Buchwald Capital Advisors LLC v. Schoen

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

IN RE: ) Chapter 11

)

OPP LIQUIDATING COMPANY, INC. ) Case No. 19-10729 (MFW)

(f/k/a Orchids Paper Products )

Company), et al., ) Jointly Administered

)

Debtors. )

)

BUCHWALD CAPITAL ADVISORS LLC, )

as Liquidating Trustee of the )

Orchids Paper Products )

Liquidating Trust, ) Adv. Proc. No. 21-50431

) (MFW)

Plaintiff, )

)

v. )

)

JEFFREY S. SCHOEN, et al., ) Re: Docket Nos. 82, 83,

) 84, 85, 86, 87, 88, 89,

Defendants ) 90, 129, 130, 132, 133,

) 134, 135, 137, 138, 139

OPINION1

Before the Court is the Defendants’ Motion for Summary

Judgment on Time-Barred Claims in the Trustee’s Second Amended

Complaint. The Trustee asserts that summary judgment is

improper, contending that the statute of limitations has been

tolled by the fraudulent concealment of relevant information.

The Defendants argue that the Trustee has failed to produce any

evidence to support its tolling argument. For the reasons stated

below, the Court will grant the Defendants’ Motion.

1 This Opinion constitutes the findings of fact and

conclusions of law of the Court pursuant to Rule 7052 of the

Federal Rules of Bankruptcy Procedure.

I. BACKGROUND

Orchids Paper Products Company (the “Debtor”) was formed in

1998. The Debtor was a public company that operated as a low-

cost manufacturer of tissue products serving “extreme value”

retail establishments such as Dollar General and Family Dollar.2

After expansion efforts failed and its financial condition

deteriorated, the Debtor (and several of its subsidiaries) filed

for relief under chapter 11 of the Bankruptcy Code on April 1,

2019 (the “Petition Date”). On February 24, 2020, the Court

confirmed the Combined Disclosure Statement and Chapter 11 Plan

(the “Plan”) filed by the Debtor and its subsidiaries.3 Under

the terms of the Plan, Buchwald Capital Advisors LLC was named as

Liquidating Trustee (the “Trustee”) for the benefit of the

Creditors’ Trust, to which was assigned various causes of action

belonging to the Debtor.

On May 4, 2021, the Trustee commenced an adversary

proceeding against the Debtor’s former Chief Executive Officer -

Jeffrey S. Schoen (“Schoen”),4 the Debtor’s former Chief

Financial Officer, Keith Schroeder (“Schroeder”), two of the

2 Adv. D.I. 17 ¶ 22. References to the docket in this

adversary proceeding are to “Adv. D.I. #” while references to the

docket in the main case are to “D.I. #.”

3 D.I. 714.

4 From 2007 to the Petition Date, Schoen was a member of the

Debtor’s Board of Directors; beginning in 2013, Schoen was CEO.

At all times relevant to the Second Amended Complaint, Schoen and

the CFOs were officers of the Debtor.

2

Debtor’s other former Chief Financial Officers – Rodney D. Gloss

and Mindy Bartel (collectively, the “Former CFOs”), and members

of the Debtor’s Board of Directors (the “Board”) – Steven R.

Berlin, John C. Guttilla, Douglas E. Hailey, Elaine MacDonald,

and Mark Ravich (collectively, the “Directors”). The Trustee’s

Amended Complaint asserted claims for breach of fiduciary duties

against Schoen, Schroeder, and the Former CFOs (Count I), breach

of fiduciary duties against the Directors (Count II), aiding and

abetting the breach of fiduciary duties against Bartel and the

Directors (Count III), and avoidance of fraudulent transfers

under federal and state law against all of the Defendants (Count

IV).

On June 25, 2021, the Defendants filed Motions to Dismiss

the Trustee’s Complaint in its entirety on the basis that most of

the Trustee’s claims were time-barred.5 Rather than replying to

the Motions to Dismiss, the Trustee filed its First Amended

Complaint, alleging that Schoen and Schroeder fraudulently

concealed or misrepresented certain information to the Board.6

On August 13, 2021, the Defendants filed Motions to Dismiss the

Trustee’s First Amended Complaint, again alleging that many of

the claims were time-barred. On March 14, 2022, the Court

granted in part and denied in part the Motions, finding that the

5 Adv. D.I. 11, 12, 13, 14.

6 Adv. D.I. 17.

3

Complaint had alleged affirmative acts of concealment that, if

proven, would support tolling of the statute of limitations.7 On

March 25, 2022, the Trustee filed its Second Amended Complaint.8

After the parties conducted discovery, the Defendants filed

their Motion for Summary Judgment on the Time-Barred Claims on

December 23, 2022. The matter has been fully briefed and is ripe

for decision.

II. JURISDICTION

The Court has subject matter jurisdiction over this

adversary proceeding.9 This action involves both core and non-

core claims.10 The fraudulent transfer claims are core claims,

as they rely on sections 544 and 548 of the Bankruptcy Code.11

The fiduciary duty claims are non-core “related to” claims, as

they are claims arising under state law, not arising “in” or

7 Adv. D.I. 36.

8 Adv. D.I. 38.

9 28 U.S.C. §§ 157(a), 1334(b).

10 Id. § 157(b)(2).

11 Id. § 157(b)(2)(H); 11 U.S.C. §§ 544(b), 548. The

Liquidating Trustee invokes its power under section 544 to assert

claims under the Uniform Fraudulent Transfer Act (the “UFTA”).

Under section 157(b)(2)(H), these claims are core, as they seek

to “determine, avoid, or recover fraudulent conveyances.” See

Maxus Liquidating Tr. v. YPF S.A. (In re Maxus Energy Corp.), 597

B.R. 235, 243 (Bankr. D. Del. 2019) (holding that section 544

claims are core because “though state law supplies the substance

of the claim, the power to bring the claim in the first place

arises under federal law.”).

4

“under” the Bankruptcy Code.12 The parties have consented to

entry of a final order or judgment by the Court on the Motion for

Summary Judgment.13

III. STANDARD OF REVIEW

A. Summary Judgment

Pursuant to Rule 56(a) of the Federal Rules of Civil

Procedure, a court should grant summary judgment “if the movant

shows that there is no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.”14

The court must make its determination based upon the record of

the case presented by the parties, including the pleadings,

exhibits, and the products of discovery.15

The movant bears the initial burden of proving that it is

entitled to relief and there is no genuine dispute of material

fact,16 with the court viewing the record in the light most

12 28 U.S.C. § 157(b).

13 Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665, 686

(2015) (holding that the bankruptcy court may enter a final order

without offending Article III so long as the parties consent).

The parties’ consent in this case is evidenced by the Defendants’

proposed form of order and the Plaintiff’s prayer for relief,

both of which ask the Court to enter a final order on the Motion

for Summary Judgment. Adv. D.I. 82 Ex. A; Adv. D.I. 129.

14 Fed. R. Civ. P. 56(a), made applicable by Fed R. Bankr. P.

7056.

15 Fed. R. Civ. P. 56(c).

16 Celotex Corp. v. Cartrett, 477 U.S. 317, 323 (1986).

5

favorable to the non-moving party.17 A fact is material when,

under applicable substantive law, it “might affect the outcome of

the suit.”18 A dispute over a material fact is genuine when “the

evidence is such that a reasonable jury could return a verdict

for the nonmoving party.”19

When the movant has met its burden, the non-moving party

must show more than “some metaphysical doubt as to the material

facts.”20 Where a court ultimately finds there is no genuine

dispute of material fact, it may enter a judgment as a matter of

law, either for or against the movant, in full or in part,

applying the applicable substantive law.21

B. The Statute of Limitations

Claims for breach of fiduciary duties are subject to a

three-year statute of limitations under Delaware law.22 The

statute of limitations period begins to run on the date of the

17 United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).

18 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

19 Id.

20 Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475

U.S. 574, 586 (1986).

21 Fed. R. Civ. P. 56(a), (f).

22 10 Del. Code Ann. § 8106. See also Miller v. Bradley (In re

W.J. Bradley Mortg. Cap., LLC), 598 B.R. 150, 167 (Bankr. D. Del.

2019) (holding that a breach of fiduciary duty claim is subject

to a three-year statute of limitations under Delaware law);

Halpern v. Barran, 313 A.2d 139, 141 (Del. Ch. 1973) (same).

6

alleged harm,23 which occurs at “the moment of the wrongful act —

not when the harmful effects of the act are felt — even if the

plaintiff is unaware of the wrong.”24

The Bankruptcy Code provides a two-year extension post-

petition of the statute of limitations for any claims which have

not expired by the petition date.25 The Trustee commenced this

adversary proceeding within that period. Even with that

extension, the parties agree that application of the three-year

statute to the present adversary proceeding would ordinarily

require that any wrongful act must have occurred on or after

April 1, 2016 (i.e., three years before the Petition Date).26

The Trustee argues, however, that the statute of limitations

has been tolled by operation of Delaware law. Under Delaware

law, the statute of limitations may be extended by any of three

doctrines: “(1) inherently unknowable injuries, (2) fraudulent

concealment, and (3) equitable tolling.”27 “Each of these

doctrines permit tolling of the limitations period where the

23 W.J. Bradley, 598 B.R. at 167.

24 In re Coca-Cola Enters., Inc., C.A. No. 1927-CC, 2007 WL

3122370, at *5 (Del. Ch. Oct. 17, 2007).

25 11 U.S.C. § 108(a)(2).

26 Adv. D.I. 83 at 12; Adv. D.I. 129 at 23.

27 Winner Acceptance Corp. v. Return on Cap. Corp., Civ. A. No.

3088-VCP, 2008 WL 5352063, at *15 (Del. Ch. Dec. 23, 2008). See

also W.J. Bradley, 598 B.R. at 168; In re Dean Witter P’ship

Litig., No. CIV. A. 14816, 1998 WL 442456, at *5 (Del. Ch. July

17, 1998).

7

facts underlying a claim were so hidden that a reasonable

plaintiff could not timely discover them.”28

Although the Trustee mentions all three bases, it does not

make any specific arguments or present any facts to support

tolling based on inherently unknowable injuries or equitable

reasons. Therefore, the Court cannot conclude that the Trustee

has met its burden of establishing that the statute of

limitations has been tolled under either of those theories.

Instead, the Trustee relies solely on the first basis, asserting

that Defendants Schoen and Schroeder fraudulently concealed

relevant facts from the Board, thereby warranting a tolling of

the statute of limitations.

To prove fraudulent concealment under Delaware law, the

Trustee must establish:

that something affirmative [was] done by a defendant,

some “actual artifice” which prevent[ed] a plaintiff

from gaining knowledge of the facts, or some

misrepresentation which [was] intended to put the

plaintiff off the trail of inquiry. . . . Mere

ignorance of the facts by a plaintiff, where there has

been no such concealment, is no obstacle to operation

of the statute [of limitations].29

The Trustee asserts that even absent an affirmative act of

concealment, however, a plaintiff can prove fraudulent

28 Dean Witter P’ship Litig., 1998 WL 442456, at *5.

29 Halpern, 313 A.2d at 143. See also Lebanon Cnty. Emps.’

Ret. Fund v. Collis, 287 A.3d 1160, 1215 (Del. Ch. 2022); Eni

Holdings, LLC v. KBR Grp. Holdings, LLC, No. 8075-VCG, 2013 WL

6186326, at *12 (Del. Ch. Nov. 27, 2013); Dean Witter P’ship

Litig., 1998 WL 442456, at *5.

8

concealment where a defendant “fail[s] to disclose facts when

there is a duty to disclose.”30 The Defendants disagree. They

contend that the fraudulent concealment doctrine requires an

affirmative act of concealment separate and apart from the

alleged fraud or misrepresentation that forms the basis of the

underlying claim.31 The Defendants argue that, while equitable

tolling may rely on a breach of a fiduciary duty to disclose, it

must also involve self-dealing,32 which the Trustee does not

allege.

The Trustee contends that it is not relying on the equitable

tolling doctrine and, therefore, that it need not establish self-

30 In re Fruehauf Trailer Corp., 250 B.R. 168, 186 (Bankr. D.

Del. 2000) (quoting Litman v. Prudential-Bache Props., Inc., Civ.

A. No. 12137, 1994 WL 30529, at *4 (Del. Ch. Jan. 14, 1994)).

31 See Eni Holdings, 2013 WL 6186326, at *12 (rejecting

fraudulent concealment theory premised on same fraud allegations

as underlying claim). See also Norman v. Elkin, 726 F. Supp. 2d

464, 472 (D. Del. 2010) (applying analogous Pennsylvania law in

holding that plaintiff “failed to prove that [the defendant]

engaged in an affirmative, independent act of concealment”

because “the only concealment suggested by [p]aintiff is the

alleged inaccuracies and misinformation . . . which form[ed] the

basis of the [underlying] fraud claim itself.”).

32 In re MAXXAM, Inc., Civ. A. Nos. 12111, 12353, 1995 WL

376942, at *6 (Del. Ch. June 21, 1995) (“To invoke the doctrine

of equitable tolling, an abuse of the fiduciary relationship

through actionable self-dealing must be claimed.”); Firemen’s

Ret. Sys. of St. Louis ex rel. Marriot Int’l, Inc. v. Sorenson,

C.A. No. 2019-0965-LWW, 2021 WL 4593777, at *10 (Del. Ch. Oct. 5,

2021) (“For claims that do not involve self-dealing, ‘equitable

tolling operates in much the same way as the doctrine of

fraudulent concealment,’ and an affirmative act of concealment is

required.”).

9

dealing.** It insists, however, that fraudulent concealment can

be established by either: “(1) the commission of affirmative acts

of misrepresentation or (2) the failure to disclose facts when

there is a duty to disclose.”** The Trustee argues that to

establish fraudulent concealment without the occurrence of an

affirmative act, it need establish only that the Defendants

breached their fiduciary duty to disclose.*

The Court concludes that the Defendants correctly state the

standard for application of the doctrine of fraudulent

concealment under Delaware law as requiring an affirmative act of

concealment.*® The Trustee relies on the Fruehauf Trailer case

for the proposition that an affirmative act is not required for

fraudulent concealment. The Fruehauf Trailer Court cited a

Delaware Chancery Court decision that relied on equitable tolling

cases and a fraudulent concealment case decided by the First

Circuit for that standard.°*’ More recent Delaware caselaw,

38 Adv. D.I. 129 at 23 n.10.

Fruehauf Trailer Corp., 250 B.R. at 186 (quoting Litman,

1994 WL 30529, at *4).

8° Id.

86 See supra notes 29 & 31.

37 Litman, 1994 WL 30529, at *4 (citing Kahn v. Seaboard Corp.,

625 A.2d 269 (Del. Ch. 1993)). The Litman court also cited a

First Circuit case applying Massachusetts law for the proposition

that an affirmative act is not required for fraudulent

concealment. Id. (citing Shane v. Shane, 891 F.2d 976, 985 (1st

Cir. 1989)). That caselaw is contrary to Delaware caselaw and

therefore not persuasive.

10

however, maintains the distinction between those two doctrines

and confirms that fraudulent concealment requires an affirmative

act of concealment.*® If the Trustee, as it argues, only had to

establish that the Defendants failed to disclose information they

had a duty to disclose, then it would effectively eliminate the

statute of limitations for claims alleging a breach of the

fiduciary duty to disclose. That is not the standard. Rather,

under Delaware law, fraudulent concealment for purposes of

tolling the statute of limitations requires an affirmative act of

concealment.

Because the Second Amended Complaint on its face asserts

claims that fall outside the statute of limitations, the Court

concludes that the Trustee bears the burden of proving facts

sufficient to establish an affirmative act of concealment by the

Defendants in order to toll the three-year statute of

limitations.”

38 See, e.g., Lebanon Cnty. Emps.’ Ret. Fund, 287 A.3d at 1214-

17; Sorenson, 2021 WL 4593777, at *10; Winklevoss Cap. Fund, LLC

v. Shaw, No. CV 2018-0398-JRS, 2019 WL 994534, at *9 (Del. Ch.

Mar. 1, 2019); Certainteed Corp. v. Celotex Corp., No. Civ. A.

471, 2005 WL 217032, at *8 (Del. Ch. Jan 24. 2005); Zakrzewski v.

Singh, No. Civ. A. 00C-03-321-JEB, 2001 WL 1628312, at *5 (Del.

Super. Ct. Nov. 15, 2001).

38 Winklevoss Cap. Fund, 2019 WL 994534, at *6 (holding that if

the complaint asserts a cause of action which on its face accrued

outside the statute of limitations, the plaintiff has the burden

to plead facts “leading to a reasonable inference that one of the

tolling doctrines adopted by Delaware courts applies”);

Zakrzewski, 2001 WL 1628312, at *5.

11

IV. DISCUSSION

The Trustee argues that summary judgment is not appropriate

because there is a genuine issue of material fact regarding

whether Schoen fraudulently concealed from the Board that his

ultimate goal was always to sell the company and that his

decision to recommend expansion of the Barnwell facility and

purchase of the QRT machine (a new, untested process of

manufacturing) was to make the Debtor an attractive target for

acquisition.

The Defendants contend that the Trustee has failed to

produce sufficient evidence to establish that the statute of

limitations was tolled by fraudulent concealment. They assert

that the evidence establishes that the Board was heavily involved

in efforts to sell the company and, even when a sale was not

being aggressively pursued, knew it was always a possible option.

Further, the Defendants argue that the Trustee alleges fraudulent

concealment only by Schoen and Schroeder, and consequently, fails

to establish grounds for tolling the statute of limitations

against the other Defendants.

A. Former CFOs and Directors

While the Trustee did allege in the Second Amended Complaint

that Schoen and Schroeder breached their fiduciary duties by

providing inadequate disclosures to the Board,40 it does not

40 Adv. D.I. 38 ¶ 167(a)-(b).

12

contain any allegations that the Former CFOs or Directors

concealed any information.41

In their Motion for Summary Judgment, the Defendants contend

that the Trustee has not produced any evidence that even suggests

that any of the Defendants (other than Schoen) engaged in

fraudulent concealment. In support, the Defendants attach the

Trustee’s Response to an Interrogatory seeking facts supportive

of the Trustee’s fraudulent concealment argument in which the

Trustee fails to identify any facts that were allegedly

misrepresented or concealed by any Defendant other than Schoen.42

41 Id. ¶¶ 167(c)-(d), 171-176, 178-183, 185-190.

42 Adv. D.I. 132 Ex. A at 37-38 (emphasis added):

24. State with specificity the basis for your

contention that [the Debtor’s] management

misrepresented or concealed any material fact in the

discussions with and presentations to [the Debtor’s]

board of directors.

RESPONSE: Plaintiff objects to this interrogatory

as vague and ambiguous to the extent that it relies on

the term “management,” which is not defined in

Defendant’s Second Set of Discovery Requests. Subject

to the foregoing objection, Plaintiff states that

Defendant Schoen failed to inform the board that his

goal, from the time the initial plan to expand the

Debtor’s operations was conceived through the Petition

Date, was to sell the Debtor to a larger competitor and

that [Schoen] recommended the Valmet QRT to the Board

because he thought it would make the Debtor an

attractive target for acquisition. Rather, Defendant

Schoen had previously informed the Board that his

vision for the expansion was to [sic] “to be recognized

as a 100% retailer focused, national supplier of high-

quality tissue products,” and stated that the “end game

strategy” was to maintain the Debtor as a public

company and to merge with Fabrica. Due to his

misrepresentation regarding his underlying reason for

recommending the QRT, the Board was unable to exercise

13

The Defendants also cite the testimony of Lee Buchwald, the

Trustee’s Rule 30(b)(6) representative, who stated that he had no

reason to believe that the Trustee’s Responses to the Defendants’

Interrogatories were “inaccurate,” “incomplete,” or “need[ed] to

be supplemented.”43

In its response to the Motion for Summary Judgment, the

Trustee does not provide any argument or cite any evidence to

establish that the Former CFOs or the Directors fraudulently

concealed any information.

Consequently, the Court concludes that the Trustee has

failed to meet its burden of establishing a basis to toll the

statute of limitations for claims against the Former CFOs and

Directors.44 The Court will, therefore, grant the Motion for

Summary Judgment on the Time-Barred Claims as to the Former CFOs

and Directors.

B. Schroeder

In the Second Amended Complaint, the Trustee does allege

that Schroeder breached his fiduciary duties by failing to

disclose “highly relevant and potentially unflattering

information” to the Board concerning the costs associated with

its judgment and consider, for instance, whether

potential acquirers would be receptive to a facility

dependent upon an unproven, first-of-its-kind

technology – the QRT which lacked market validation.

43 Adv. D.I. 132 Ex. B at 89-90, 230-31.

44 Winklevoss Cap. Fund, 2019 WL 994534, at *6.

14

the Barnwell buildout.45 While the Trustee does not argue in its

response to the Motion for Summary Judgment that this is

fraudulent concealment sufficient to toll the statute of

limitations as to Schroeder, the Trustee does refer to evidence

that it contends supports its allegations against Schroeder.

Specifically, the Trustee relies on deposition testimony in

which the Directors could not recall certain details about the

cost of the Barnwell project or whether they were advised of

expected contingencies and variances to the projected costs.46

45 Adv. D.I. 38 ¶¶ 51, 63, 167(b).

46 See Adv. D.I. 130 (Ravich Dep.) at A067-A068 (“Q. Do you

know why there was an $8 million difference in the costs related

to the paper machine building at Barnwell between the original

bank estimate and the final estimate? . . . A. No. I mean, . .

. could be that they changed the specs, added different

equipment. You’d have to really have a lot of detail to figure

that out. Q. What about the ‘DIP Equipment’? There appears to

be about a $5 million difference between the ‘Original Bank

Estimate’ and ‘Final Revision.’ Would you have the same answer?

A. Yeah, I mean, again, it’s . . . what happened in between.”);

Adv. D.I. 130 (Hailey Dep.) at A036-A039 (“Q. . . . So tell me

specifically what you are referencing when you say ‘changes to

engineering and design specifications.’ A. That would have been

the – like the best example of that would be the de-inking

additions. That’s a change in engineering design spec. . . . Q.

Anything else that you’re referring to there? A. Not that I have

on the top of my head, but I certainly wouldn’t be surprised if

there ended up being others, but those are the ones I remember. .

. . Q. Are you aware of any fluctuations in the cost of

equipment that occurred with respect to Barnwell? A. No, I’m

not. Q. Are you aware of any fluctuations in the market with

respect to the cost of materials? . . . A. . . . I mean, I’m

sure there had to be. You know, there were so many materials

being purchased, but I do remember one, do I have a current

knowledge of one, no.”); Adv. D.I. 130 (Ravich Dep.) at A060 (“Q.

What was the magnitude of variance that you were expecting? A.

Didn’t really have any expectation at the initial time other

than, you know, risk factors to, basically, any construction

15

The Trustee contends that the Directors’ differing recollections

of whether a contingency was built into the Barnwell budget

contradict Schroeder’s testimony that a contingency was built

into the budget.47 It argues that this creates a genuine issue

project of this type.”); Adv. D.I. 130 (Ravich Dep.) at A059 (“Q.

And do you recall what [the Barnwell project] ultimately ended up

costing? A. Not as much exactly on an apples-to-apples

comparison. There were changes made to the budget during it, but

it was more than [$127 million]. Q. . . . [D]o you know if it

was $10 million more than [$127 million]? A. Well, I think it

was more than that, although . . . I can’t really recall what was

the result of changes to project and what was the result of just

straight overruns.”); Adv. D.I. 130 (Ravich Dep.) at A059-A060

(“Q. . . . [G]iven the expectation for a variance from the

original estimate, how much contingency funding did the board

insist be available to account for the variance? A. I don’t

recall what was in the budget for that.”); Adv. D.I. 130

(MacDonald Dep.) at A074-A075 (“Q. . . . And so given the

expectation that the actual capital requirements would materially

vary, did the board provide for any contingency funding for the

Barnwell project? A. My recall was roughly around 15 percent for

overall start up including purchases, anything that had to do

with overall costs associated with installation. Q. So a $127

million project, that would be approximately $18 or $19 million?

A. . . . Yes.”); Adv. D.I. 130 (Guttilla Dep.) at A108-A109 (“Q.

. . . Do you recall if any contingency funding was built into

the initial budget for the Barnwell project? A. No, I explained

that the way we approached this was to stress test our existing

business to be sure that we had cash flow to cover

contingencies.”).

47 Adv. D.I. 130 (Schroeder Dep.) at A357 (“Q. . . . At the

time the $127 million cost estimate was prepared, what sort of

cost variance was being contemplated? A. I believe the project .

. . would have already had a contingency built in. I don’t

remember the percentage. But normally when we would do a capital

project of any size – like the first two paper machines that we

put in at the Oklahoma site would have been 10 to 15 percent at

least built in.”); Adv. D.I. 132 Ex. I (Schroeder Dep.) at 33

(“Q. So does that mean that the $127 million number already

contained a 10 to 15 percent contingency? A. Correct.”).

16

of material fact as to whether Schroeder fraudulently concealed

relevant information from the Board.

In their Motion for Summary Judgment, the Defendants contend

that the only evidence of fraudulent concealment presented by the

Trustee were the Answers to Interrogatories and deposition

testimony of Buchwald which stated only that Schoen concealed his

intent to sell the Debtor.48 Accordingly, the Defendants assert

that the Trustee has presented no evidence that Schroeder engaged

in any fraudulent concealment which would support tolling the

statute of limitations as to him.

When the movant has presented evidence to meet its burden on

a summary judgment motion, the burden shifts to the non-moving

party to present evidence in rebuttal sufficient to create a

genuine issue of material fact.49 In this case, the Court

concludes that the Trustee has failed to meet its burden. First,

the Trustee’s Response to Interrogatories and the Trustee’s

30(b)(6) representative’s deposition testimony do not identify

any fraudulent concealment by Schroeder. Second, the Trustee’s

only proffered evidence to support a claim that Schroeder engaged

in fraudulent concealment was the Directors’ testimony that they

could not recall specific details relating to the costs of the

48 See supra notes 42 & 43.

49 Matsushita Elec. Indus. Co., 475 U.S. at 586 (holding that

when the moving party has met its burden under Rule 56(c), the

non-moving party must present evidence demonstrating that a trial

is warranted because a genuine issue of material fact exists).

17

Barnwell project.50 The Court does not find this surprising, or

evidence of concealment, given the fact that the project was

addressed by the Board a decade ago. Third, the Trustee’s

assertion that the Directors’ deposition testimony is evidence

that they were not given the facts related to the Barnwell

project at the time it was approved is not supported by that

testimony. Although the Directors were unclear about the

specifics of the discussions, their testimony was that they were

aware of details of the budget related to the Barnwell buildout

at the time for the project was discussed.51 The Court,

therefore, concludes that the Trustee has failed to establish

that the statute of limitations should be tolled as to Schroeder.

Even if, as the Trustee contends, Schroeder did not fully

inform the Board of the details of the Barnwell project, that is

not sufficient to tole the statute of limitations. As the

Debtor’s CFO, Schroeder had a fiduciary duty to disclose all

relevant information about the Barnwell project to the Board.52

50 See supra note 46.

51 Id.

52 See In re Nat’l Serv. Indus., Inc., Adv. No. 14-50377, 2015

WL 3827003, at *6 (Bankr. D. Del. June 19, 2015) (noting that an

officer, as an agent of a Delaware corporation, owes the

corporation and its shareholders the duty of care, duty of

loyalty, and duty to act in good faith); Science Accessories

Corp. v. Summagraphics Corp., 425 A.2d 957, 962 (Del. 1980)

(holding that encompassed within the general duties of care,

loyalty, and good faith is a duty to disclose information that is

relevant to the affairs entrusted to the officer or director).

18

As the Court concluded above, to toll the stature of limitations

on a breach of fiduciary duty claim, the Trustee simply cannot

rely on evidence of a failure to disclose information that

Schroeder had a duty to disclose. Instead, the Trustee must show

an affirmative act of concealment independent of his fiduciary

duties.53 The Trustee has not presented any evidence to raise a

genuine dispute of material fact that Schroeder did so.

Consequently, the Court will grant the Motion for Summary

Judgment on the Time-Barred Claims as to Schroeder.

C. Schoen

With respect to Schoen, the Second Amended Complaint alleges

that Schoen misrepresented and actively concealed the fact that

he always intended to sell the Debtor and took actions to

position the Debtor for sale, even though those actions might not

have been in the Debtor’s best interests at the time.54 The

Second Amended Complaint alleges, in particular, that Schoen

pushed the Board to approve the purchase of the QRT machine (a

new, untested process) and to expand the Debtor’s operations on

many simultaneous fronts in order to position the Debtor as an

attractive target of acquisition, while not revealing that goal

to the Board.55

53 See supra notes 31 & 38.

54 Adv. D.I. 38 ¶¶ 27-33, 47, 167(a)(ii).

55 Id. ¶¶ 29-33.

19

In their Motion for Summary Judgment, the Defendants assert

that the evidence does not support the Trustee’s allegations of

fraudulent concealment. Instead, they presented evidence which

they contend establishes that the Board was always aware that the

sale of the Debtor was an option.

1. The Defendants’ Evidence

In support of their Motion for Summary Judgment, the

Defendants attached Declarations of Schoen and the Directors, all

of whom state that a sale of the Debtor was always considered

“one potential option.”56 In his declaration, Schoen states that

he had “numerous discussions with the Board and its members, both

formally and informally, concerning strategic options for the

company.”57 Those discussions included conversations about

“potential mergers” and “a sale to a competitor or strategic

investor,” among other possibilities.58 The Directors’

Declarations corroborate the statements in Schoen’s Declaration.

The Directors state that they did not think that Schoen concealed

or failed to disclose a secret plan to sell the Debtor or any

other material information concerning a potential future sale

from the Board.59 Rather, they state that “Schoen shared his

56 Adv. D.I. 89 ¶ 27; Adv. D.I. 84, 85, 86, 87, 88 ¶ 12.

57 Adv. D.I. 89 ¶ 28.

58 Id.

59 Adv. D.I. 84, 85, 86, 87, 88 ¶ 12.

20

views regarding potential sale scenarios with the Board on

multiple occasions in 2013, 2014, and 2015.”60 The Directors’

deposition testimony to that effect was also offered by the

Defendants to support their Motion.61

2. The Trustee’s Evidence

The majority of the Trustee’s response to the Motion for

Summary Judgment sought to undermine the Defendants’ evidence,

rather than present its own evidence of any actual concealment by

60 Id.

61 In his deposition, Director Berlin testified that at least

two sale opportunities were presented to the Board, and “if [a

sale opportunity] was provided to the investment banks or

directly, [the Board] would consider it every time.” Adv. D.I.

130 at A014.

Similarly, Director Hailey testified that once the Debtor’s

investment banker failed to deliver a buyer in 2013, the goal

“shifted from a sale to an expansion.” Adv. D.I. 130 at A032.

Hailey stated, however, that the Board was “still actively trying

to sell the company” in 2013 and “[e]veryone knew it,” though

“[t]here was no reason to reach out to the market again” because

the Board “had already talked to every strategic [buyer] six

months before this.” Adv. D.I. 132 Ex. D at 167. The Board’s

failure to locate a buyer despite “want[ing] to sell the

company,” and the subsequent shift to expansion efforts was

merely “Plan B.” Adv. D.I. 130 at A032.

Director Ravich echoed Berlin and Hailey’s testimony.

Ravich explained that the Board was “trying to get the maximum

value out of the company” and that they were “not concerned with

whether it would be by sale, merger, [or] expansion. Just

whatever would probably generate the highest price.” Adv. D.I.

130 at A056. Because the Board “didn’t see an opportunity to

sell [the Debtor] for . . . a greater price than it was being

valued at,” Ravich explained that “the next alternative was

expansion to create value.” Id. The Board was never opposed to

the option of a sale, they just “didn’t think a sale [of the

Debtor] was possible.” Adv. D.I. 132 Ex. G at 116.

Similarly, both MacDonald and Guttilla testified that the

Board would always consider an opportunity to sell the Debtor.

See Adv. D.I. 132 Ex. F at 15, Ex. E at 21.

21

Schoen. In particular, the Trustee presented evidence which it

contends contradicts the Declarations submitted by the

Defendants. It argues that, at the very least, the evidence it

presented creates a genuine dispute of material fact on the

fraudulent concealment issue.

a. December 27, 2018, Email

The Trustee presented an email dated December 27, 2018, from

Schoen (the “December 2018 Email”) in which Schoen stated that

the Debtor’s “Goal always was to sell the Company to a larger

competitor.”62 The Trustee asserts that this statement is

evidence that Schoen’s personal goal was always to sell the

Debtor, which was never disclosed to the Board. The Trustee also

contends that it contradicts Schoen’s Declaration in which he

stated that he “never considered a sale to be the most desirable

option — either for [the Debtor], its shareholders, or for

[him]self personally — at any point during 2014, 2015, or

2016.”63

In response, the Defendants presented Schoen’s Supplemental

Declaration,64 in which Schoen explained that he prepared the

December 2018 Email in connection with negotiations between the

Debtor and its senior secured lender in an effort to delay or

62 Adv. D.I. 130 at A002 (emphasis added).

63 Adv. D.I. 89 ¶ 27.

64 Adv. D.I. 132 Ex. J.

22

obviate the need for a bankruptcy filing.65 Schoen stated that

he believed the lender would be more likely to accommodate the

Debtor’s request if it was framed as consistent with the Debtor’s

historical strategy.66 Schoen further explained that he did not

intend to suggest that selling to a larger competitor was ever

the Debtor’s only goal or even a personal goal of his.67

The Trustee objected to the Court’s consideration of

Schoen’s Supplemental Declaration, asserting that the Defendants

were asking the Court to resolve contradictory evidence in their

favor, thereby acknowledging there was a material issue of fact

in dispute. The Court rejects this assertion. The Supplemental

Declaration does not contradict the December 2018 Email but

simply places it in context.

Nor does the Court find that the December 2018 Email

establishes that Schoen concealed from the Board his goal to sell

the Debtor or even creates a genuine issue of material fact on

this point. First, the document was created in 2018, not during

the period at issue (2013-2016). Second, it states that it was

the intent of the Debtor (not Schoen personally) to sell.68

Third, the document is not contrary to the testimony of the

65 Id. ¶ 5.

66 Id. ¶ 9.

67 Id. ¶ 10.

68 Adv. D.I. 130 at A002.

23

Directors who all stated that they were aware that a sale of the

Debtor was always a possibility.69 Fourth, the December 2018

Email highlights the market factors that caused the Debtor to

pursue a sale strategy in 2018 rather than continue its prior

expansion strategy.70 Fifth, the document was not concealed by

Schoen from the Debtor; a copy was sent to Bartel, the Debtor’s

CFO at the time.71 Therefore, the Court does not find that the

December 2018 Email establishes that Schoen fraudulently

concealed information from the Board.

b. Directors’ Deposition Testimony

The Trustee also asserts that the Directors’ deposition

testimony contradicts the Directors’ Declarations and supports

its contention that Schoen hid his intent to sell the Debtor from

the Board. It cites testimony in which the Directors state that

expansion, not a sale, was the Company’s main goal between 2014

and 2016.72 The Trustee asserts that this evidence shows Schoen

69 Adv. D.I. 84, 85, 86, 87, 88 ¶ 12. See also Adv. D.I. 130

at A014, A056; Adv. D.I. 132 Ex. D at 167, Ex. E at 21, Ex. F. at

15.

70 Adv. D.I. 130 at A001-A005.

71 Id.

72 See Adv. D.I. 130 (Berlin Dep.) at A015 (“Q. Would you ever

say that during your tenure that the goal was to sell the

company? A. No. Let me correct that. At the very end we were

instructed by the banks to find a purchaser, then, yes, the goal

was to sell the company.”); Adv. D.I. 130 (Hailey Dep.) at A030

(“Q. So the goal [in 2013, once William Blair failed to deliver a

buyer] . . . then shifted from a sale to an expansion that is

both offensive and defensive. A. Yes.”); Adv. D.I. 130 (Ravich

24

concealed his personal goal of achieving a sale of the Debtor

from the Board.

The Defendants respond that the Directors’ deposition

testimony does not support the Trustee’s contention that a

potential sale was hidden from the Board. While several members

of the Board testified that expansion, not a sale, was the

Debtor’s main goal between 2013 and 2016,73 every Director also

testified that a sale opportunity was always a possibility that

the Board would consider.74

The Court agrees with the Defendants that the cherry-picked

deposition testimony cited by the Trustee is insufficient to

prove that Schoen fraudulently concealed from the Board an intent

to sell the Debtor. The Directors and Schoen testified that the

Debtor was pursuing an expansion strategy between 2013 and 2016

Dep.) at A056 (“Q. And so beginning in 2013, the goal for [the

Debtor’s] business became expansion; is that correct? A. Yes.”);

Adv. D.I. 130 (MacDonald Dep.) at A072 (“Q. So it is correct to

say from 2013 on, the strategic plan for [the Debtor] was to

expand the business? A. Expand the business. Yes.”); Adv. D.I.

130 (Guttilla Dep.) at A095 (“Q. . . . Can you tell me why the

board adopted [an expansion] plan? A. William Blair . . .

specifically listed six alternatives in their presentation. And

that was one of the alternatives. . . . In the judgment of the

board and the management committee, that was the course of action

we decided to pursue.”).

73 Id.

74 See Adv. D.I. 130 at A014, A032, A056; Adv. D.I. 132 Ex. D

at 167, Ex. E at 21, Ex. F. at 15, Ex. G at 116.

25

only because it had been unable to find a buyer at that time.75

Consequently, the Court does not find the Directors’ testimony

that the Debtor was pursuing an expansion strategy at that time

as inconsistent with their testimony that the Board was always

open to a sale of the business.76 More importantly, the Court

does not find it is evidence of concealment by Schoen of an

intent to sell the Debtor.

c. Fabrica Transaction

The Trustee also offered a Board Meeting Presentation and

Board Meeting Minutes as evidence proving that Schoen did not

fully apprise the Directors of relevant information relating to a

proposed strategic transaction with Fabrica, another paper

75 See Adv. D.I. 130 (Hailey Dep.) at A032 (“Q. But during

[2013], [a sale or merger] wasn’t specifically the goal; is that

correct? A. . . . [I]t wasn’t just [William Blair’s]

recommendation that we move [towards expansion efforts]. It was

them saying, ‘Nobody will buy you. So, unfortunately, even

though you want to sell the company, there is nobody that will

buy you, so what’s Plan B?’ [Expansion] was Plan B. Q. So [once

William Blair failed to deliver a buyer in 2013] . . . the goal

then shifted from a sale to an expansion that is both offensive

and defensive? A. Yes.”); Adv. D.I. 132 Ex. D (Hailey Dep.) at

166-67 (“[W]e were trying to sell the company. As I mentioned

earlier, that was what I wanted to have happen in 2012. We just

couldn’t find a suitor. So that didn’t suddenly stop in 2013.

There was no reason to reach out to the market again. We had

already talked to every strategic [buyer] six months before this.

So [from 2013 to 2016] we were still actively trying to sell the

company. Everyone knew it.”). See also Adv. D.I. 130 (Ravich

Dep.) at A056; Adv. D.I. 132 Ex. H (Schoen Dep.) at 46; Adv. D.I.

84, 85, 86, 87, 88 ¶ 10.

76 See supra note 74.

26

company.77 Those Board Meeting Minutes show that during the

March 18-19, 2014, Board Meeting, Schoen and Schroder gave a

presentation to the Board about the Fabrica proposal. Although

those Board Meeting Minutes unequivocally state that the Board

was advised of, and discussed, the benefits and risks associated

with the Fabrica transaction,78 the Trustee asserts that the

Minutes are contradicted by the fact that none of the Directors

could recall in their deposition testimony what risks, if any,

were disclosed to them at that Board meeting.79 The Trustee

contends that the Directors’ failure to recall the risks and

benefits of the Fabrica transaction at their depositions is

evidence that Schoen failed to disclose the risks to the Board

and that their Declarations are not based on their personal

knowledge.

The Court rejects the Trustee’s arguments. The Board

Presentation and Minutes provide evidence that the risks and

benefits of the Fabrica transaction were disclosed to the Board,

not concealed by Schoen. The failure of the Directors to recall

the details of the board meeting and presentation in their

depositions nearly a decade later is not evidence that Schoen

failed to apprise them of those risks and benefits.

77 Adv. D.I. 130 at A117-A121, A122-A228, A315-A354.

78 Id. at A117.

79 Id. at A028-A029, A100-A105, A072-A073.

27

d. QRT Machine

The Trustee presented evidence which it maintains

establishes that Schoen concealed from the Board risks associated

with the acquisition of the QRT machine: the January 2015 Board

Meeting Minutes with accompanying Presentation and an October 16,

2018, email between Schoen and the QRT manufacturer (the “October

16, 2018, Email”).80 The Trustee points out that there is no

mention of the QRT machine in the January 2015 Board Meeting

Presentation and Minutes.81 It also cites the deposition

testimony of the Directors stating that they were not apprised of

the risks (known to Schoen) that the Debtor was taking in buying

the QRT machine, a new and untested technology.82

The Trustee finally asserts that Schoen admitted in the

October 16, 2018, Email that the Debtor underestimated the

80 Id. at A312-A354.

81 Id. at A312-A354 (Minutes of a Meeting of the Board of

Directors of Orchids Paper Products Company (Jan. 21-22, 2015)).

82 Id. (MacDonald Dep.) at A076-A078 (“Q. . . . In this e-mail

dated October 16, 2018, and in the third paragraph Mr. Schoen

says the product QRT ‘could support were not well understood or

developed.’ Were you aware of that at the time you approved the

QRT? A. Not to this depth, no. . . . Q. At the time you

approved the QRT, were you aware that [the Debtor] lacked the

depth and breadth of resources to develop product and process for

the QRT? . . . A. Absolutely not.”); Adv. D.I. 130 (Guttilla

Dep.) at A110-A112 (“Q. . . . At the time you approved the

purchase of the QRT, were you aware that the products the QRT

could support were not well understood or developed? A. No. . .

. Q. Were you aware at the time you approved [the Debtor’s]

purchase of the QRT that [the Debtor] lacked the depth and

breadth of resources to develop product and process for the QRT?

. . . A. No. Q. Did Mr. Schoen ever tell you that? A. No.”).

28

research and development requirements of the QRT machine because,

although it was marketed as a commercial paper machine, the QRT

machine turned out to be a first of a kind technology.83 The

Trustee asserts that Schoen’s concession that he “should have

recognized these issues” is evidence that he fraudulently

concealed information from the Board about his decision to

recommend and select the QRT machine.84

The Defendants respond that a consideration of all the

evidence proves that those risks were not hidden from the Board.

Preliminarily, the Defendants assert that the October 16, 2018,

Email is not evidence that Schoen failed to disclose the QRT

machine’s risks to the Board three years earlier in 2015. They

contend that the Directors’ deposition testimony establishes

unequivocally that the Directors were fully apprised of the risks

and benefits of the QRT machine at the time of its acquisition in

2015.85 Further, the Defendants argue that the Trustee’s

83 Adv. D.I. 130 at 230.

84 Id.

85 See, e.g., Adv. D.I. 132 Ex. G (Ravich Dep.) at 137 (“Q. And

does reviewing this document refresh your recollection regarding

what type of paper machine was initially planned to be included

in the Barnwell facility? . . . A. Well, . . . my understanding

is we were examining all the options. . . . [T]he process took a

certain amount of time and ultimately concluded with the machine

we chose. But everything considered in this document, it looks

like they were looking at the ATMOS machine. . . . I seem to

recall there was an analysis between the ATMOS and the QRT and .

. . [w]e thought the QRT was the better decision.”); id. at 143-

45 (“Q. And so at this point, Mr. Schoen was presenting to the

board the relative merits of the QRT versus the ATMOS machine?

29

contention that the QRT machine was not discussed at the January

2015 Board Meeting is contrary to the evidence. Although the QRT

was not explicitly mentioned in the January 2015 Board Meeting

Minutes, the Minutes show that the Board directed Schoen and the

management team to continue exploring the risks and benefits of

other paper machines, which they did.86 The Defendants cite

Schoen’s Declaration87 and the testimony of Directors Berlin and

A. Yeah. Yes. . . . Q. And so is it represented to the board

that the cost of the two machines was comparable? A. Well, it

appears to me that the QRT machine is cheaper. Well, cheaper per

ton. If you look at the last line. . . . Q. Even though the

full cost outlay is 33 million versus 21 million? A. Well,

again, . . . the cost per ton, which is the relevant concept, is

cheaper for the QRT. Q. . . . And so, here, Mr. Schoen

identifies . . . ten pluses on the QRT versus the ATMOS and just

one delta; is that correct? A. Correct. . . . Q. Were you aware

that Mr. Schoen agreed to recommend the QRT to the board before

he even knew the cost of it? . . . A. I guess I can’t comment

exactly on that because . . . there is a lot in that assumption.

I mean, if he knew that it was going to be cheaper per ton, more

flexible, this, this, and this, but he didn’t know the ultimate

total cost, it’s not a fair statement the way you’re asking the

question. So I think he was recommending the machine based on

the fact that he knew from all the pluses that it would be

probably a better option. He may not have actually known the

specific cost at that time.”); Adv. D.I. 132 Ex. C (Berlin Dep.)

at 197-98 (“Q. Based upon your recollection of the meetings, was

the QRT discussed? A. I don’t recall whether it was mentioned

then [as] an alternative or not. I know that we knew that there

was an alternative in the QRT, but I don’t remember if [it] came

up specifically here.”).

86 Adv. D.I. 130 at A314 (“Messrs. Schoen and Schroeder were

authorized and directed to continue to examine the property,

building and equipment needs, availability and cost in the

context of the planned integrated mill in Barnwell, South

Carolina, as discussed in the meeting.”) (emphasis added).

87 Adv. D.I. 89 ¶¶ 18, 21 (explaining that Schoen and the

management team had initially identified the ATMOS paper machine

as superior to the Valmet NTT machine but had advised the Board

30

Ravich,88 which show their awareness in January 2015 that Schoen

was still in the process of exploring the risks and benefits of

various paper machines. The Defendants also rely on the

Directors’ Declarations in which each Director confirms that

“[t]he Board fully understood that the QRT machine was a new

technology, and the inherent risks associated with any new

technology, in making its decision.”89

The Court concludes that the evidence presented by the

Trustee does not support its argument that Schoen fraudulently

concealed relevant facts about the QRT machine in 2015 or even

raises a genuine issue of material fact on that point. First,

the October 16, 2018, Email was authored three-and-a-half years

after the QRT machine acquisition was approved by the Board. It

does not provide any evidence that Schoen withheld information

from the Board in 2015, but only shows that Schoen, in hindsight

years later, realized there were problems with the QRT machine.90

Second, the Court cannot conclude that the Directors’ failure to

recall all the details regarding the risks and benefits

at the January meeting that he was not ready to make a final

recommendation because he and the management team wanted to

evaluate Valmet’s newly available QRT machine. Schoen stated,

however, that at the May 2015 Board Meeting he advised the Board

of the risks and benefits of the newly developed QRT machine

compared to the ATMOS, NTT, and other conventional machines).

88 See supra note 85.

89 Adv. D.I. 84, 85, 86, 87, 88 ¶ 24.

90 Adv. D.I. 130 at A230.

31

associated with the QRT machine purchase years after the fact is

evidence that those risks were not disclosed in 2015. The

Directors’ Declarations and deposition testimony, as well as the

January 2015 Board Minutes, establish that Schoen was not only

authorized, but was directed, by the Board to explore other paper

machine options.91 The Declarations of Schoen and the Directors

evidence that the acquisition of the QRT machine was fully

discussed at the time the Board approved it.92 The Court

concludes that the evidence presented does not support the

Trustee’s contention that Schoen withheld information from the

Board in an undisclosed effort to make the Debtor an attractive

target for acquisition.

Even if there were any evidence that Schoen failed to

disclose to the Board facts relevant to the QRT machine

acquisition, the Court concludes that it fails to establish

fraudulent concealment necessary to toll the statute of

limitations. As the Debtor’s CEO, Schoen had a duty to disclose

information relevant to that acquisition.93 As noted above, it

is insufficient to establish fraudulent concealment with evidence

91 See supra notes 85-88.

92 See Adv. D.I. 132 Ex. G at 143; Adv. D.I. 130 at A043, A077,

A314; Adv. D.I. 89 ¶ 18.

93 See Nat’l Serv. Indus., 2015 WL 3827003, at *6; Science

Accessories Corp., 425 A.2d at 962.

32

of the underlying claim for breach of a fiduciary duty to

disclose.94

e. Barnwell Project Estimate

The Trustee also argues that Schoen withheld material

information pertaining to the Barnwell expansion from the Board

to further his secret goal of selling the Debtor.95 The Trustee

relies on the deposition testimony of the Directors in which they

could not recall the details of the variances between the

projections and actual costs or whether the company’s budget for

the project contained any contingencies.96 The Trustee argues

that the Directors’ inability to recall relevant information

about the Barnwell project is evidence that Schoen failed to keep

the Board fully informed about the project, thereby allowing him

to misrepresent and actively conceal his personal goal of

effectuating a sale.

In response, the Defendants rely on declarations of each

Director stating that they were presented with relevant details

about the estimated and actual costs of the Barnwell expansion.97

94 See supra notes 31 & 38.

95 See Adv. D.I. 38 ¶ 167(a)(i)-(ii), (iv).

96 See Adv. D.I. 130 at A036-A041, A059-A069, A075, A108-A109,

A357, A361-A368.

97 Adv. D.I. 84, 85, 86, 87, 88 ¶ 20 (“The members of the Board

(including myself) were fully aware that the anticipated capital

requirements under discussion during the 2013-2015 period were

only projections, and that as with any construction project the

actual capital requirements would materially vary depending on a

33

The Directors explained that they were aware that the estimated

costs were merely projections and that the actual costs of the

Barnwell project could materially increase based on a number of

factors.98 The Defendants assert that the Directors’ failure to

recall specific details about the Barnwell expansion in their

depositions, nearly a decade after it was approved by the Board,

does not make the Directors’ Declarations inaccurate. Further,

the Defendants note that the Barnwell cost projections were

prepared by an outside engineering firm and internal engineering

employees, not by Schoen.99 Therefore, the Defendants assert that

the Barnwell cost projections are not evidence of any fraudulent

concealment by Schoen of an intent to sell the Debtor.100

The Court concludes that the Trustee has failed to present

evidence sufficient to establish that Schoen fraudulently

concealed relevant information about the Barnwell project from

the Board. The Court finds that the Directors’ failure to recall

information related to the Barnwell project in depositions taken

many years later does not establish that Schoen failed to inform

number of factors, including but not limited to changes to

engineering and design specifications; market fluctuations in

equipment, material, and labor costs; local construction

requirements; and potential delays.”).

98 See supra notes 95 & 96.

99 Adv. D.I. 132 Ex. I at 33, 139.

100 Id. Ex. A at 37-38, Ex. B at 231.

34

the Board about the expected costs at the time of approval of the

Barnwell project.

Furthermore, as noted above, evidence that Schoen failed to

disclose to the Board facts about the Barnwell expansion would

not be sufficient to establish fraudulent concealment sufficient

to toll the statute of limitations. As the Debtor’s CEO, Schoen

had a duty to disclose information relevant to that expansion.101

As noted above, fraudulent concealment cannot be established by

evidence of the underlying claim of breach of a fiduciary duty to

disclose.

f. Stock Options

Lastly, the Trustee asserts that Schoen’s compensation

package provides support for its contention that Schoen concealed

information from the Board. According to the Trustee, the

November 8, 2013, Nonqualified Stock Option Agreement (the

“Option Agreement”)102 between the Debtor and Schoen incentivized

Schoen to push a sale of the Debtor. Under the Option Agreement,

Schoen had the option to purchase up to 400,000 shares of the

Debtor’s stock when the share price hit certain targets.103

Although Schoen was able to exercise options for 100,000 shares

on June 30, 2016, the subsequent drop in the Debtor’s share price

101 See Nat’l Serv. Indus., 2015 WL 3827003, at *6; Science

Accessories Corp., 425 A.2d at 962.

102 Adv. D.I. 130 at A380-A384.

103 Id. at A380.

35

precluded him from exercising any more options. However, the

Option Agreement also provided that if a “Change in Control”

occurred on or before November 8, 2018, Schoen’s options would

become fully exercisable without regard to the share price.104 As

a result, the Trustee asserts that the Option Agreement

contradicts Schoen’s claim in his Declaration that he “never

considered a sale to be the most desirable option.”105

The Defendants assert that the Directors’ deposition

testimony directly refutes the Trustee’s contention. The

Directors testified that the change in control provision in the

Option Agreement was a standard corporate component of executive

compensation106 that would be triggered only if the Board decided

to approve a sale.107 The Directors further testified that the

Option Agreement incentivized Schoen to drive company revenue and

create value for shareholders in many ways; if a sale created

that value and the Board approved it, then they testified that

Schoen would have earned the options.108

The Court finds that the Option Agreement does not establish

that Schoen fraudulently concealed evidence from the Board. As

the Directors testified, the Option Agreement is a typical

104 Id. at A381, ¶ 1(d).

105 Adv. D.I. 89 ¶ 27.

106 Adv. D.I. 132 Ex. D at 110-11.

107 Id. at 111.

108 Id. Ex. C at 147, Ex. F at 98, Ex. G at 84.

36

component of executive compensation.'’® Because the Board had to

approve any sale of the Debtor as being in the best interest of

the Debtor and shareholders, the Option Agreement did not give

Schoen any ability to effectuate a sale by himself. Therefore,

the Court concludes that the Option Agreement does not prove an

affirmative act of concealment by Schoen.

For all the above reasons, the Court finds that the Trustee

has failed to meet its burden of establishing that Schoen

fraudulently concealed information from the Board between 2013

and 2016.**° Because the Trustee’s sole argument in support of

tolling the statute of limitations is its contention that Schoen

fraudulently concealed from the Board his goal to sell the

company,’ the Court will grant the Defendants’ Motion for

108 Adv. D.I. 132 Ex. D at 110-11. Cf. In re Baker Hughes Inc.

Merger Litig., No. 2019-0638-AGB, 2020 WL 6281427, at *19 (Del.

Ch. Oct. 27, 2020) (holding that a similar provision vesting

equity options in a change of control transaction “does not

create a conflict of interest because the interests of the

shareholders and [fiduciaries] are aligned in obtaining the

highest price.”); In re BioClinica, Inc. S’holder Litig., No.

8272-VCG, 2013 WL 5631233, at *5 (Del. Ch. Oct. 16, 2013) (“[T]he

Plaintiffs’ contention that the vesting of stock options ina

change of control transaction implicates the duty of loyalty is

frivolous.”).

110 See Halpern, 313 A.2d at 143 (holding that fraudulent

concealment requires an affirmative act of concealment or

misrepresentation. See also Lebanon Cnty. Empos.’ Ret. Fund, 287

A.3d at 1215; Eni Holdings, 2013 WL 6186326, at *12; Dean Witter

P’ship Litig., 1998 WL 442456, at *5.

iit Adv. D.I. 132 at 37-38.

37

Summary Judgment on the time-barred claims contained in the

Second Amended Complaint.

V. CONCLUSION

For the foregoing reasons, the Court will grant the

Defendants’ Motion for Summary Judgment as to the Trustee’s time-

barred claims.

An appropriate Order is attached.

Dated: April 9, 2024 BY THE COURT:

Mary F. Walrath

United States Bankruptcy Judge

38