VFB LLC v. Campbell Soup Co.

Opinions of the United

2007 Decisions States Court of Appeals

for the Third Circuit

3-30-2007

VFB LLC v. Campbell Soup Co

Precedential or Non-Precedential: Precedential

Docket No. 05-4879

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007

Recommended Citation

"VFB LLC v. Campbell Soup Co" (2007). 2007 Decisions. Paper 1372.

http://digitalcommons.law.villanova.edu/thirdcircuit_2007/1372

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2007 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 05-4879

VFB LLC, a Delaware limited liability company,

Appellant

v.

CAMPBELL SOUP COMPANY;

CAMPBELL INVESTMENT COMPANY;

CAMPBELL FOODSERVICE COMPANY;

CAMPBELL SALES COMPANY; CAMPBELL SOUP

COMPANY, LTD (Canada);

JOSEPH CAMPBELL COMPANY; CAMPBELL SOUP

SUPPLY COMPANY, L.L.C.;

PEPPERIDGE FARM, INCORPORATED

On Appeal from the United States District Court

for the District of Delaware

(D.C. No. 02-cv-00137)

District Judge: Hon. Kent Jordan

Argued January 18, 2007

Before: SLOVITER, RENDELL, and CUDAHY,*

Circuit Judges

*

Hon. Richard D. Cudahy, United States Senior Circuit

Judge for the United States Court of Appeals for the Seventh

Circuit, sitting by designation.

(Filed: March 30, 2007)

John A. Lee, Esquire

Robin Russel, Esquire

Andrews & Kurth LLP

600 Travis, Suite 4200

JP Morgan Chase Tower

Houston, TX 77002

Barbara W. Mather [ARGUED]

Robert L. Hickok

Benjamin P. Cooper

Pepper Hamilton LLP

18th & Arch Streets

3000 Two Logan Square

Philadelphia, PA 19103

Counsel for Appellant

Richard P. McElroy

Mary Ann Mullaney

Blank Rome LLP

130 North 18th Street

One Logan Square

Philadelphia, PA 19103

Michael W. Schwartz [ARGUED]

Harold S. Novikoff

David C. Bryan

Wachtell, Lipton, Rosen & Katz

51 West 52d Street

New York, NY 10019

Counsel for Appellees

____________

OPINION OF THE COURT

____________

CUDAHY, Circuit Judge.

2

In 1998, Campbell Soup Co. incorporated a wholly-

owned subsidiary, Vlasic Foods International, Inc., and sold it

several food companies in exchange for borrowed cash. Then it

issued the subsidiary’s stock to Campbell shareholders as an in-

kind dividend, making VFI an independent company. Within

three years of this transaction, VFI filed for bankruptcy and sold

the food companies for less than it had paid for them. VFI has

since reorganized into the bankruptcy creature VFB, LLC, and

acting on behalf of VFI’s disappointed creditors claims that the

transaction was a constructively fraudulent transfer and that

Campbell aided a breach of fiduciary duty by VFI’s directors.

The district court entered judgment for Campbell after a bench

trial. VFB appeals both from the judgment and from the district

court’s decision to strike a motion to amend the judgment. We

affirm.

I. Background

In 1996, Campbell Soup Co. (Campbell) decided to

improve its stock price by disposing of certain underperforming

subsidiaries and product lines, the largest and most prominent of

the lot being Vlasic, of pickle fame, and Swanson, the TV dinner

manufacturer. (The companies in question were eventually

organized into what Campbell called its “Specialty Foods

Division”; we will refer to the companies by that name or as “the

Division.”) The Division companies were not highly regarded

within Campbell. One consultant urged that all the relevant

businesses other than Vlasic and Swanson had basically no

growth potential and should be managed strictly for cash. (Op.

at 13.) Vlasic and Swanson were both troubled, but they were

historically strong brands that, it was thought, might be turned

around under new management. (Op. at 14-15.)

Campbell decided the best way to dispose of the Division

would be through a “leveraged spin” transaction. Campbell

would incorporate a new wholly-owned subsidiary and the

subsidiary would take on bank debt in order to purchase the

3

Division.1 Then Campbell would give the stock in the subsidiary

to Campbell shareholders as an in-kind dividend. Campbell

would remove underperforming businesses from its balance

sheet and get cash; Campbell shareholders would own roughly

the same assets as before, albeit in different corporate packages.2

The terms of the spin were negotiated between Campbell

and a group of high-ranking Campbell employees who sought to

manage the new subsidiary, named Vlasic Foods International,

Inc. (VFI), after the spin. Campbell declared several basic terms

of the agreement non-negotiable, among them the businesses to

be transferred to VFI and VFI’s initial debt level (that is, how

much it would pay Campbell for the Division). The future VFI

managers later testified that Campbell did not give them the

resources they needed to properly research the transaction. The

resulting bargain contained various additional terms unfavorable

to VFI.

The deal closed on March 30, 1998. On VFI’s end, the

spin was approved by VFI’s “pre-Spin directors,” also major

Campbell officers, who understood their sole task to be

approving the spin and resigning. They did not investigate the

deal and made no effort to protect VFI’s interests as against

Campbell’s.

The district court called the bargain struck in the spin

“particularly hard” for VFI, but further concluded that it was

even harder than the public knew at the time. For two years

before the spin, Campbell massaged the Specialty Foods

Division’s operating results, ostensibly misleading the public

about its operating record and prospects. The spin took place

1

Technically, what happened in the present case was that the

banks extended Campbell credit under a loan agreement that

provided that the rights and obligations under the agreement would

be assumed by the subsidiary upon transfer of the Division. (Op. at

27.) This transaction is, for our purposes, functionally identical to

the transaction described above.

2

No one claims that the spin harmed Campbell shareholders.

4

midway through Campbell’s 1998 fiscal year (FY1998);

Division managers used a number of techniques in FY1997 and

FY1998 to increase short term sales and earnings (and to secure

salary bonuses tied to meeting operating targets). But none of

the techniques changed the companies’ longer-term prospects.

For instance, VFB focuses on “product loading” as the chief tool

used to prop up sales and earnings. This term refers to using

bulk discounts and other promotional tools to encourage retailers

to increase their inventory. While this technique increases sales

in the short term, there is a corresponding decrease in sales in a

later period as retailers allow their inventories to decline to

normal levels. Product loading and similar tactics3 in FY1997

and early FY1998 left VFI facing an imminent corrective

decrease in its sales and earnings at the time of the spin.

VFB now urges (and Campbell does not argue the point)

that because of these tactics, Campbell’s SEC disclosures in the

years leading up to the spin, and in particular the FY1997 and

FY1998 earnings figures on the Form 10 SEC filing describing

the spin transaction itself, were unreliable. (Op. at 16, 22-23.)

The filings misled not only the public securities markets, but also

the banks providing the leverage for the transaction, which did

not independently investigate the performance of the Specialty

Foods Division but instead “relied heavily on ‘pro forma’

financial statements and projections supplied by Campbell.”

(Op. at 27.)

After the spin, the Specialty Foods Division’s inflated

sales and earnings figures quickly corrected themselves. By

June, VFI had lowered its FY1998 earnings estimates from $143

million to $70 million. VFI feared that this would soon lead to a

default of its loan agreement with the banks, so it sought to

renegotiate the agreement. The banks, after thoroughly

examining VFI’s finances, agreed to a new loan agreement on

3

Among the other devices Campbell is said to have used are

reducing inventory to create “last in first out” gains, delaying

scheduled maintenance, using corporate reserves, changing its

deduction assumptions and underestimating trade spending.

5

September 30, 1998. Among other things, the agreement

required VFI to reduce the banks’ exposure by issuing new

bonds contractually subordinated to the bank debt.

Despite these very public problems, VFI did not fold.

The price of its shares on the New York Stock Exchange

remained essentially steady. Indeed, VFI outperformed the S&P

mid-cap food index from the time of the spin, March 30, 1998,

through January 1, 1999. (Op. at 30.) More than a year after the

spin, in June 1999, VFI successfully completed its required issue

of $200 million in unsecured debt to institutional investors,

despite disclosing discouraging financial data for the first nine

months of FY1999, declining sales, limited advertising and

product innovation, and other worrisome news. (Op. at 34-36.)

VFI’s market capitalization never dropped below $1.1 billion

until January 1999.

While VFI did not suddenly collapse, it nonetheless

slowly declined, presumably because of basic problems in its

business (declining sales, for example, a problem shared by most

food companies during the period in question). (Op. at 58.)

VFI’s managers had hoped to reinvigorate the Vlasic and

Swanson brands with aggressive advertising and expansion

campaigns, but they lacked the cash for such an ambitious

project after renegotiating VFI’s loan agreement with the banks.

VFI needed all its available cash to service its debt. (Op. at 40.)

In January 2000, VFI discovered that it had

underestimated its accrued trade spending in FY1999 and

earlier–that is, its salesmen had granted discounts to various bulk

purchasers throughout FY1999, but although FY1999 ended in

September 1999, VFI did not accurately calculate the effect of

those discounts until January 2000. The discovery drove down

VFI’s FY2000 earnings, triggered a default under the new loan

agreement and sent the public price of VFI’s unsecured debt

below par value. (Op. at 40-41.) One year later, VFI filed for

bankruptcy. (Op. at 42.)

VFI sold off the former Specialty Foods Division

piecemeal both before and during bankruptcy, in a period from

6

roughly January 1999 to May 2001. These sales brought in $504

million, which discounts back to $385 million at the time of the

spin, $115 million less than VFI paid for the Division at that

time.

VFI assigned all of its legal claims against Campbell to

the plaintiff VFB, LLC, a Delaware limited liability company

whose members are VFI’s impaired creditors. (The banks are

not members; they have already been made whole because of

security interests and other protection granted by the

renegotiated loan agreement. VFB’s members are the holders of

the unsecured bonds issued in 1999, the landlord of VFI’s

headquarters and certain of VFI’s employees and trade

creditors.) VFB then brought the present action against

Campbell, seeking to set aside the spin as a constructively

fraudulent transfer and claiming that Campbell aided and abetted

a breach of VFI’s pre-spin directors’ duty of loyalty to VFI.

The district court held a lengthy bench trial. The chief

factual dispute concerned the value of the Specialty Foods

Division on March 30, 1998, and specifically whether it was

worth the $500 million VFI paid for it. The parties offered three

chief types of evidence on this point. First, there was the price

of VFI’s publicly traded stock and bonds. The 45 million

outstanding shares of VFI stock traded at $25.31 on the New

York Stock Exchange at the close of trading on March 30, 1998.

This put VFI’s equity market capitalization at $1.1 billion,

which, considering VFI’s $500 million debt obligation, put the

value of the Specialty Foods Division at $1.6 billion. VFB

argued that the market price reflected the misleadingly high pre-

spin earnings figures in Campbell’s SEC reports rather than the

true value of the Division, but the district court noted that VFI’s

market capitalization did not even drop below $1.1 billion until

1999, despite the market’s quickly learning the truth about VFI’s

earnings prospects in 1998.

Second, the parties submitted various valuations of the

Specialty Foods Division and VFI, prepared before and after the

spin for use by Campbell and VFI. The estimated values of the

Division businesses were uniformly above $500 million.

7

Third and finally, the parties hired economic expert

witnesses and had them estimate the value of the Division.

Campbell presented Timothy Leuhrman, who estimated VFI’s

post-spin value by comparing it to that of six other companies he

considered comparable to VFI; he guessed that the Division

businesses were worth $1.5-1.8 billion at the time of the spin.

VFB called three experts. Henry Owsley, comparing VFI to a

different set of companies and performing a discounted cash

flow analysis, estimated the Division’s worth at $569 million

and $270-360 million, respectively. Sheridan Titman and Greg

Hallman performed a discounted cash flow analysis that

produced a value for the Division of $377 million.

The district court concluded that the Specialty Foods

Division was worth well in excess of the $500 million VFI paid

for it on March 30, 1998. It relied primarily on the price of

VFI’s stock, reasoning that as private traders seek to pay no

more for an asset (and sell an asset for no less) than it is worth,

the market price was a rational valuation of VFI in light of all

the information available to market participants. Although the

price was infected by Campbell’s manipulation of the Division’s

earnings at the time of the spin, VFI’s stock price remained high

even after the truth about VFI’s prospects had been fully

exposed. The district court concluded that the post-exposure

market capitalization was based on an accurate picture of VFI’s

position as of March 30, 1998, indicating a value of well over

$500 million at that time.

The district court also addressed the expert witnesses’

valuations in some detail, finding Leuhrman’s analysis

convincing and Owsley, Titman and Hallman’s analyses flawed,

primarily due to hindsight bias, that is, their use of assumptions

about VFI that were not shared by the informed public markets

at the time of and after the spin. (Op. at 62-68.) But basically

the district court regarded the hired expert valuations as a side-

show to the disinterested evidence of VFI’s capitalization in

“one of the most efficient capital markets in the world.”

VFB does not even attempt to show any market valuation

of VFI contemporaneous with the Spin-off that is

8

anywhere close to the figures urged by VFB’s experts.

There is simply no credible evidence to justify setting

aside VFI’s stock price and the other contemporaneous

market evidence of VFI’s worth. Even if, as VFB

implies, the market was suffering from some “irrational

exuberance” in establishing VFI’s stock price, that gives

me no basis for second-guessing the value that was fairly

established in open and informed trading. (Op. at 58.)

In light of that conclusion, the court determined both that

the spin was not a fraudulent transfer and that, because VFI had

been solvent at the time of the spin, it owed no “fiduciary duty to

future creditors of VFI.”

In the district court, Campbell also brought certain

bankruptcy claims against VFB (successor in interest to VFI).

VFB asked the court to disallow the claims because Campbell

did not offer any proof for them, but the court held that once

Campbell had submitted a facially valid claim, the burden fell to

VFB to offer some evidence to rebut it. VFB had offered no

such evidence into the record, so the district court allowed the

claim. VFB then moved to amend the judgment under

Bankruptcy Rule 9023, which motion the district court struck as

untimely.

II. Discussion

VFB appeals from the district court’s judgment and the

striking of its motion to amend the judgment. We review the

district court’s legal determinations de novo, Jean Alexander

Cosmetics, Inc. v. L’Oreal, USA, Inc., 458 F.3d 244, 248 (3d Cir.

2006), but its findings of fact “shall not be set aside unless

clearly erroneous.” Fed. R. Civ. P. 52(a); In re Fruehauf Trailer

Corp., 444 F.3d 203, 209-10 (3d Cir. 2006).

A. Constructive Fraudulent Transfer

VFB seeks to set aside the spin as a fraudulent transfer.

The parties do not dispute whether VFB, as VFI’s successor, has

the right to “avoid any transfer of an interest of [VFI] in property

9

or any obligation incurred by [VFI] that is avoidable under

applicable law by a creditor holding an unsecured claim that is

allowable.” 11 U.S.C. § 544(b)(1).

Both parties agree that New Jersey law applies. Under

New Jersey’s version of the Uniform Fraudulent Transfer Act:

A transfer made or obligation incurred by a debtor is

fraudulent as to a creditor whose claim arose before the

transfer was made or the obligation was incurred if the

debtor made the transfer or incurred the obligation

without receiving a reasonably equivalent value in

exchange for the transfer or obligation and the debtor was

insolvent at that time or the debtor became insolvent as a

result of the transfer or obligation. N.J. Stat. Ann. § 25:2-

27(a).

Alternatively,

A transfer made or obligation incurred by a debtor is

fraudulent as to a creditor, whether the creditor’s claim

arose before or after the transfer was made or the

obligation was incurred, if the debtor made the transfer or

incurred the obligation . . . [w]ithout receiving reasonably

equivalent value in exchange for the transfer or

obligation, and the debtor:

(1) Was engaged or was about to engage in a business

or a transaction for which the remaining assets of the

debtor were unreasonably small in relation to the

business or transaction; or

(2) Intended to incur, or believed or reasonably

should have believed that the debtor would incur,

debts beyond the debtor’s ability to pay as they

become due.

Id. § 25:2-25(b)

To succeed under either of these provisions, VFB must at

least show that the Specialty Foods Division was not “reasonably

equivalent value” for the $500 million provided to Campbell.

The district court concluded that it was reasonably equivalent.

10

New Jersey law does not offer a universal definition of

“reasonably equivalent value,” cf. N.J. Stat. Ann. § 25:2-24(b)

(addressing foreclosure sales), and neither does the case law,

see, e.g., Flood v. Caro Corp., 640 A.2d 306, 310 (N.J. Super.

App. Div. 1994). This is probably as it should be, since

reasonably equivalent value is not an esoteric concept: a party

receives reasonably equivalent value for what it gives up if it

gets “roughly the value it gave.” In re Fruehauf Trailer Corp.,

444 F.3d 203, 213 (3d Cir. 2006); Mellon Bank, N.A. v. Metro

Comms., Inc., 945 F.2d 635, 647 (3d Cir. 1991). We think the

New Jersey Supreme Court would agree with the “common

sense” approach we have used to determine “reasonably

equivalent value” under the bankruptcy code’s similar fraudulent

transfer provision, 11 U.S.C. § 548(a)(1)(B)(I). Fruehauf

Trailer, 444 F.3d at 214; see also Highlands Ins. Co. v. Hobbs

Group, LLC, 373 F.3d 347, 351 (3d Cir. 2004) (“[W]here the

state’s highest court has not spoken definitively on a particular

issue, the federal court must make an informed prediction as to

how the highest state court would decide the issue.”).

Clearly the Division and VFI’s cash were both valuable

assets, but was the Division worth roughly the $500 million that

VFI paid for it? In a meticulous and well-considered opinion the

district court concluded that it was, reasoning primarily that in

light of VFI’s $1.1 billion market capitalization nine months

after the spin, the Division businesses were worth indeed far

more than $500 million. Because the court focused on VFI’s

market capitalization as evidence of its value, VFB now

concentrates on attacking this approach.

Some portions of VFB’s brief seem to argue that courts

should never measure the value of a business by its market

capitalization because the market price of a corporation’s stock

“is based on expectations (projections) of future income,” which

may turn out to be inaccurate. (Reply Br. for Appellant at 11.)

That contention is clearly wrong. Equity markets allow

participants to voluntarily take on or transfer among themselves

the risk that their projections will be inaccurate; fraudulent

transfer law cannot rationally be invoked to undermine that

function. In re R.M.L., Inc., 92 F.3d 139, 151 (3d Cir. 1996)

11

(“Presumably the creditors . . . want a debtor to take some risks

that could generate value.”). True, earnings projections “must be

tested by an objective standard anchored in [a] company’s actual

performance,” but such a test applies to information about a

company’s performance available “when [the projection is]

made.” Moody v. Security Pacific Bus. Credit, Inc., 971 F.2d

1056, 1073 (3d Cir. 1992). Market capitalization is a classic

example of such an anchored projection, as it reflects all the

information that is publicly available about a company at the

relevant time of valuation. Basic Inc. v. Levinson, 485 U.S. 224,

243 (1988) (plurality); Peil v. Speiser, 806 F.2d 1154, 1160-61

(3d Cir. 1986). A company’s actual subsequent performance is

something to consider when determining ex post the

reasonableness of a valuation, see Moody, 971 F.2d at 1074, but

it is not, by definition, the basis of a substitute benchmark,

R.M.L., 92 F.3d at 155 (criticizing “[t]he use of hindsight to

evaluate a debtor’s financial condition”).

We therefore move on to VFB’s chief argument, that the

district court erred in holding that VFI’s market capitalization

measured the value of its assets because Campbell manipulated

the Specialty Foods Division’s sales and earnings prior to the

spin.4 The value of a business is a mixed question of fact and

4

We find it difficult to understand how Campbell’s sales and

earnings manipulation could have seriously misled the public

markets about the Division’s prospects, especially its “product

loading.” Product loading involves highly public sales campaigns

using devices like sweepstakes and coupons to encourage retailers

to take on a larger inventory than usual. (See, e.g., Op. at 17.) We

suspect that it would be easy for interested observers to take the

effect of this behavior into account when evaluating Campbell’s

reports and projections. We also find the banks’ failure to

independently investigate the Division to be somewhat unusual

conduct for an institution lending half a billion dollars with a

further quarter-billion credit line in reserve. But, in any event, the

district court assumed, and took into account, some misleading of

the public. (See, e.g., Op. at 16, 22-23, 27.) Our difficulties are

irrelevant to the result of this appeal.

12

law, with the underlying factual findings reviewed for clear error

and the court’s choice of legal precepts and application of those

precepts to the facts reviewed de novo. In re Fruehauf Trailer

Corp., 444 F.3d 203, 209-10 (3d Cir. 2006); R.M.L., 92 F.3d at

147; Mellon Bank, N.A. v. Metro Communications, Inc., 945

F.2d 635, 641-42 (3d Cir. 1991).

VFB argues that whether VFI’s market capitalization

reflected its value is a purely legal question because it concerns

the proper “method of valuation” of VFI’s businesses, and

should therefore be reviewed de novo, citing Amerada Hess

Corp. v. Commissioner of Internal Revenue, 517 F.2d 75, 82 (3d

Cir. 1975). VFB misreads Amerada Hess. We held in that case

that the proper method of valuation in a particular factual

context is a legal question. Id. (citing Richardson v. Commr. of

Internal Revenue, 151 F.2d 102, 103 (2d Cir. 1945)); see also

Moody v. Security Pacific Bus. Credit, Inc., 971 F.2d 1056, 1063

(3d Cir. 1992). But the factual context is, naturally enough, a

question of fact, and it is the context that the parties dispute in

the present case. All agree that if the market capitalization was

inflated by Campbell’s manipulations it was not good evidence

of value; the question is whether it was so inflated. We review

the court’s resolution of that question for clear error. See

Moody, 971 F.2d at 1063; Amerada Hess, 517 F.2d at 83.

Were the market capitalization numbers on which the

district court relied inflated? VFB often attempts to confuse the

nature of the district court’s reasoning on this point, for instance

by stating that the court relied on “VFI’s market capitalization at

the time of the Spin” despite finding that investors were at that

time misled by Campbell’s manipulation. (Br. of Appellant at

46-47.) That is not what the court did. It explicitly chose not to

rely on VFI’s market capitalization at the time of the spin,

precisely because of Campbell’s manipulation, and instead

looked at market capitalization several months later, when the

truth of VFI’s situation had become clear. (Op. at 54-56.)

Nobody contends that VFI was worth more in September 1998

than at the end of March 1998. Consequently, if VFI’s

September 1998 market capitalization reflected a value for the

Division businesses of at least $500 million, despite no longer

13

being affected by Campbell’s pre-spin operations, then the

Division must have been worth more than $500 million at the

time of the spin.

VFB’s fraudulent conveyance claim therefore fails unless

VFB can show that the district court clearly erred in concluding

that the market price of VFI’s stocks and bonds were no longer

affected by Campbell’s pre-spin manipulations as of September

1998, an issue that VFB seems reluctant to squarely address. Its

only argument is to point out that in January 2000, during VFI’s

FY2000, VFI discovered a $15 million underestimation of

FY1999 trade spending that, when figured into FY2000

earnings, triggered a default under VFI’s new loan agreement

and caused its unsecured debt to trade below par value. VFB

urges that this demonstrates that VFI was in fact insolvent in

FY1999, when the underestimated trade spending was actually

occurring.

This argument shows that VFI was insolvent in FY2000;

if the bondholders thought VFI solvent, they wouldn’t have sold

their debt so cheaply. This argument might also suggest that VFI

was insolvent in FY1999, although that conclusion is

speculative. Additional trade spending alone might not have

been enough to render VFI unable to pay its debts; declining

sales or some other worsening aspect of VFI’s condition

between FY1999 and FY2000 might have contributed.

But what the argument clearly does not show is that VFI

was insolvent in FY1998, at the time of the spin. Even if the

bondholders were unaware of the current state of VFI when

trading bonds at par value in FY1999, they were still aware of

everything Campbell reportedly concealed about the Specialty

Foods Division prior to the spin. (VFB cites to testimony

indicating that some of the underestimated trade spending may

have occurred before FY1999 (App. at 1221), but it makes no

effort to quantify how much, and both the evidence and the

arguments suggest that the lion’s share occurred in FY1999 (see,

e.g., App. at 1662).) Again, nobody claims that VFI’s fortunes

were improving, so the market’s valuation of VFI as solvent in

FY1999 was strong evidence that VFI was solvent at the time of

14

the spin, and therefore received reasonably equivalent value for

its $500 million.

VFB makes additional arguments concerning its expert

witnesses’ valuations, urging that it was clear error to dismiss

them in favor of the market figures, but we do not think that the

district court erred in choosing to rely on the objective evidence

from the public equity and debt markets. To the extent that the

experts purport to measure actual post-spin performance, as by,

for example, discounted cash flow analysis, they are measuring

the wrong thing. To the extent they purport to reconstruct a

reasonable valuation of the company in light of uncertain future

performance, they are using inapt tools. Kool, Mann, Coffee &

Co. v. Coffey, 300 F.3d 340, 362 (3d Cir. 2002) (noting that

discounted cash flow analyses are imprecise and have value only

“in certain limited situations”). Absent some reason to distrust

it, the market price is “a more reliable measure of the stock’s

value than the subjective estimates of one or two expert

witnesses.” In re Prince, 85 F.3d 314, 320 (7th Cir. 1996); see

also In re Hechinger Investment Co. of Del., 327 B.R. 537, 548

(D. Del. 2005); Peltz v. Hatten, 279 B.R. 710, 738 (D. Del.

2002); Metlyn Realty Corp. v. Esmark, Inc., 763 F.2d 826, 835

(7th Cir. 1985) (“[T]he price of stock in a liquid market is

presumptively the one to use in judicial proceedings.”).

VFB has consequently not shown clear error in the district

court’s finding that the Specialty Foods Division was worth far

more than its $500 million in debt acquired at the time of the

spin. We stress that, given the arguments VFB has made, the

question is not even close. Valuing an asset is a difficult task

that depends upon detailed factual determinations, which may be

overturned only if they are “completely devoid of a credible

evidentiary basis or bear[] no rational relationship to the

supporting data.” In re Fruehauf Trailer Corp., 444 F.3d 203,

210 (3d Cir. 2006) (quoting Citicorp Venture Capital, Ltd. v.

Comm. of Creditors, 323 F.3d 228, 232 (3d Cir. 2003)). Where

the asset being valued is a speculative investment, a trial court’s

factual determinations will be “largely immune from attack on

appeal.” In re R.M.L., Inc., 92 F.3d 139, 154 (3d Cir. 1996).

15

For its appeal to succeed, VFB must show that on March

30, 1998, the Specialty Foods Division was clearly worth less

than $500 million. Yet it never engages with the relevant

numbers in any detail, explaining by how much Campbell’s

various manipulation techniques affected its statistics, or by how

much the statistical inflation affected VFI’s market

capitalization. Its approach is simply to note that Campbell

played with its operations and suggest that the market

capitalization numbers may have been wrong to some

undetermined degree.

They may have been, but only to the extent that the

market was in the dark about the Division’s operational

prospects. VFB’s theory is that the potential for new

management to turn around Vlasic’s and Swanson’s slow slide

depended on ready access to sufficient capital to launch brand-

expansion programs, and that in light of the early renegotiation

of VFI’s loan agreement Campbell never gave it a reasonable

chance of having access to that capital, dooming it to eventual

insolvency and bankruptcy. But the participants in the 1998

equity market were familiar with VFI’s business plan, knew

about the renegotiated loan agreement and the likely trouble VFI

would have getting access to capital, and still nonetheless valued

the company at well more than $500 million, apparently

concluding that the company’s chances of success were good.

VFB’s arguments may create some very meager doubt, but the

district court’s task is to resolve doubts by a preponderance of

the evidence. VFB’s arguments do not shake our belief that it

performed this task meticulously and accurately; the district

court carefully considered both the evolving facts and

Campbell’s duty not to constructively defraud VFI’s present and

future creditors.

Because the district court did not err in concluding that

VFI received reasonably equivalent value in the spin, we need

not discuss the fine distinctions between balance-sheet

insolvency, equitable insolvency and unreasonable

undercapitalization. Judgment against VFB on its fraudulent

transfer claim must be affirmed.

16

B. Aiding and Abetting a Breach of Corporate Fiduciary

Duty

VFB’s second claim against Campbell is that Campbell

aided and abetted a breach of the VFI directors’ duty of loyalty

to VFI when it entered into the spin transaction knowing that the

VFI directors were simultaneously serving as officers of

Campbell. New Jersey imposes civil liability for knowingly

aiding and abetting an agent’s breach of a duty of loyalty to its

principal. Franklin Med. Assocs. v. Newark Public Schs., 828

A.2d 966, 974-76 (N.J. Super. Ct. App. Div. 2003); Hirsch v.

Schwartz, 209 A.2d 635, 640 (N.J. Super. Ct. App. Div. 1965)

(citing Restatement 2d of Agency § 312). To hold Campbell

liable, VFI must of course show, among other things, that the

VFI directors did in fact breach a duty of loyalty to VFI.

Franklin Med. Assocs. 828 A.2d at 975; see also Gotham

Partners, L.P. v. Hallwood Realty Partners, L..P., 817 A.2d 160,

172 (Del. 2002) (setting forth the elements of aiding and abetting

a breach of fiduciary duty). It is here that the district court

rejected VFB’s claim, holding that VFI’s directors breached no

fiduciary duty because VFI was solvent at the time of the spin.

Corporate directors must act in their shareholders’ best

interests and not enrich themselves at its expense. Cede & Co v.

Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993), modified, 636

A.2d 956 (Del. 1994); AYR Composition, Inc. v. Rosenberg, 619

A.2d 592, 595 (N.J. Super. App. Div. 1993). The law enforces

this duty of loyalty by subjecting certain actions to unusual

scrutiny. Where a director acts while under an incentive to

disregard the corporation’s interests, she must show her “utmost

good faith and the most scrupulous inherent fairness of the

bargain.” In re PSE & G Shareholder Litigation, 801 A.2d 295,

307-308 (N.J. 2002) (quoting Weinberger v. UOP, Inc., 457

A.2d 701, 710 (Del. 1983)); Brundage v. New Jersey Zinc Co.,

226 A.2d 585, 598-99 (N.J. 1967).

VFB urges that VFI’s pre-spin directors had an incentive

to and admittedly did disregard VFI’s best interests in the

context of the spin because they were simultaneously officers of

Campbell. Normally, simultaneously serving two transacting

17

companies will trigger heightened scrutiny. Summa Corp. v.

Trans World Airlines, Inc., 540 A.2d 403, 406 (Del. 1988);

Brundage, 226 A.2d at 598. However, scrutiny is unnecessary

when the two companies are a parent and its wholly-owned,

solvent corporate subsidiary. Anadarko Petroleum Corp. v.

Panhandle Eastern Corp., 545 A.2d 1171, 1174 (Del. 1988);

Bresnick v. Franklin Capital Corp., 77 A.2d 53, 56 (N.J. Super.

App. Div. 1951), aff’d, 81 A.2d 6 (1951) (per curiam). Directors

must act in the best interests of a corporation’s shareholders, but

a wholly-owned subsidiary has only one shareholder: the parent.

There is only one substantive interest to be protected, and hence

“no divided loyalty” of the subsidiary’s directors and no need for

special scrutiny of their actions. Bresnick, 77 A.2d at 56; see

also Anadarko Petroleum, 545 A.2d at 1174. The VFI directors

looked out only for Campbell’s interest because, substantively,

that was their duty; whether they thought they were acting in the

interest of VFI or Campbell “seems inconsequential.” Bresnick,

77 A.2d at 57.

VFB argues that Bresnick and Anadarko have not been

followed and are bad law, urging that they would deny a wholly-

owned subsidiary standing to sue its directors for a breach of

fiduciary duty. But the two cases do not address the subsidiary’s

distinct legal existence and standing to enforce its directors’

duties, a bedrock principle of corporate law. Rather, they

address the distinct question of what duties a director owes the

subsidiary. See In re Scott Acquisition Corp., 344 B.R. 283, 287

(Bankr. D. Del. 2006); First Am. Corp. v. Al-Nahyan, 17 F.

Supp. 2d 10, 26 (D.D.C. 1998). Corporate duties should be as

broad as their purpose requires, but it makes no sense to impose

a duty on the director of a solvent, wholly-owned subsidiary to

be loyal to the subsidiary as against the parent company. None

of the cases VFB cites convinces us that the New Jersey

Supreme Court would impose such a duty.

A duty of loyalty against the parent should arise whenever

the subsidiary represents some minority interest in addition to

the parent. That could happen if the subsidiary were not wholly-

owned, see Summa Corp., 540 A.2d at 407, but VFB concedes

that Campbell was VFI’s sole stockholder at the time of the spin.

18

It could also happen if the subsidiary were insolvent. Directors

normally owe no duty to corporate creditors, but when the

corporation becomes insolvent the creditors’ investment is at

risk, and the directors should manage the corporation in their

interests as well as that of the shareholders. Bd. of Trustees of

Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d

164, 173 (3d Cir. 2002); AYR Composition, Inc. v. Rosenberg,

619 A.2d 592, 597 (N.J. Super. App. Div. 1993); Francis v.

United Jersey Bank, 432 A.2d 814, 824 (N.J. 1981); Whitfield v.

Kern, 192 A. 48, 54-55 (N.J. 1937). In such a situation, the

loyalties of the VFI directors would be divided between

Campbell and the banks that loaned money to VFI as part of the

spin transaction, and the spin would be subject to heightened

scrutiny. See, e.g., Scott Acquisition, 344 B.R. at 288 (“There is

no basis for the principle . . . that the directors of an insolvent

subsidiary can, with impunity, permit it to be plundered for the

benefit of its parent corporation”); In re Sabine, Inc., No. 05-

1019-JNF, 2006 WL 1045712 (Bankr. D. Mass. Feb. 27, 2006)

(refusing to dismiss a complaint alleging that a company looted

its insolvent, wholly-owned subsidiary of cash).

VFB contends that VFI was rendered insolvent by the

spin, but this argument should sound familiar. VFI’s pre-spin

balance sheet contained nothing; its post-spin balance sheet

contained $500 million in debt and the Specialty Foods Division.

As noted above, the district court did not clearly err in valuing

the division at well over $500 million, meaning that VFI’s assets

were easily greater than its debts. In Whitfield v. Kern, the New

Jersey Supreme Court held that corporate duties to creditors arise

in the context of equitable insolvency, “the general inability of

the corporate debtor to meet its pecuniary liabilities as they

mature, by means of either available assets or an honest use of

credit.” 192 A. at 55. The district court did not err under this

test, either, given the market price of VFI’s debt over time. In

June 1999, well after the markets were aware of all information

that might have been concealed about VFI’s condition at the

time of the spin, VFI was able to sell $200 million in unsecured

debt. That debt continued to sell at par value until January of

2000, indicating that until that point VFI’s creditors believed that

VFI would pay its unsecured debt as it came due. The district

19

court did not clearly err in concluding that VFI was solvent, and

for that reason VFI’s claim for aiding and abetting a breach of

fiduciary duty must fall.

C. Campbell’s Claims Against the VFI Estate

Finally, we reach VFB’s appeal from the district court’s

allowance of Campbell’s bankruptcy claims. Once a creditor

alleges facts sufficient to support a claim, the claim is prima

facie valid. 11 U.S.C. § 502(a); In re Allegheny Int’l, Inc., 954

F.2d 167, 173 (3d Cir. 1992). Once such a claim is alleged, the

burden shifts to the debtor to produce evidence sufficient to

negate the prima facie valid claim, that is, “evidence equal in

force to the prima facie case.” Allegheny Int’l, 954 F.2d at 173.

Here, VFB says that it objected to Campbell’s claims in its

complaint, but an unverified complaint is not evidence. VFB

also claims that its own sworn answers to Campbell’s

interrogatories explain in detail why each of Campbell’s claims

is not allowable, but it admits that no one put these

interrogatories into the record. The district court could not

consider evidence that was not before it. Its decision to allow

Campbell’s claims was correct.

VFB’s motion to amend the judgment included, in part, a

request to reopen the record to permit it to introduce the verified

interrogatory answers it had failed to submit before. Several

potential problems prevented the relief VFB requested, but we

need only discuss one: VFB filed its notice of appeal on

November 1, 2005, depriving the district court of jurisdiction to

grant its motion. Venen v. Sweet, 758 F.2d 117, 123 (3d Cir.

1985) (holding that the filing of a notice of appeal deprives the

district court of jurisdiction to grant a motion to amend the

appealed judgment). The striking of the motion to amend the

judgment was not in error.

III. Conclusion

For the foregoing reasons, we affirm both the district

court’s judgment and its decision to strike the motion to amend

the judgment.

20