily recognized exceptions.
**END OF MEMORANDUM**
Case: 09-03205 Doc# 43 Filed: 04/23/10 Entered: 04/26/10 09:35:46 Page 4 of 4