Opposition Brief — Carlyle Fortran Trust v. NVIDIA Corp., 130 S. Ct. 57 (2009) (No. 08-1232)

: FILED

No. 08-1232 JUN & - 2209

= : STAC T-S ERK

SUPREME COURT, U.S. _|

IN THE

Supreme Court of the Ginited States

- ‘ot tet

CARLYLE FORTRAN TR UST,

Petitioner,

i,

NVIDIA CORPORATION, e? cl.,

Respondenis.

On Petition for a Wrié of Certiorari to the

United States Court of Appeals for the Ninth Circuit

BRIEF IN OPPOSI [TION TO PET ITION.

FOR WRIT OF CERTIORARL

Karen G. Johnson-McKewan EK. Joshua Rosenkranz

Justin M. Lichterman Counsel of Record

ORRICK, HERRINGTON ORRICK, ELERRINGTON

& SUTCLIFFE LLP & SUTCLIFFE LLP

405 Howard Street 666 Fifth Avenue

San Franc:sco, CA 94105 New York, NY 10103

415-773-5700 212-506-5000

Counse! for the NVIDIA Respondents

June 8, ZGU09

QUESTIONS PRESENTED

Petitioner Carlyle Fortran Trust (“Carlyle”)

purports to present the following questions, though

some are not legitimately presented by this case:

1. In Caplin v. Marine Midland Grace Trust Co.,

406 U.S. 416, 428 (1972), this Court held that a

bankruptcy trustee does not have standing to assert

claims “on behalf of debenture holders,” a class of the

creditors. Positing a split in the circuits on this

point, Carlyle asks whether a trustee also lacks

standing to press a claim that belongs to all

creditors.

2. The Second Circuit’s so-called “Wagoner rule,”

holds that, under New York law, a_ bankruptcy

trustee lacks standing to pursue a claim against a

defendant for defrauding the debtor corporation with

the cooperation of the debtor’s management. Was

the Court of Appeals correct in declining to apply

this standing rule?

3. The Bankruptcy Code caps claims by a

debtor’s landlord. Did the Ninth Circuit correctly

hold that the mere existence of the statutory cap

does not confer standing on a landlord to sue a party

other than the debtor for the unpaid rent to the

extent that the unpaid rent exceeds the statutory

cap?

4. Carlyle claims that NVIDIA assumed a lease

on which Carlyle was the landlord. In support of the

claim, it attached to its complaint an unsigned

facsimile of a redlined draft contract. It also

presented an email that supposedly contradicts an

integrated contract. Was the Court of Appeals

i]

correct in applying California’s statute of frauds to

conclude that NVIDIA did not assume the lease?

11

CORPORATE DISCLOSURE STATEMENT

Respondent NVIDIA Corporation is a_ public

company. No publicly held company owns 10% or

more of its stock. Respondent NVIDIA US

Investment Company is a wholly owned subsidiary

of NVIDIA Corporation.

TABLE OF CONTENTS

Page

QURS TING PRESEN CD oicccsiccssssscascscecessssvecesensss i

CORPORATE DISCLOSURE STATEMENT ......... ili

Ee I I 6c .vsissicucuansenndhoretstecinwalcdsetiaveincundees 1

STATEMENT OF THE CASE. w.ccccssccceccseicsscecsscccevsees 3

REASONS FOR DENYING THE PETITION.......... 8

i THIS CASE DOES NOT PRESENT A

CERT.-WORTHY CONFLICT ABOUT

WHETHER TRUSTEES HAVE

STANDING TO BRING “GENERAL”

CLAIMS ON BEHALF OF ALL

I iste siGvencd av escn luc tdoesibkoevenhoswasnies 9

A. This Case Does Not Present the

Issue Carlyle Purports to

og. RAIN. AE Couric) BO ee en ae

B. The Purported Circuit Split

Carlyle Claims to Present Is

LIT NPL OL Se INR SRI PARROT 15

Il. THE VALIDITY OF THE WAGONER

RULE IS NOT A CERT.-WORTHY

COE ITI sak cv veccsvicescicsnnstce cotraceeanccerses 19

A. The Second Question Is Merely A

Variant Of The First Question

Concerning Ownership Of

SNR oa ecsscac te sh evan Gaseutens eee 19

B. The Wagoner Rule is the Product

of New York State Law.............0.....00.. 21

C. The Wagoner Rule Does Not

Apply in the Circumstances

a wait wiieaieilis 24

Ill. THIS COURT SHOULD NOT REVIEW

AN ISSUE OF FIRST IMPRESSION

ABOUT WHEN A LANDLORD MAY

EVADE A STATUTORY CAP ON

LANDLORD CLAIMS. .............-s:ccescccssecessnes: 25

IV. THE COURT SHOULD NOT REVIEW

A QUESTION OF STATE LAW

ABOUT CALIFORNIA’S STATUTE OF

IE. ook ori dcate <beiasicyccssstovupenenedeadarweraiacteits 27

I i o.c dati sax se rnicicinondsvcescsssureareruevestesxinies 27

APPENDIX

Unreported Opinion of the United States District

Court For The Northern District of California,

Filed November 10, 2005. ..............ccccccccscscess App. 1

Opinion Of The United States District Court For

The Northern District of California, Filed

CE Fe PG oo sinc skene ven cndencccecsesacesexes App. 17

Relevant Statutory Codes.....................00008: App. 38

V1

TABLE OF AUTHORITIES

Page(s)

FEDERAL CASES

Baena v. KPMG,

453 F.3d 1 (1st Cir. 2006) -------------------------------- 23

Barnhill v. Johnson,

503 U.S. 393 (1992) ---------------------------------------- 20

Bivens Gardens Office Bldg., Inc. v.

Barnett Banks of Fla., Inc.,

140 F.3d 898 (11th Cir. 1998) -------------------------- 11

Brandt v. NVIDIA Corporation

(In re 3dfx Interactive, Inc.),

389 B.R. 842 (Bankr. N.D. Cal. 2008)----------------- 6

Buchwald v. The Renco Group, Inc.,

(In re Magnesium Corp. of Am.),

399 B.R. 722 (Bankr. S.D.N.Y. 2009) ---------------- 22

Butner v. Unites States,

440 U.S. 48 (1979) --------------------- 22-2222 ---e eee n ee eee 13

Caplin v. Marine Midland Grace Trust Co.,

406 U.S. 416 (1972) ---------------------------- 2,9, 10, 13

CBS, Inc. v. Folks Un re Folks),

211 B.R. 378 (B.A.P. 9th Cir. 1997) ------------- 13, 16

Delgado Oil Co., Inc. v. Torres,

785 F.2d 857 (10th Cir. 1986) -------------------------- 12

Vil

TABLE OF AUTHORITIES - Continued

Page(s)

Ernst & Young v. Bankruptcy Services, Inc., (In re

CBI Holding Co.),

529 F.3d 432 (2d Cir. 2008) ----------------------------- 21

Highland Capital Mgmt LP v. Chesapeake Energy

Corp. Un re Seven Seas Petroleum, Inc.),

522 F.3d 575 (5th Cir. 2008) ---------------------------- 18

Honigman v. Comerica Bank (In re van Dresser

Corp.),

128 F.3d 945 (6th Cir. 1997) ---------------------------- 11

Kalb, Voorhis & Co. v. Am. Fin. Corp.,

8 F.3d 130 (2d Cir. 1993) --------------------- 11, 13, 15

Koch Refining v. Farmers Union Cent. Exchg., Inc.,

831 F.2d 1339 (7th Cir. 1987) --------------- 14, 15, 1

~]

Mediators, Inc. v. Manney (In re Mediators, Inc.),

105 F.3d 822 (2d Cir. 1997) ----------------------------- 21

Mixon v. Anderson (In re Ozark Restaurant Equip.

Co.),

816 F.2d 1222 (8th Cir.) -----------------------------+---- 13

Moratzka v. Morris (In re Senior Cottages of

America, LLC),

482 F.3d 997 (8th Cir. 2007) ---------------------------- 22

Official Comm. Of Unsecured Creditors of PSA, Inc.

v. Edwards,

437 F.9d 1145 (11th Cir, 2006)---.----.-.-.-.---2005- 22

Vill

TABLE OF AUTHORITIES - Continued

Page(s)

Official Committee of the Unsecured Creditors of

Color Tile, Inc. v. Coopers & Lybrand, LLP,

322 F.3d 147 (2d Cir. 2003) ----------------------------- aa

Official Committee of Unsecured Creditors v. R.F.

Lafferty & Co., Inc.,

267 F.3d 340 (3d Cir. 2001) ------------------ ii, is. Ze

Regan v. Vinick & Young (In re Rare Coin Galleries

of Am., Inc.),

862 F.2d 896 (1st Cir. 1988) --------------------eeeeeeee 12

Schertz-Cibolo-Universal City, Indep. School District

v. Wright (In re Educators Group Health Trust),

25 F.3d 1281 (5th Cir. 1994) ----------------- 12, 24, 40

Schimmelpennick v. Byrne (In re Schimmelpennick),

ee ek et) ee 11

Shearson Lehman Hutton, Inc. v. Wagoner,

944 F.2d 114 (2d Cir. 1991) ---------------------- passim

Smith v. Arthur Anderson,

21 F.3d 989 (9th Cir. 2005) --------------------- 4, 13, 26

St. Paul Fire and Marine Ins. Co. v. PepsiCo Inc..,

884 F.2d 688 (2d Cir. 1989) ------------------------ 11,13

Steinberg v. Buczynski,

40 F.3d 890 (7th Cir. 1994)-------------- 11, 14, 17, 18

TABLE OF AUTHORITIES - Continued

Page(s)

Steyr-Daimler-Puch of Am. Corp. v. Pappas,

852 F.2d 132 (4th Cir. 1988) ----------------------------12

Unsecured Creditors of Adelphia Commn's

Corp. v. Bank of America, N.A.,

365 B.R. 24 (Bankr. S.D.N.Y. 2007) ----- eee 22

STATE CASES

Peregrine Funding, Inc. v. Sheppard

Mullin Richter & Hampton LLP,

133 Cal. App. 4th 658 (2005) ----------.- : 22

STATUTES

15 U.S.C.

Section 502(b)(6) ------------cceeccccccccccccvcccnesecee 25, 26

Section 541(a)(1) ---------cccccccescccccccce: ec ecenennce 15, 19

Section 704(1)------------------------------------ sa neeee 12,19

INTRODUCTION

This bankruptcy appeal arises from an order

dismissing Petitioner Carlyle Fortran ‘Trust’s

complaint for lack of standing. Carlyle was the

bankrupt debtor’s landlord. In this suit, it does not

seek to recover rent from the debtor. Rather, it

blames third parties for the debtor’s financial

failure, and has sued them for the rent. Specifically,

it alleges the defendants paid too little for the

debtor’s assets in a pre-bankruptcy asset purchase

transaction, leaving the debtor unable to meet its

financial obligations.

At bottom, this case is about who has standing to

bring such a claim: May creditors sue third parties

on such claims, or do the claims belong exclusively to

the bankruptcy trustee? Under bankruptcy law, it

must be one or the other; otherwise a creditor could

beat the estate to a defendant and seek recoveries at

the expense of the estate (and all the other

creditors). The courts of appeals uniformly

articulate the dividing line the Ninth Circuit applied

in this case, that a bankruptcy trustee has exclusive

standing to bring claims based on an underlying

injury to the debtor, even though an injury to the

debtor may also have ripple effects that derivatively

harm creditors. App. 5-6.!

Carlyle does not dispute that universal rule. It

dves not purport to present any question about who

can bring claims based on injuries to the debtor.

' Petitioner's Appendix is cited herein as “App. _.” The

NVIDIA Respondents’ Appendix is cited as “Resp. App.

Instead, it characterizes the central issue as

revolving around who can bring claims based on

injuries inflicted directly on _ the creditors.

Acknowledging that the Supreme Court has held

that a trustee may never bring claims on behalf of a

subset of creditors, see Caplin v. Marine Midland

Grace Trust Co., 406 U.S. 416 (1972), Carlyle asks

this Court to decide whether a _ trustee may

nevertheless bring a “general” claim for harm

inflicted on all creditors, regardless of the cause of

that injury. But this case does not present the

question-and the Court of Appeals did not decide

it—because the Court of Appeals held that the

claims in question did not belong to the creditors, but

only to the debtor.

In its second question, Carlyle asks this Court to

decide whether to adopt a standing rule articulated

by the Second Circuit in Shearson Lehman Huiton,

Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir. 1991). In

essence, the “Wagoner rule” is that under New York

law, a bankruptcy trustee lacks standing to sue a

defendant for harm inflicted on the debtor, if a

potential defense to that claim is in pari delicto,—

that the defendant was in cahoots with the debtor’s

management to cause the harm—so the debtor

cannot seek to recover for its own wrongdoing. This

question in substance is just a variant of the first

question, and no more cert.-worthy. Moreover,

because the Wagoner rule is a product of New York

state law, and this case involves California law,

uniformity is unimportant, and there is no reason for

this Court to intervene. Finally, the Wagoner rule

does not apply—and never has been applied—in the

manner Carlyle advocates.

Carlyle also seeks review of an esoteric issue

concerning the relationship between these standing

doctrines and the cap that the Bankruptcy Code

imposes on landlord claims in bankruptcy. Carlyle

enthuses that this is “a question of first impression,”

Pet. 30, on which it could “not find any case law,”

whatsoever, Pet. 27, as if this were a selling point for

Supreme Court review. Finally, Carlyle asks this

Court to review a fact-bound application of

California’s statute of frauds. Neither assignment is

consistent with this Court’s customary role.

Carlyle’s petition should be denied.

STATEMENT OF THE CASE

3dfx Interactive, Inc. (“3dfx”), was a technology

company whose business began to falter in 1999.

Throughout 2000, 3dfx was hemorrhaging cash, debt

was piling up, and losses were accelerating.

Eventually, 3dfx’s management concluded the

company could not sustain its existing operations.

At its November, 2000 meeting, 3dfx’s board of

directors met with bankruptcy counsel to confront

the sobering reality that 3dfx’s cash would run out

by mid-December 2000. It had to find a transaction

that would enable the company to meet its financial

obligations.

In consultation with its investment banker, the

board concluded that the first choice was to recruit a

merger partner. For all the board’s gold-plated

connections, however, no one in the market had any

interest in acquiring, or merging with, 3dfx’s broken

business. Nor could 3dfx find an investor to infuse

the struggling business with cash. The only viable

4

deal it found was with Respondents NVIDIA

Corporation and NVIDIA US Investment Company

(collectively, “NVIDIA”). NVIDIA agreed _ to

purchase many of 3dfx’s assets. In December, 2000,

NVIDIA entered into an Asset Purchase Agreement,

in which NVIDIA purchased those 3dfx assets for

$70 million in cash, plus a possible transfer of stock

that was contingent on other events. This

transaction was a giant step toward achieving the

board’s ultimate objective: After consideration of all

other alternatives available to 3dfx, the board

concluded that the liquidation, winding up and

dissolution of 3dfx was the alternative most

reasonably likely to enable 3dfx to pay its creditors

and to maximize the return of value to its

shareholders.

At the time of the transaction, 3dfx was renting

office space from two landlords: Carlyle and

CarrAmerica Realty Corporation (“CarrAmerica”).

The Carlyle space was in California, and the

CarrAmerica space in Texas. NVIDIA did not

acquire those leases in the transaction.

The infusion of cash from NVIDIA forestalled the

immediate financial crisis. But ultimately, it was

not enough to help cover 3dfx’s debts. More than a

year after signing the Asset Purchase Agreement,

3dfx stopped paying rent to the two landlords. The

landlords therefore decided to sue NVIDIA to make

them whole.

In 2002, the two landlords filed suit in California

state court against NVIDIA and some of its officers

and directors (together with the individual

defendants in the Carlyle complaint, the “NVIDIA

Respondents”) as well as 3dfx’s’ officers and

directors. The landlords alleged that 3dfx could not

make rent because NVIDIA had paid 3dfx too little

for its assets a year earlier. If only NVIDIA had paid

more, the landlords asserted, 3dfx would not have

defaulted on its rent. Carlyle, the landlord whose

claim is before the Court in this appeal, aileged,

among other things, that by paying too little,

NVIDIA tortiously interfered with the lease

agreement, violated the Uniform Fraudulent

Transfer Act, and was lable on the lease under

theories of successor liability.

3dfx tried to effect a corporate dissolution under

state law, but failed. In October, 2002, 3dfx filed a

Chapter 11 bankruptcy petition in the Northern

District of California. NVIDIA then removed both

tandlords’ cases to the bankruptcy court.

The trustee for 3dfx’s bankruptcy estate also sued

NVIDIA, asserting fraudulent transfer and successor

liability claims, just as the landlords had done. Like

the landlords, the trustee complained that NVIDIA

had paid too little for 3dfx’s assets. The bankruptcy

court consolidated the three adversary proceedings

for discovery, and they all proceeded in tandem for a

while. After the close of discovery in 2005, for

reasons not relevant here, the district court ordered

the landlord lawsuits transferred from the

bankruptcy court to the district court.

Upon arriving back in the district court, both

landlords amended their complaints, prompting

motions to dismiss. The District Court dismissed

both amended complaints for lack of standing, with

leave to amend. Resp. App. 1-16. The further

6

amendments were no better received; in late 2006,

the district court dismissed both lawsuits with

prejudice for lack of standing, painstakingly

reviewing each claim and concluding that all alleged

injury to the debtor in the first instance, and so

belonged to the estate. App. 9-34; Resp. App. 17-37.

The landlords appealed to the Ninth Circuit.

While the landlords’ appeals were pending, the

bankruptcy court tried the trustee’s case against

NVIDIA. The object of that trial was to determine

the value of the assets that 3dfx had conveyed to

NVIDIA in the Asset Purchase Agreement, so as to

assess whether NVIDIA had paid “reasonably

equivaient value” as required under controlling state

law. The bankruptcy court issued an 87-page

memorandum opinion finding that NVIDIA had paid

more than twice the fair market value of the assets

it purchased from 3dfx, and thus had caused the

estate (and its creditors) no harm. Brandt v.

NVIDIA Corporation (In re 3dfx Interactive, Inc.),

389 B.R. 842, 887-88 (Bankr. N.D. Cal. 2008). The

trustee’s appeal to the district court is pending.

On review of the order dismissing the landlords’

cases, the Court of Appeals reached a split decision.

It affirmed the dismissal of Carlyle’s complaint

entirely. The Court of Appeals observed that the

gravamen of Carlyle’s complaint was that NVIDIA

injured the debtor (3dfx) by dissipating the debtor’s

assets. App. 6. According to the court, all of

Carlyle’s alleged injuries flowed derivatively from

the harm to the deptor, not harm that NVIDIA

inflicted directly on Carlyle. App. 6. Under existing

Ninth Circuit precedent, this meant that only the

trustee had standing to recover, because the trustee

is exclusively responsible for pursuing claims

involving injury to the debtor. See Smith v. Arthur

Anderson, 21 F.3d 989, 1004 (9th Cir. 2005). A

creditor whose injury derives only from harm to the

debtor does not have standing to sue directly. That

creditor must stand in line with all the other

creditors and recover only its fair aliquot of the

funds the trustee recovers from such claims.

The Court of Appeals reached a_ different

conclusion as to some of CarrAmerica’s claims. It

held that CarrAmerica had pled certain direct

injuries that were particular to CarrAmerica, and

not derivative of any injury to 3dfx. App. 7-8. That

meant that the trustee could not bring those claims,

and CarrAmerica had standing to bring them

directly against NVIDIA. App. 8. CarrAmerica has

not. sought review as to the claims that have been

dismissed.

Carlyle filed a petition for rehearing en banc and

a motion for clarification in the Court of Appeals.

The court denied rehearing en banc, with not a

single judge requesting a vote on Carlyle’s petition.

App. 37. However, in response to Carlyle’s motion

for clarification, the Court of Appeals remanded

Carlyle’s case to determine whether the trustee had

abandoned the estate’s property intcrest in any of

the claims Carlyle had asserted against NVIDIA.

App. 36-37. The bankruptcy court has since

concluded that the trustee had not abandoned any of

its claims. En route to that conclusion, the

bankruptcy court chided Carlyle for securing the

remand from the Court of Appeals through a “lack of

candor” in its motion for clarification. See In re 3dfx

Interactive, Inc., No. 02-55795 RLE (Bankr. N.D.

Cal.) (Hearing held, May 13, 2009, Docket No. 1129;

transcript at p. 49:4-11).

REASONS FOR DENYING THE PETITION

Carlyle presents four questions that it purports

to find in the Court of Appeals’ short, unpublished

opinion. None of them is worthy of this Court’s

review.

The first is a question about whether a trustee

has standing to assert claims that belong to all

creditors. That question is not presented here,

because the Court of Appeals held that the claims at

issue do not belong to the creditors. And, in any

event, the circuit conflict Carlyle describes is

illusory. See infra Point I.

The second question is whether this Court should

adopt a peculiar rule about trustee standing that no

court other than the Second Circuit has ever

adopted. The issue is not cert.-worthy because the

Second Circuit rule is the product of New York state

law, and California law (which governs here) is

different. See infra Point IT.

The remaining two questions are utterly

unworthy of this Court’s attention. Question 3 is a

bankruptcy law question so esoteric that, according

to Carlyle, no court other than the Ninth Circuit has

ever addressed it. This Court should deny certiorari

for that reason alone. See infra Point III.

Finally, Carlyle inexplicably asks this Court to

decide a state law question about an application of

the statute of frauds to a specific set of facts, the

very antithesis of a cert.-worthy question. See infra

Peint IV.

9

I. THIS CASE DOES NOT PRESENT A

CERT.-WORTHY CONFLICT ABOUT

WHETHER TRUSTEES HAVE

STANDING TO BRING “GENERAL”

CLAIMS ON BEHALF OF ALL

CREDITORS.

Carlyle purports to present this Court with an

opportunity to resolve an asserted circuit conflict

about whether a bankruptcy trustee has standing to

bring claims on behalf of all creditors. Carlyle sees

ambiguity in this Court’s holding in Caplin uv.

Marine Midland Grace Trust Co., that “nowhere in

the statutory scheme is there any suggestion that

the trustee in reorganization is to assume the

responsibility of suing third parties on behalf of

debenture holders,” a class of creditors. 406 U.S. at

428. Carlyle presents the question “whether a

bankruptcy trustee lacks standing to sue on behalf of

creditors generally or only a certain class of

creditors,” such as debenture holders. Pet. 12

(emphasis added). The petition depicts two nearly

equal camps aligning on either side of the question.

Carlyle is mistaken because: (A) this case does

not present that question; and (B) the purported

circuit conflict is illusory.

A. This Case Does Not Present the

Issue Carlyle Purports to Present.

The conflict Carlyle seeks to present arises only

in the specific context where a trustee “assume{s] the

responsibility of suing third parties on behalf of’

creditors. Caplin, 406 U.S. at 428 (emphasis added).

Only where the trustee is presenting claims that

10

actually belong to creditors does the debate arise

over whether the trustee is ever allowed to do so,

and, if so, under what circumstances. Only in that

circumstance does a court confront the choice

between: (1) a rule that the trustee has standing to

bring claims on behalf of creditors, but only if the

claims belong generally to all creditors; and (2) a rule

that the trustee never has standing to press claims

on behalf of creditors, even if the claims belong

generally to all creditors.

This case does not present this Court with the

opportunity to choose between these alternative

rules, because the necessary precondition is missing.

Contrary to Carlyle’s assertion, the Court of Appeals

did not “read Caplin broadly and for the proposition

that a bankruptcy trustee cannot bring ‘general’

creditor claims.” Pet. 12. The Court of Appeals did

not interpret Caplin, and did not address the

question whether a trustee can ever bring a claim on

behalf of creditors. Rather, it held that the claims in

question did not belong to creditors at all—not to all

creditors gencrally and not to a subclass of creditors.

The court could not have been clearer: “While the

Creditors were harmed by the alleged diminution of

3dfx’s estate, depleting the assets available for the

bankruptcy estate constitutes an injury to the

bankrupt corporation itself, not an_ individual

creditor of that corporation.” App. 6 (emphasis

added). In light of that conclusion, the Court of

Appeals did not apply the Caplin rule, but a

different rule entirely: “[T]he Trustee has exclusive

standing to sue with respect to all claims asserted by

Creditors based on an underlying injury to [the

debtor]. App. 5-6.

1]

Carlyle does not take issue with this rule. And

for good reason. Whatever uncertainty there might

be as to a trustee’s power to bring claims that belong

to creditors, every circuit to address the issue—at

least ten in all—agrees that the trustee has

exclusive authority to bring claims that belong to the

debtor, and that a claim based on an injury to the

debtor is a claim that belongs to the debtor, not to

creditors.2 Carlyle does not cite a single case that

holds otherwise.

2 See Smith, 421 F.3d at 1004 (trustee has exclusive standing

where injury to creditors results from “the economic reality

that any injury to an insolvent firm is necessarily felt by its

creditors”); Official Committee of Unsecured Creditors v. R.F.

Lafferty & Co., Inc., 267 F.3d 340, 347-48 (3d Cir. 2001)

(bankruptcy estate representative has standing where injury to

creditors was not “separately cognizable” from injury to debtor);

Schimmelpennick v. Byrne (In re Schimmelpennick), 183 F.2d

347, 358-61 (5th Cir. 1999) (creditor has no standing to bring

claims based on injury to debtor that affected creditor

derivatively); Bivens Gardens Office Bidg., Inc. v. Barnett

Banks of Fla., Inc., 140 F.3d 898, 908 (11th Cir. 1998) (creditor

lacks standing “if the injury alleged was suffered only as a

result of harm to the corporation”); Honigman v. Comerica

Bank (In re van Dresser Corp.), 128 F.3d 945 (6th Cir. 1997)

(creditor lacks standing because injury was derivative of harm

to debtor corporation); Steinberg v. Buczynski, 40 F.3d 890, 893

(7th Cir. 1994) (a trustee enforces a creditor's interest in claims

where they are derivative of the debtor corporation’s claims);

Kalb, Voorhis & Co. v. Am. Fin. Corp., 8 F.3d 130, 132 (2d Cir.

1993) (“If : claim is a general one, with no particularized injury

arising from it, and if that claim could be brought by any

creditor of the debtor, the trustee is the proper person to assert

the claim, and the creditors are bound by the outcome of the

trustee’s action.”); St. Paul Fire and Marine Ins. Co. v. PepsiCo

Inc., 884 F.2d 688, 74 (2d Cir. 1989) (creditor lacked standing

where its injury “alleged a secondary effect from harm done to”

12

This rule derives from the trustee’s bedrock duty

to collect the property of the estate and reduce it to

money. See 11 U.S.C. § 704(1). As the Fifth Circuit

has explained:

If a cause of action alleges only indirect

harm to a creditor (i.e., an injury which

derives from harm to the debtor), and

the debtor could have raised a claim for

its direct injury under the applicable

law, then the cause of action belongs to

the estate. (citations omitted)

Conversely, if the cause of action does

not explicitly or implicitly allege harm to

the debtor, then the cause of action could

not have been asserted by the debtor as

of the commencement of the case, and

thus is not property of the estate.

Schertz-Cibolo-Universal City, Indep. School Dist. v.

Wright (In re Educators Group Health Trust), 25

F.3d 1281, 1284 (5th Cir. 1994).

Not only is this rule consistent with Caplin, but it

is a necessary corollary to the Caplin rule. As the

Third Circuit has explained:

the debtor); Regan v. Vinick & Young (In re Rare Cotn Galleries

of Am., Inc.), 862 F.2d 896, 900-01 (1st Cir. 1988) (trustee has

standing when alleging claims based on injury to debtor, even

though wrongdoing caused debtor’s customers to lose money);

Steyr-Daimler-Puch of Am. Corp. v. Pappas, 852 F.2d 132, 136

(4th Cir. 1988) (creditor lacked standing to bring claim where

injury is to debtor corporation under state law); Delgado Oil

Co., Inc. v. Torres, 785 F.2d 857, 862 (10th Cir. 1986) (claim

based on transferring assets from corporation states injury to

corporation, and so belongs to trustee, not individual creditor).

13

Simply because the creditors of a[n]

estate may be the primary or even the

only beneficiary of such a recovery does

not transform the action into a suit by

the creditors. Otherwise, whenever a

lawsuit constituted property of an estate

which has insufficient funds to pay all

creditors, the lawsuit would be worthless

since under Caplin it could not be

pursued by the trustee.

Lafferty, 267 F.3d at 348-49 (quotation and citation

omitted).

To say that the courts universally agree on the

baseline rule does not mean that the rule is always

easy to apply. Sometimes seemingly inconsistent

outcomes are attributable to the fact that state law

dictates whether a claim belongs to the debtor or the

creditor. See Butner v. Unites States, 440 U.S. 48, 54

(1979). Other times, different outcomes are

attributable to subtle differences among the claims

being assessed.4 Carlyle is incorrect in saying that

3 Compare, e.g., Kalb, 8 F.3d at 132 (alter ego claim belongs to

corporation under Texas law, so claim was exclusive to trustee

and creditor lacked standing), St. Paul Fire, 884 F.2d at 703-4

(same under Ohio law), and CBS, Inc. v. Folks (In re Folks), 211

B.R. 378, 385 (B.A.P. 9th Cir. 1997) (same under California

law), with Mixon v. Anderson (In re Ozark Restaurant Equip.

Co.), 816 F.2d 1222, 1225 (8th Cir.) (alter ego claim belongs to

creditor under Arkansas law, so trustee lacked standing), cert.

denied, 484 U.S. 848 (1987).

4 See, e.g., Shearson Lehman, 944 F.2d at 119-20 (under New

York law, a “churning” claim belonged to the corporation, so the

trustee had exclusive standing to bring it, but the trustee

14

the various cases it cites “cannot be reconciled.” Pet.

15. But the more important point, for present

purposes, is that these cases all articulate and apply

the same rule that the Ninth Circuit followed here.®

If there are any irreconcilable outcomes, they are a

function not of confusion as to what the rule is, but

inevitable disagreements as to how to apply it to a

new set of facts.

Carlyle does not seek certiorari to review the

Court of Appeals’ conclusion that Carlyle’s suit

“constitutes an injury to the bankrupt corporation

itself, not an individual creditor of that corporation.”

App. 6. Yet, at points its petition appears to dispute

that holding. See App. 17 (arguing that “the rights

under a lease accrue only to the landlord, not to

creditors of the tenant”). ‘To the extent Carlyle seeks

review of that holding, this Court should reject the

invitation to delve into a fact-bound determination

that revolves around particulars of state law.

lacked standing to bring a second claim that alleged damage

only to “client of” the debtor).

* See, e.g., Koch Refining v. Farmers Union Cent. Exchg., Inc.,

831 F.2d 1339, 1349 (7th Cir. 1987) (trustee has exclusive

standing to bring a claim that alleged injury to the debtor-

corporation because the ereditor-claimant “had heen injured

only in an indirect manner”); Steinberg, 40 F.3d at 892-93

(holding that the trustee lacked standing because “the only

injured person here is the [creditor],” and “|w]hen a third party

has injured not the bankrupt corporation itself but a creditor of

that corporation, the trustee in bankruptcy cannot bring suit

against the third party’).

15

B. The Purported Circuit Split Carlyle

Claims to Present Is Illusory.

Even if this case did present the question Carlyle

poses, and even if the Court of Appeals had

addressed it, the question would not be worthy of

this Court’s consideration. The circuits do not

disagree as to whether, under 11 U.S.C. § 541(a), a

trustee has standing to bring a claim that belongs to

creditors. Their uniform answer is no. No circuit

has upheld standing for a trustee bringing a claim

that actually belongs to creditors—i.e., a claim that

is premised on direct harm to the creditors, as

opposed to harm that is derivative of harm to the

bankrupt debtor.

Carlyle does not cite a single case that reaches

the opposite conclusion. It cites no case upholdiny a

trustee’s standing to press a claim that actually

belongs to the creditors, and no case barring

creditors from bringing a claim that belongs to them.

Instead, Carlyle performs the verbal equivalent

of an amateur parlor trick. It tries to create the

illusion of a conflict by stringing together several

isolated quotes that seem superficially

contradictory—until you stare at hem a few seconds

longer. These snippets are to the effect of: “lijf a

claim is a general one, with no particularized injury

arising from it, ... the trustee is the proper person

to assert the claim,” Kalb, Voorhis & Co., 8 F.3d at

132, or “[a] trustee may maintain only a general

claim,” Koch Refining, 831 F.2d at 13849. Not a

single one of these cases holds that a bankruptcy

trustee does have standing to press claims on behalf

of creditors—claims where the creditors, not the

16

debtor, were the subject of the injury. Rather, in

each situation, Carlyle’s misdirection consists of

exploiting different uses of the word “general.”

These snippets use the word “general” as a synonym

for “derivative.” They use the phrase to describe an

injury to the debtor that happens to have inflicted

harm on all the creditors. In this usage, the “general

claim” is distinguished from a “personal” or

“particularized” claim, in which injury was inflicted

directly on a particular creditor. In these passages,

trustees bring “general” claims in the sense that

their recoveries benefit all creditors generally-—not

in the sense that they are asserting claims, on behalf

of creditors, that actually belong to all creditors.

One good example of this usage is In re Folks, 211

B.R. 378, which Carlyle features as a poster-child for

the proposition that trustees may bring general

claims on behalf of creditors. See Pet. at 13-14. The

court there detailed the difference between “General

v. Particularized Injury”: A “general” claim, is one

“with no particularized injury arising from it, which

is based upon injury to the corporate debtor and all

its creditors, rather than a personal claim belonging

to any individual creditor.” Folks, 211 B.R. at 387-88

(emphasis added).

This same distinction explains why several

circuits take positions on both sides of the artificial

dichotomy Carlyle tries to draw. See Pet. 14-16

(cataloguing supposed conflicts). Carlyle

characterizes the duality as “Intra-Circuit

Conflict[s]” (without explaining why this Court

should abandon its customary practice of declining to

resolve intramural conflicts within a circuit). Pet.

14. But the accused circuits do not see it that way.

17

Take, for example, the Seventh Circuit, which is

the source of the above-quoted snippet that “[a]

trustee may maintain only a general claim.” Koch

Refining, 831 F.2d at 1349. Carlyle juxtaposes this

quote against a passage in a later Seventh Circuit

case holding that “the trustee ... has no right to

enforce entitlements of a creditor.” Steinberg, 40

F.3d at 893. Carlyle asserts that the two opinions

“cannot be reconciled.” Pet. 15. The only way to

make this assertion true is to read the quotes really

fast—and then ignore every word of both opinions

except the quoted words. Not only can they be

reconciled, but the second opinion, written by Judge

Posner, explains at length exactly how to reconcile

them. The key lies in getting past the imprecise

nomenclature. The Seventh Circuit explained that

the earlicr opinion’s description of claims as either

“general” or “personal” was “not an illuminating

usage.” Id. at 893. The real question in that earlier

case, and in all cases like this, is whether the injury

befalls the creditor directly, or whether the harm to

the creditor is derivative of the harm to the debtor:

The point is simply that the trustee is

confined to enforcing entitlements of the

[debtor]. He has no right to enforce

entitlements of a creditor. [The trustee]

represents the unsecured creditors of

the corporation; and in that sense when

he 1s suing on behalf of the corporation

he is really suing on behalf of the

creditors of the corporation. But there

is a difference between a _ creditor's

interest in the claims of the corporation

against a third party, which = are

18

enforced by the trustee, and the

creditor's own direct-—-not derivative

claim against the third party, which

only the creditor himself can enforce.

Id. (emphasis added).

More recently, the Fifth Circuit made the same

point, resolving the confusion that arose from the

same imprecise nomenclature:

The discussion of personal and general

claims ... was not meant to work a

change to thfe] well-established rule,

even when the claims at issue may be

brought by a number of creditors

instead of just one. Rather, our point

was that some claims that are usually

brought by creditors outside’ of

bankruptcy (and thus in a sense may be

said to “belong to” the creditors and not

the debtor) are nonetheless’ vested

exclusively in the trustee in bankruptcy.

Highland Capital Mgmt LP vu. Chesapeake Energy

Corp. (In re Seven Seas Petroleum, Inc.), 522 F.3d

575, 588-89 (5th Cir. 2008). The court continued, “It

is ‘fa]etions by individual creditors asserting a

generalized injury to the debtor’s estate, which

ultimately affects all creditors[,} that can be said to

raise a ‘generalized grievance, not actions by

creditors that are merely common to a number of

them.” Jd. at 589 (citation omitted).

In short, despite variations in terminology, these

ceurts uniformly apply the same rule—the very rule

the Ninth Circuit applied in this case. This Court

19

need not grant certiorari to align the lower courts

around a single lexicon—particularly since they are

already falling into line of their own accord.

Il. THE VALIDITY OF THE WAGONER

RULE IS NOT A CERT.-WORTHY

QUESTION.

Carlyle next urges the Court to resolve the

validity of the so-called “Wagoner rule,” as

articulated by the Second Circuit in Shearson

Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114 (2d

Cir. 1991). The Ninth Circuit declined to follow the

rule in this case. App. 7. This Court should refuse

Carlyle’s invitation for three reasons: (A) the issue is

merely a variation of the first question, which itself

is not cert.-worthy; (B) the Wagoner rule is a product

of the application of state law; and (C) the Wagoner

rule does not apply—and has never been applied—in

circumstances like these.

A. The Second Question Is Merely A

Variant Of The First Question

Concerning Ownership Of Claims.

The Wagoner rule, as the Second Cuircuit

articulates it, is as follows: “A claim against a third

party for defrauding a corporation with the

cooperation of management accrues to the creditors,

not to the guilty corporation.” Jd. at 120. As noted

in Part I, a bankruptcy trustee’s standing to sue

third parties depends upon whether the claim being

pursued is property of the bankruptcy estate.

11 U.S.C. §704(1) (“trustee shall . . . collect and

reduce to money the property of the estate .. .”);

§541(a)(1) (defining “property of the estate” to

20

include any interest in property that the debtor had

as of the commencement of the bankruptcy case).

Whether a cause of action is property of the estate

belonging to the trustee, or belongs to creditors, is a

question of state law. Barnhill v. Johnson, 503 U.S.

393, 398 (1992). On its face, Wagoner is merely an

articulation of one circumstance in which a creditor

might be found to own a claim that, in other

jurisdictions, would belong to the bankruptcy estate.

In other words, Carlyle’s protest of the Ninth

Circuit’s refusal to adopt the Second Circuit’s

Wagoner rule in this case reflects Carlyle’s confused

thinking about the dispositive analysis: (a) What

determines a party’s standing to sue is whether that

party owns the claims it would assert; (b) where a

bankruptcy is imphcated, ownership of the claims

depends upon analysis of whether that claim is

property of the estate; and (c) what constitutes

property of the estate is largely a question of state

law. Therefore, if the claim the creditor would assert

is, under the relevant state law analysis, property of

the bankruptcy estate, the creditor does not own the

claim and lacks standing to pursue it. If it is not

property of the estate, then the creditor must still

demonstrate ownership to establish standing, but at

least is not foreclosed by the bankruptcy trustee’s

exclusive standing.

As we observed above, see supra Point I, every

circuit in the country follows this analytical

framework. The Second Circuit’s Wagoner rule is

nothing more than a part of that analysis, applied in

circumstances where New York law controls and the

debtor and the defendant were in cahoots. This is,

therefore, still a debate about the first question: who

21

owns the claims that Cariyle would assert? The

second question thus presents no more compelling a

case for certiorari than the first.

B. The Wagoner Rule is the Product of

New York State Law.

Carlyle describes the disagreement between the

Second Circuit and other circuits over whether to

apply the Wagoner rule as an “irreconcilable inter-

circuit conflict.” Pet. 25. In truth, the conflict is

nothing of the sort; state law differences account

entirely for the different results.

Under Wagoner, as a matter of New York state

law the property of the bankruptcy estate does not

include claims against third parties for injuries

caused by the misconduct of the debtor’s controlling

managers. See Ernst & Young v. Bankruptcy

Services, Inc., (In re CBI Holding Co.), 529 F.3d 432,

447 (2d Cir. 2008) (‘Under New York law, ‘[a]

claim against a third party for defrauding a

corporation with the cooperation of management

accrues to the creditors, not to the guilty

corporation.) (emphasis added); Mediators, Inc. v.

Manney (In re Mediators, Inc.), 105 F.3d 822, 826 (2d

Cir. 1997) (“In Wagoner, we held that, under New

York law, a bankruptcy trustee had no standing to

sue Shearson Lehman Hutton for aiding and

abetting the unlawful investment activity of... the

president and sole shareholder of a_ bankrupt

corporation.”) (emphasis added). While the Second

Circuit in Wagoner did not explain its rationale for

the rule, lower courts have surmised that it derives

from the application of New York’s state law

equitable affirmative defense of in pari delicto,

ae

which prohibits a company from suing somcone else

for injuries that the company’s own management

helped inflict. See, e.g., Schertz-Cibolo-Universal

City v. Wright (In re Adelphia Commc’ns Corp.), 365

B.R. 24, 45 (Bankr. S.D.N.Y. 2007); Buchwald v. The

Renco Group, Inc., dn re Magnesium Corp. of Am.),

399 B.R. 722, 764 (Bankr. S.D.N.Y. 2009); but see

Official Committee of the Unsecured Creditors of

Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 f.3d

147, 157 (2d Cir. 2003) (‘Wagoner had nothing to do

with affirmative defenses.”). Thus, New York state

law conflates the equitable defense of in pari delicto

with questions of standing, and analyzes the

questions together.

At bottom, Caryle’s lament is that its claims are

not governed by New York law, where it might have

benefited by application of the Wagoner rule. This

case, however, is governed by California law. Unlike

New York, most other jurisdictions—including

California—treat questions of standing and the

affirmative defense of in pari delicto as “analytically

distinct concepts.” See Peregrine Funding, Inc. v.

Sheppard Mullin Richter & Hampton LLP, 133 Cal.

App. 4th 658, 677 (2005) (“Although some cases have

considered the bankrupt entity's unclean hands

(generally referred to in federal decisions as in pari

delicto doctrine) as an element of standing, they are

analytically distinct concepts.”) (citations omitted).®

6 See ulso Moratzka v. Morris (In re Senior Cottages of America,

LLC), 482 F.3d 997, 1003 (8th Cir. 2007); Baena v. KPMG, 453

F.3d 1, 7 (ist Cir. 2006) (in pari delicto has nothing to do with

standing); Official Comm. Of Unsecured Creditors of PSA, Ine.

v. Edwards, 437 F.3d 1145, 1149 (11th Cir. 2006) (‘an analysis

Zo

In Peregrine, the California Court of Appeals found

that a trustee enjoyed standing to bring his claims,

but that the unique procedural context of that case

permitted a dismissa!. The defendant filed a special

motion to strike that, under the relevant California

statute, shifted the burden to the plaintiff to show a

probability of success on the merits. The trustee’s

complaint contained sufficient allegations of

misconduct by the debtor—which the Court termed

“admissions’—to support the in part delicto

affirmative defense, so the court adjudicated the

matter on that basis. Plainly, a California court

would treat in pari delicto as a defense, and not

divest a trustee of ownership of the claim, and so

standing. The nuances of individual states’

applications of the tn part delicto defense, while

perhaps worthy of a law school student note, do not

compel certiorari review.

The Court of Appeals in this case correctly

determined that notions of in pari delicto do not

divest a bankruptcy trustee of exclusive standing to

pursue claims otherwise owned by the estate. That a

court applying New York law might reach a different

conclusion is neither remarkable nor worthy of this

Court’s attention.

of standing does not include an analysis of equitable defenses,

such as in pari delicto”’); Lafferty, 267 F.3d at 346 (“whether a

party has standing to bring a claim and whether a party’s

claims are barred by an equitable defense are two separate

questions”); Jn re Educator’s Group Health Trust, 25 F.3d 1281,

1286 (5th Cir. 1994) (rejecting “the proposition that a defense

on the merits of a claim precludes the debtor from bringing the

claim.”)

24

C. The Wagoner Rule Does Not Apply

in the Circumstances Here.

Carlyle also asks this Court to rule on a unique

and unprecedented application of the Wagoner rule.

Carlyle invokes the in pari delicto doctrine, shorn

from its legal context or any understanding of its

function, to argue that a different plaintiff in an

entirely independent lawsuit should be divested of

standing to prosecute that second action. Carlyle

cites no cases applying the rule in this manner, and

for good reason: no bankruptcy trustee could ever

pursue claims of the debtor against any person if a

creditor could divest the trustee of standing by the

simple expedient of filing its own lawsuit against the

same defendant, and fill it with artful allegations

that the defendant and the debtor were collaborators

in the wrongs that led to the debtor’s insolvency.

Certainly, research has uncovered no cases in

which a court has ever divested a trustee of standing

in his lawsuit as a result of allegations made by a

creditor in an entirely different and separate

lawsuit. The argument is especially peculiar here

where the trustee’s lawsuit has been adjudicated to

judgment without consideration of any tn pari delicto

defense. Rather, in every case in which the Wagoner

rule has been considered, it 1s asserted by a

defendant against a trustee to dismiss the trustee’s

complaint. The Wagoner rule simply has no

applicability in the circumstances here.

25

Ill. THIS COURT SHOULD NOT REVIEW AN

ISSUE OF FIRST IMPRESSION ABOUT

WHEN A LANDLORD MAY EVADE A

STATUTORY CAP ON LANDLORD

CLAIMS.

Carlyle’s third question is: “As between a

Chapter 11 reorganization trustee and creditor of the

estate, does a creditor (landlord) have standing to

pursue claims against a third party for lease

damages in excess of the 11 U.S.C. § 502(b)(6) ‘cap.”

Pet. 11. Carlyle breathlessly announces that this is a

“question of first impression,” Pet. 30—not just for

the courts of appeals, but for any court anywhere. It

adds that “[d]espite extensive research, Carlyle did

not find any case law addressing th[is] question,”

other than the Ninth Circuit's unpublished opinion

in this case. Pet. 27. Trying to win certiorari on this

basis is like trying to gain admission to Heaven by

announcing, “I’ve never done anything good.”

That is reason alone to deny admission. Carlyle

offers no reason for this Court to depart from its

custom of reviewing only those issues that have fully

percolated in the courts of appeals. Certainly, the

question whether a landlord may evade the statutory

cap of 11 U.S.C. § 502(b)(6) is not the sort of earth-

shattering issuc of such profound and urgent

importance that it cries out for immediate resolution

without the benefit of lower court vetting.

The most that Carlyle offers is that “[t]he Ninth

Circuit's reasoning is erroneous.” Pet. 28. But until

this Court decides to transform into a court of errors,

that is a singularly unpersuasive reason.

26

In any event, the claim of error is irrelevant, and

incorrect. It is irrelevant because the Ninth Circuit

rejected Carlyle’s claim on the basis of an alternative

ground, rooted entirely in state law. It held that

regardless of the outcome of the bankruptcy law

question, “[t]he district court properly held that the

California statute of frauds barred Carlyle’s claim

that NVIDIA is liable for damages above the cap

because Carlyle’s complaint failed to allege there

was a written assumption of the lease signed by

NVIDIA.” App. 7. In fact, this state law ground was

the reason that the district court invoked for

rejecting Carlyle’s claim for rent in excess of the cap;

it assumed that Carlyle had standing to sue

NVIDIA, but dismissed the claim as precluded by

the statute of frauds (App. 24-26) and on other state

law grounds. App. 19-20. Since this Court does not

sit to resolve issues of state law, see infra Point IV,

nothing it says about the statutory cap will have any

effect on the outcome of this case.

The claim of error, moreover, is incorrect, because

the Court of Appeals’ analysis was spot on. Nothing

in Ҥ 502(b)(6) gives rise to a particularized injury

that divests the Trustee of standing.” App. 6-7. The

provision does not constrain the powers of the

trustee or limit his standing in any way. Rather, it

limits the allowance of claims that belong to secured

creditors. “[S]o the cap impairs the Creditors’ claims

regardless of whether the Trustee or the Creditors

pursue the claim.” App. 7. Moreover, the cap is not

itself an “injury”; it is a function of the application of

the Bankruptcy Code’s legislatively mandated claims

allowance process; it has no bearing on whether

Carlyle has standing to sue. See Smith, 421 F.3d at

Fi

1004-5 (disparate treatment of creditors based on

application of the Bankruptcy Code “irrelevant” to

question of standing).

IV. THE COURT SHOULD NOT REVIEW A

QUESTION OF STATE LAW ABOUT

CALIFORNIA’S STATUTE OF FRAUDS.

Carlyle’s final argument is that “review is

necessary to determine whether the Ninth Circuit

erred in finding that e-mails cannot satisfy the

statute of frauds.” Pet. 31 (capitalization omitted).

This conclusion, Carlyle asserts, “is contrary to

California statute and case law.” Jd. This is the

antithesis of a cert.-worthy issue (and Carlyle is

wrong anyway). The state law issue does not become

any more cert.-worthy just because Carlyle says that

the supposed error is “manifest.” Pet. 33.

- CONCLUSION

For the foregoing reasons, the Court should deny

Carlyle’s petition for a writ of certiorari.

Respectfully submitted,

Karen G. Johnson-McKewan E. Joshua Rosenkranz

dustin M. Lichterman Counsel of Record

ORRICK, HERRINGTON & ORRICK, HERRINGTON &

SUTCLIFFE LLP SUTCLIFFE LLP

405 Howard Street 666 Fifth Avenue

San Francisco, CA 94105 New York, NY 10103-0001]

(415) 773-5700 (212) 506-5000

Counsel for the NVIDIA Respondents

APPENDIX

APP. 1

IN THE UNITED DISTRICT COURT

FOR THE NORTHERN DISTRICT OF

CALIFORNIA

SAN JOSE DIVISION

CARLYLE FORTRAN TRUST, = NO. C 05-00427 JW

Plaintiff, ORDER

DISMISSING

v. THIRD

AMENDED

NVIDIA CORPORATION, et al... COMPLAINT

WITH LEAVE TO

Defendants. AMEND;

SETTING

FURTHER CASE

MANAGEMENT

CONFERENCE

I. INTRODUCTION

The former directors and officers of 3dfx

Interactive, Inc. (38dfx Defendants), the nVidia

individual defendants, and nVidia Corporation,

nVidia U.S. Investment (nVidia Defendants),

(collectively “Defendants”) seek dismissal of the

newly asserted claims set forth in the Third

Amended Complaint (“TAC”) filed by Carlyle Fortran

Trust (“Carlyle”). On October 18, 2005, this Court

held a hearing on Defendants’ motions. For the

reasons set forth below, this Court dismisses the

claims in the TAC for lack of standing and grants

APP. 2

Carlyle leave to amend in accordance with this

Order.

Il. BACKGROUND

Based upon the papers filed by the parties, the

following facts are uncontested: 3dfx was a public

company in the business of developing and selling

graphic chips, graphics boards, and _ related

technology. Pursuant to a lease dated August 7,

1996, Carlyle leased approximately 77,000 square

feet of commercial space in San Jose, California to

3dfx. nVidia was a competitor of 3dfx also in the

business of developing and _ selling’ graphics

technology. In late 2000, nVidia and 3dfx structured

and entered into an Asset Purchase Agreement

(“APA”) where nVidia paid $70 million in cash plus

1,000,000 shares of nVidia common stock for certain

assets of 3dfx including its portfolio of patents,

trademarks, and applications. The APA _ also

provided that 3dfx would~ dissolve after

consummating its transaction with nVidia. The

parties dispute the exact effects and motivations

behind the structuring of the APA’s terms.

On January 1, 2002, 3dfx ceased paying rent.

Carlyle filed a complaint in the Santa Clara County

Superior Court against 3dfx, nVidia and their

respective directors and officers for, inter alia,

intentional interference with contract, fraudulent

transfer, and unfair business practices. 3dfx then

filed for relief in bankruptcy under Chapter 11. On

January 3, 2003, the nVidia Defendants removed

Carlyle’s State Court action to the Bankruptcy

Court. The bankruptey court appointed a trustee

APP. 3

(“Trustee”), who filed a complaint against nVidia and

a subsidiary. The Trustee subsequently filed an

action against the 3dfx Defendants in the San Mateo

County Superior Court. On September 21, 2004, the

Trustee and the 3dfx Defendants entered into a

Settlement Agreement and Mutual Release

(“Settlement Agreement”) pursuant to which the

3dfx Defendants were to pay $5.5 million. The

Settlement Agreement was approved by the

bankruptcy court on November 19, 2004.

By Order on May 6, 2005, this Court withdrew

the reference of Carlyle’s action from the Bankruptcy

Court. In July of 2005, the nVidia and 3dfx

Defendants filed the present motion to dismiss

claims in Carlyle’s TAC.

lil. STANDARDS

Under Rule 12(b)(6), a plaintiffs claims or

entire complaint may be dismissed by the court for

“failure to state a claim upon which relief can be

granted.” Rule 12(b)(6). See, e.g., Jack _ Russell

Terrier Network of N. Cal. v. Am. Kennel Club, 407

F.3d 1027, 1032 (9th Cir. 2005) (affirming district

court’s partial Rule’ 12(b)(6) dismissal). A

Rule 12(b)(6) motion tests the legal sufficiency of the

claims stated in the complaint. The court must

decide whether the facts alleged. if true, would

entitle plaintiff to some form of legal remedy. Unless

the answer is unequivocally in the negative, the

motion must be denied. Conley v. Gibson, 355 U.S.

41, 45-46 (1957); De La Cruz v. Tormey (9th Cir

1978). In resolving a Rule 12(b)(6) motion, the court

must (1) construe the complaint in the light most

APP. 4

favorable to the plaintiff, (2) accept all well-pleaded

factual allegations as true, and (3) determine

whether plaintiff can prove any set of facts to

support a claim that would merit relief. Cahill v.

Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.

1996). Because of the liberal federal pleading rules, a

12(b)(6) dismissal is proper only in “extraordinary”

cases. U.S. v. Redwood City, 640 F.2d 963, 966 (9th

Cir. 1981).

IV. DISCUSSION

As an initial matter, Carlyle must have

standing to pursue the claims it asserts in the TAC.

Defendants contend that Carlyle has no standing to

bring certain claims in the TAC, because such claims

belong exclusively to the Trustee.! Carlyle argues

that the Trustee has no standing to pursue the

claims in the TAC because these claims do not

belong to the debtor. Contrary to Carlyle’s position,

the law of the Ninth Circuit requires that this Court

dismiss the general claims in the TAC for lack of

standing.

1 In the motions presently before the Court,

Defendants do not apply their standing argument to

every claim in the TAC. However in the interests of

judicial efficiency, and in accordance with a district

courts “power and...duty to raise the adequacy of

{plaintiff]’s standing sua sponte,’ Bernhardt v. County

of Los Angeles, 279 F.3d 862, 868 (9th Cir. 2002), this

Court will determine Plaintiffs’ standing as to each

claim in the TAC.

APP. 5

Under California law as interpreted by the

Ninth Circuit, the authority to pursue a debtor’s

general causes of action is delegated exclusively to

the bankruptcy trustee, unless the creditor can show

particularized injury. In re Folks, 211 B.R. 378 (9th

Cir. BAP 1997). In In _re Folks, the Ninth Circuit

held that the bankruptcy trustee has exclusive

jurisdiction for general claims: “If a claim is a

general one, with no particularized injury arising

from it, and if that claim could be brought by any

creditor of the debtor, the trustee is the proper

person to assert the claim, and the creditors are

bound by the outcome of the trustee’s action.” Id. at

386. In so doing, the Ninth Circuit defined personal

claims as those held by the creditor, and

distinguished these personal claims from general

claims over which the bankruptcy trustee has

exclusive standing:

A cause of action is personal if the

claimant himself is harmed and no

other claimant or creditor has an

interest 1n the case. A general claim

exists if the liability is to all creditors

of the corporation without regard to

the personal dealings between such

officers and creditors.

Id. at 386 (citations and quotations to Koch _v.

Farmers Union Cent. Exchange, Inc., 831 F.2d 1339

(7th Cir. 1987) omitted). More recently, the Ninth

Circuit has expanded the holding of In re Folks to

grant standing to a bankruptcy trustee where the

trustee alleged that defendants’ “dissipation of

assets limited the firm’s ability to pay creditors.” In

re Smith, 421 F.3d 989, 1004 (9th Cir. 2005).

Recognizing that “the economic reality that any

injury to an insolvent firm is necessarily felt by its

creditors,’ the Ninth Circuit in In_re Smith

nevertheless held that the defendants’ acts in

dissipating corporate assets gave rise to a general

claim. Id. 2

A. Claims inthe TAC _ Based _ on

APA

A number of the claims in the TAC are based

on the general allegation that the structure of the

APA dissipated the amount of assets available to pay

all creditors. For example, claims 1 and 2 allege that

the dissolution of 3dfx, and 3dfx’s subsequent

inability to pay rent interfered with the contractual

2 At the hearing on October 18, 2005, and in Plaintiff's

Motion for Leave to File (Docket No. 129), Carlyle

argued that In re Smith supports its position because the

Ninth Circuit did not expressly grant the bankruptcy

trustee exclusive standing. First, even if Carlyle is

correct that In re Smith only held that the trustee has

standing along with the creditors, the holding in In re

Folks granting the bankruptcy trustee exclusive

standing for general creditor claims has not been

superceded by other Ninth Circuit or Supreme Court

decisions. Second, on this Court’s reading of In_re

Smith, the trustee action was the only case before the

Ninth Circuit, and thus it had no jurisdiction to deny

standing to a separate action involving plaintiffs before

a Colorado court.

ArT. 7

and economic relations between 3dfx and Carlyle. As

alleged, however, these claims are not particular to

Carlyle. The dissolution of a corporation where

abilities exceed assets rendering the corporation

unable to fulfill its obligations, is at the heart of

bankruptcy. The exact injury to each creditor as a

result of the dissolution of an insolvent corporation

may vary, but this variation does not make the

injury “particularized” within the meaning of the

term as used by the Ninth Circuit. Since the injury

caused by the dissolution of 3dfx with insufficient

assets to pay its obligations is “to all creditors of the

corporation without regard to the personal dealings

between such officers and creditors,” In re Folks, 211

B.R. at 386, the Trustee has exclusive jurisdiction to

assert the claims arising out of the allegedly

APA-caused dissolution of 3dfx.

In its papers, Carlyle points to its allegations

in {§; 86-88 as particularized claims. In these

paragraphs, Carlyle alleges that at the time of the

APA, Defendants agreed that nVidia or its

subsidiary would be assuming the Lease, but shortly

before Defendants closed the asset purchase

transaction at issue, nVidia and its subsidiary

refused to assume the Lease. However, the core of

these allegations is a general creditor claim of simply

increased gencral lability based on Defendants’

refusal to assume the lease. Carlyle states that

nVidia “refused to assume the Lease, thereby leaving

3dfx with an additional lability in excess of

$7 million without any additional Cash

Consideration or Stock Consideration to deal with

such lability.” (TAC § 87.) The dissipation of

corporate assets resulting from an additional $7

million in liabilities is a harm to the bankruptcy

estate common to all creditors. See In re Smith, 421

F.3d at 1004. Accordingly, the Trustee has exclusive

jurisdiction over the claims in § 86-88 that are based

on additional liabilities of the estate.

B. Claims Based on Insufficient

Consideration Provided by the APA for

3dfx’s Assets.

To the extent that the claims in the TAC are

based on an allegation that the APA provided

insufficient consideration for 3dfx’s assets, the

claims are general and are also to be exclusively

asserted by the Trustee. For example, claims 3-5 for

fraudulent transfer are primarily based on Carlyle’s

allegations that the APA provided “inadequate

value” for 3dfx’s assets. Such claims based on the

amount of consideration provided under the APA for

the assets of 3dfx are general claims which could be

brought by any creditor of the debtor. Under the rule

of the Ninth Circuit in In re Folks, the Trustee has

exclusive jurisdiction over claims’ based= on

insufficient consideration as a result of the APA.

Similarly, Claim 6 of the TAC alleges

successor liability based on the nVidia Defendants’

actions in having “acquired substantially all of the

assets of 3dfx and paid inadequate consideration

therefor’ through the APA, and that the nVidia

Defendants acted “for the fraudulent purposes of

allowing 3dfx to evade its liability to Carlyle.” (TAC,

{| 138.) While a claim that an asset purchase

agreement designed to escape liability from a

particular creditor would ordinarily be an allegation

of particularized injury, there does not seem to be

anything in the TAC that alleges that Defendants

acted with Carlyle in mind. At the hearing, Carlyle

argued that their injury was particularized because

Defendants’ due diligence prior to the APA made

Defendants aware of the terms of the Lease.

However, Defendants were lhkely aware of all

creditors’ contracts with 3dfx, and Carlyle does not

allege that Defendants were particularly aware of

the ease, or structured the APA to evade the Lease

in particular. Based on the facts alleged in the TAC,

any creditor could allege that the APA was “for the

fraudulent purposes of allowing 3dfx to evade its

hability” to any or all of the creditors. Accordingly,

because Carlyle has alleged insufficient facts to

support a claim that Defendants entered into the

APA to evade liability to Carlyle in particular,

claim 6 is also a general claim that the Trustee has

exclusive standing to assert.

C. Claims Based _ on Breach of Fiduciary

Duty and Aiding and Abetting Breach

of Fiduciary Duty in Entering into the

As to Carlyle’s claims regarding breach of

fiduciary duty, Carlyle argues that it has standing

because California law recognizes a fiduciary duty of

the directors and officers of an insolvent corporation

to its creditors. Under California law, a claim could

be stated that the 3dfx Defendants breached their

fiduciary duties to the creditors of 3dfx when 3dfx

was in the zone of insolvency. However, Carlyle is

not the proper party to assert this claim. The Ninth

Circuit in In_re Smith declined to rule on whether

APP. 10

the creditors could have asserted these claims

outside the bankruptcy context “because state law

often permits creditors to pursue derivative claims

on an insolvent corporation’s behalf when the

corporation itself has been injured by breaches of

fiduciary duty.” 421 F.3d at 1006. The Ninth Circuit

in In re Folks, however, already found that under

California state law, derivative claims on an

insolvent corporation's behalf are asserted

exclusively by the bankruptcy trustee. 211 B.R. at

384-85. Furthermore, in the case cited by Carlyle,

Saracco Tank & Welding Co. v. Platz, 65 Cal. App.

2d 305, 315 (1944), the court stated that “all of the

assets of a corporation immediately on its becoming

insolvent, become a trust fund for the benefit of all of

its creditors.” (emphasis added). Because the claim

that Defendants breached their fiduciary duty by

entering into an APA which did not provide enough

in cash for the bankruptcy estate is general to all

creditors, the rule of In re Folks that the trustee has

exclusive jurisdiction to assert claims where

“hability is to all creditors of the corporation” bars

Carlyle from asserting a claim for breach of fiduciary

duty against the 8dfx Defendants. Similarly,

Carlyle’s claim against nVidia Defendants that the

nVidia Defendants aided and abetted the 3dfx

Defendants’ breach of fiduciary duty is. also

dismissed to the extent that such a claim is general

to all creditors.

D. Claims Based on the Structure of the

APA

At oral argument, Carlyle argued that the

Trustee does not have an interest in the claims in

the TAC because the claims are based on the

structure of the APA as unfair to creditors, and not

an allegation that the APA provided insufficient

consideration for 3dfx’s assets.? In other words,

Carlyle reasons that each of the general claims

asserted are general creditor claims belonging to

creditors and not to the Trustee. The injury to

Carlyle allegedly arose as a result of Defendants

agreeing to a deal under the APA which only

provided $70 million in cash plus nVidia stock as

opposed to the initial offer of $100 million in cash

with no stock. By the terms of their allegations,

these claims are general. Because the Ninth Circuit

* This Court notes that basing the claims on an

argument that the APA was structured to minimize

the assets available to repay creditors while allowing

the sharcholders to receive’ valuable © stock

consideration may have been secondary to the

insufficient consideration allegations in the TAC. For

example, the central allegation in the TAC is that the

APA “stripp[ed] 3dfx of substantially all of its assets for

inadequate consideration,’ resulting in injury to

Carlyle (Claims 1 and 2, TAC 4/4] 88, 96, 100), or that

“3dfx transferred such assets to [nVidia Defendants]

without receiving reasonably equivalent value in

consideration therefor,” (Claims 3-5, TAC "4 107, 118,

129), or that the nVidia Defendants “acquired

substantially all of the assets of 3dfx and _ paid

inadequate consideration therefor,’ (Claim 6, TAC

4 138), or “under the nVidia Agreement, inadequate

consideration was given for 3dfx’s assets” (Claim 9,

4] 152).

has not expressly excluded general creditor claims

from the broad grant of exclusive trustee jurisdiction

over general claims in In re Folks, this Court is

reluctant to carve out such an exception.

Carlyle claims to find support for its standing

argument in Jn re Smith, where the Ninth Circuit

cited to Steinberg v. Buczynski, 40 F.3d 890 (7th Cir.

1994) for the proposition that “when a third party

has injured not the bankrupt corporation itself but a

creditor of that corporation, the trustee in

bankruptcy cannot bring a suit against the third

party.” In re Smith, 421 F.3d at 1002-03. Carlyle’s

reliance on the Ninth Circuit’s citation of Steinberg

is misplaced. In Steinberg, a plumber’s’ union

pension fund obtained a judgment against a

plumbing corporation for ERISA-required

contributions. The corporation then declared

bankruptcy. The bankruptcy trustee brought an

adversary proceeding against the corporation’s two

shareholders seeking to pierce the corporate veil and

hold the shareholders personally liable for the

corporation’s debt to the pension fund. In holding

that the bankruptcy trustee did not have standing to

assert this claim, the Seventh Circuit relied on the

fact that the trustee had failed to allege any wrongs

by the shareholders. Id. at 891. In this case, Carlyle

is not simply attempting to collect on rent due prior

to the 3dfx bankruptcy. The claims asserted in the

TAC, instead, stem from the actions of Defendants

entering into the APA and that the APA (or

structure thereof) left the estate with insufficient

funds to make rental payments. The Steinberg

opinion itself finds that it would have granted the

bankruptcy trustee standing had _ the _ trustee

APP. 13

sufficiently alleged that the shareholders diverted

assets to their personal use thus minimizing the

amount available to pay the pension fund. Id. at 892.

This Court recognizes the potential for a

conflict of interest between the shareholders and the

creditors when Defendants entered into the APA.

However, a bankruptcy trustee, appointed after the

corporation’s liabilities exceed its assets, is the

representative of the bankrupt estate. Among the

trustee’s duties is the obligation to “collect and

reduce to money the property of the estate.”

11 U.S.C. §704(1). The “property of the estate”

includes “all legal or equitable interests of the debtor

in property as of the commencement of the case,”

11 U.S.C. §541(a)(1), including the debtor’s “causes

of action.” In re Smith, 421 F.3d at 1002. At the time

of commencement of the Chapter 11 proceedings,

Defendants had already entered into the APA. Thus,

the “interests of the debtor in property as of the

commencement of the case” includes the interest to

have the bankrupt estate consist of $100 million in

cash instead of $70 million in cash. Accordingly, the

diminution in assets of the bankrupt estate as a

result of the structure of the APA is the debtor's

cause of action properly asserted exclusively by the

Trustee.

V. CONCLUSION

For the reasons set forth above, this Court

dismisses the TAC. Carlyle is ordered to file a

Fourth Amended Complaint limiting its claims and

allegations in accordance with this Order’ by

February 4, 2006. Failure to file a Fourth Amended

APP. 14

Complaint by this deadline may result in dismissal.

The parties are ordered to appear before the Court

on April 18, 2006 at 10:00 a.m. for a _ case

management conference.

Dated: November 10, 2005 /s/James Ware

JAMES WARE

United States

District Judge

APP. 15

THIS IS TO CERTIFY THAT COPIES OF THIS

ORDER HAVE BEEN DELIVERED TO:

Douglas A. Applegate daa@sezalaw.com

Dwight Craig Donovan Dwight@mbvlaw.com

Henry H. Oh henry.oh@dlapiper.com

eames N. Kramer jkramer@orrick.com

Jonathan B. Gaskin jgaskin@orrick.com

Justin Myer Lichterman jlichterman@orrick.com

Karen Johnson-McKewan kjohnson-

mckewan@orrick.com

Kim Y. Arnone karnone@buchalter.com

Leah Anne Nutting Inutting@orrick.com

Michael Todd Scott tscott@orrick.com

Morgan William Tovey mtovey@reedsmith.com

Richard C. Darwin rdarwin@buchalter.com

Robert P. Varian rvarian@orrick.com

Ruth Young Kwon rkwon@orrick.com

USBC Manager-San Jose US Bankruptcy Court 280

South First Street Room 3035

San Jose, CA 95113

Arthur 8. Weissbrodt U.S. Bankruptcy Court 280

South First Street Room 3035

San Jose, CA 95113

Stephen Pettigrew David M. Shannon Nvidia

Corporation 2701 San Tomas Expressway

Santa Clara, CA 95050

Henry H. Ho

Dewey Ballantine LLP

333 South Grand Avenue

Los Angeles, Ca 9007 1-1530

APP. 16

Dated: November 10, 2005

Richard W. Wieking, Clerk

By: /s/ JW Chambers

Ronald L. Davis

Courtroom Deputy

APP. 17

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

CARRAMERICA REALTY NO. C 05-00428 JW

CORPORATION,

Related Cases:

:05-cv-00427-J3W

:05-cev-00429-JW

:06-cv-03 856-JW

‘(06-cv-0323 &-JW

Plaintiff,

or or

oS)

V.

NVIDIA CORPORATION,

et al.,

Defendants. ORDER GRANTING

DEFENDANTS’

MOTIONS TO

DISMISS

CARRAMERICA’S

THIRD AMENDED

COMPLAINT

/

t. INTRODUCTION

CarrAmerica Realty Corporation (“CARR”)

brought this action against nVidia Corporation

(“NVIDIA”), individual nVidia executives (collectively,

“NVIDIA Defendants”), and the former directors and

officers of 3DFX Interactive, Inc. (““83DFX Defendants”)

(collectively, “Defendants”), alleging twelve causes of

action related to the now dissolved 3DFX Interactive,

Inc.’s (“3DFX”) breach of its lease with CARR. The

APP. 18

Defendants -move to dismiss the claims set forth in

CARR’s Third Amended Complaint. (hereafter, “TAC,”

Docket Item No. 83). The Court deemed it appropriate

to take the motions under submission without oral

argument. See Civ. L.R. 7-1(b). Based on the papers

submitted to date, the Court GRANTS Defendants’

motions.

Il. BACKGROUND

On November 10, 2005, the Court dismissed

CARR’s Second Amended Complaint (“SAC,”, Docket

Item No. 27) for lack of standing, and entered an Order

granting CARR leave to file a Third Amended

Complaint. (Order Dismissing Second Amended

Complaint With Leave to Amend; Setting Further Case

Management Conference, hereafter, “November 10,

2005 Order,” Docket Item No. 82.)

In its Third Amended Complaint, CARR alleges

the following:

3DFX was a public company in the

business of developing and selling graphic chips,

graphics boards, and related technology. (TAC

11.)

CARR leased approximately 26,000 square

feet of commercial space in Austin, Texas to

3DFX on or about July 23, 1998. (TAC 4 8.) The

lease ran through August 31, 2003. (TAC ¥ 9.)

On or about December 15, 2000, 3DFX

and its competitor, NVIDLA, entered into an

Asset Purchase Agreement (the “Agreement”)

APP. 19

under the terms of which at closing NVIDIA

would pay to 3DFX $70 million in cash and

approximately $40 million in NVIDIA stock in

exchange for the transfer to NVIDIA of specified

assets of 3DFX including its portfolio of patents,

trademarks, and applications. The Agreement

also provided that 3DFX would dissolve after

closing the asset sale to NVIDIA. (TAC 4 4 18,

46.)

At the time of the Agreement, CARR had

no knowledge of the agreement. (TAC 4 13.)

NVIDIA sought to conceal the true nature

of its agreement with 3DFX by labeling the

agreement an “asset purchase” because NVIDIA

wanted to acquire all of 3DFX’s assets without

becoming lable to 3DFX’s creditors which

included CARR. (TAC § 14.)

On or about December 15, 2000,

immediately after execution of the Agreement,

3DFX ceased operations; its employees were

terminated and were hired by NVIDIA. (TAC 4

18.)

At some unspecified date, but before the

December 15 events described in §j 18, 3DFX and

NVIDIA entered into a “secret agreement,” to the

effect that NVIDIA directed 3DFX “to continue

making lease payments as if it, and not NVIDIA

were occupying the premises and that NVIDIA

would reimburse 3DFX for these payments at a

future date. (TAC § 21.)

APP. 20

The payments made pursuant to the

“secret agreement” created the false impression

that 3DFX remained a viable tenant. If CARR

had known the “true state of affairs,” it would

have insisted that either NVIDIA assume the

lease or that 3DFX vacate so that CARR could

lease the premises to a new tenant. (TAC { 21.)

Eventually, 3DFX stopped paying rent

allegedly pursuant to the “secret agreement.”

(TAC 4 23)

On the basis of these allegations, CARR asserts

claims for: 1) interference with contractual relations

against the NVIDIA Defendants; 2) intentional

interference with prospective economic advantage

against the NVIDIA Defendants; 3) negligent

interference with prospective economic advantage

against the NVIDIA Defendants; 4) successor liability

against NVIDIA; 5) fraudulent transfer against all

Defendants under Civil Sections 3439.04(a);_ 6)

3439.04(b)(1); 7) and 3439.04(b)(2); 8) declaratory relicf

against all Defendants; 9) breach of fiduciary duty

against the 3DFX Defendants; 10) fraud against all

Defendants; 11) conspiracy against all Defendants; and

12) tort of another against all Defendants.

Defendants move to dismiss the Third Amended

Complaint on the ground that it fails to allege facts

which would entitle CARR to relief.

Ul. STANDARDS

A motion to dismiss under Federal Rule of Civil

Procedure 1 2(b)(6) tests the legal! sufficiency of a claim.

Navarrov. Block, 250 F.3d 729, 732 (9th Cir. 2001). A

complaint may be dismissed as a matter of law for one

of two reasons: “(1) lack of a cognizable legal theory or

(2) insufficient facts stated under a cognizable theory.”

Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530,

534 (9th Cir. 1984). “A complaint should not be

dismissed for failure to state a claim unless it appears

beyond doubt that the plaintiff can prove no set of facts

in support of his claim which would entitle him to

relief.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The

court “must presume all] factual allegations of the

complaint to be true and draw all reasonable inferences

in favor of the non-moving party.” Usher v. City of Los

Angeles, 828 F.2d 556, 561 (9th Cir. 1987) (citing

Western Reserve Oil & Gas Co. v. New, 765 F.2d 1428,

1430 (9th Cir. 1985) cert. denied, 474 U.S. 1056 (1986)).

However, the court “need not assume the truth of legal

conclusions cast in the form of factual allegations.”

United States ex rel. Chunie v. Ringrose, 788 F.2d 638,

643 n.2 (9th Cir. 1986) (citing Western Mining Council

v. Watt, 643 F.2d 618, 624 (9th Cir. 1981), cert. denied,

454 U.S. 1031 (1981)).

A motion to dismiss on the ground that the

plaintiff lacks standing to pursue the claim is properly

made pursuant to Federal Rule of Civil Procedure

12(b)(6). Michael Schmier v. United States Court of

Appeals for the Ninth Circuit, et al., 279 F.3d 817 (9th

Cir. 2002).

APP, 22

IV. DISCUSSION

A. A_ creditor lacks standing to pursue a

claim against a defendant for injury

inflicted upon a_ bankrupt company

because the right to pursue the claim

vests in the Trustee, unless the creditor is

alleging an injury particularized_ to that

creditor only.

As explained in the November 10, 2005 Order,

and despite CARR’s insistence to the contrary, under

California law as interpreted by the Ninth Circuit,

standing to pursue a general creditor’s cause of action

is delegated exclusively to the bankruptcy trustee,

unless a creditor can show particularized injury. In re

Folks, 211 B.R. 378 (9th Cir. BAP 1997); (November 10,

2005 Order at 3.)

“If a claim is a_ general one, with = no

particularized injury arising from it, and if that claim

could be brought by any creditor of the debtor, the

trustee is the proper person to assert the claim, and the

creditors are bound by the outcome of the trustee’s

actions.” Id. (quoting Kalb, Voohis Co v. American Fin.

Corp., 8 F.3d 130 (2d Cir. 1993) (citations omitted.). A

cause of action is general “if the lability is to all

creditors of the corporation without regard to the

personal dealings between [the corporation’s] officers

and such creditors.” Id. (quoting Koch Refining v.

Farmers Union Cent. Exchange, Inc., 831 F.2d 1339,

1349 (7th Cir. 1987). If, on the other hand, “the

claimant himself is harmed and no other claimant or

creditor has an interest in the cause,” the cause of

action is personal to the creditor. Id. (quoting Koch

APP. 23

Refining, 831 F.2d at 1348-49.) Injury to the creditor is

thus a determining factor. “To determine whether an

action accrues individually to a claimant or generally to

the corporation, a court must look to the injury for

which relief is sought and consider whether it is

peculiar and personal to the claimant or general and

common to the corporation and creditors.” Koch, 831

F.2d at 1348-9.

Furthermore, the Ninth Circuit has expanded

the holding of In re Folks to grant standing to a trustee

of a bankrupt firm where the trustee alleges that a

defendant’s dissipation of corporate assets limited the

firm’s ability to pay its creditors. In re Smith, 421 F.3d

989, 1004 (9th Cir. 2005). Despite “the economic reality

that any injury to an insolvent firm is necessarily felt

by its creditors,” the Defendants’ acts in dissipating

corperate assets via the Agreement gives rise to only a

general claim for which the bankruptcy trustee has

exclusive standing to pursue. Id.

B. CARR’s _First Claim for __ Intentional

Interference with Contractual Relations

does not allege a claim for particularized

injury.

CARR alleges that the NVIDIA Defendants

intentionally interfered with the contractual

relationship between CARR and 3DFX by entering into

the Agreement and by entering into the “secret

agreement.” This claim is essentially the same claim

that was asserted in the Second Amended Complaint

except for the alleged “secret agreement.” The Court

has previously determined that CARR lacks standing

to pursue claims resulting from the Agreement.

APP. 24

Therefore, the issue becomes whether, if CARR alleges

breach of the lease and related claims pursuant to both

the Agreement and the alleged “secret agreement,” it

states a claim for a particularized injury.

CARR contends that its Third Amended

Complaint alleges a particularized injury because the

alleged “secret agreement” only affected 3DFX’s rental

obligation to CARR. CARR contends that if, as it

alleges, 3DFX ceased making rent payments and

abandoned the premises “pursuant to” the alleged

“secret agreement’, this transforms its claim to one for

a particularized injury.

Even accepting as true the allegation that 3DFX

sold its assets and shut down its operations under both

the Asset Purchase Agreement and this newly alleged

separate “secret agreement,” the cause of any harm

suffered by CARR remains the transfer of assets and

cessation of operations under the Agreement.

Allegations that the harm suffered was caused by the

alleged “secret agreement” to have 3DFX continue to

pay rent is no more than artful pleading to avoid the

overriding effect of the Agreement. If there was any

interference with contractual obligations of 3DFX due

to lack of notice of its impending demise, that

interference came from lack of notice of the Agreement

itself, which affected all creditors.

The Court is not called upon to comment

whether the bankruptcy trustee has a claim against

NVIDIA for contractual interference resulting from the

alleged “secret agreement’.

APP. 25

The Court DISMISSES CARR’s First Claim for

Intentional Interference with Contractual Relations

without leave to amend on the ground that the alleged

facts state a claim of harm to the corporation which

affected all creditors.

c. CARR’s Second and Third Claims for

Intentional and Negligent Interference

with Prospective Economic Advantage

Claims have been withdrawn.

Given CARR’s stated intention to withdraw the

Second and Third Causes of Action in its submitted

opposition papers, the Court DISMISSES CARR’s

Second and Third claims. (CARR’s Memorandum of

Points and Authorities in Opposition to the NVIDIA

Defendants’ Motion to Dismiss Third Amended

Complaint, at 5, Docket No. 112.)

The dismissal is without prejudice; however,

there is no reason to believe that the Court would not

apply the same legal analysis to these claims as all

other claims against NVIDIA.

D. CARR’s Fourth Claim _ for Successor

Liability is derived from its infirm First

Claim and is thereby, dismissed.

CARR relies word-for-word on the allegations in

its Second Amended Complaint to support its successor

ability claim in its Third Amended Complaint.

(Compare SAC § 4 40-45 with TAC 44 39-44.) While

CARR’s allegations of a “secret agreement” between

NVIDIA and 3DFX, described supra, are incorporated

by reference into this claim, CARR has made no

APP. 26

attempt to draw a causal connection between the

alleged “secret agreement” and its successor liability

claim. Since the Court has previously determined that

this claim as alleged in the Second Amended Complaint

is a general claim for which CARR lacks standing to

pursue, and CARR has not remedied its lack of

standing, the Court DISMISSES CARR’s Fourth Claim

for Successor Liability without leave to amend.

E. CARR’s Fifth, Sixth and Seventh Claims

for Fraudulent ‘Transfer are _ general

CARR’s allegations in support of its fraudulent

transfer claims are substantially the same as those in

its Second Amended Complaint. (Compare SAC 4 § 50-

75 with TAC 4 4 45-73.) By way of explanation, CARR

states that its prosecution of the claims were ordered

stayed pending resolution of the underlying proceeding

pending in the U.S. Bankruptcy Court for the Northern

District of California, and that to the extent the stay is

still binding, it will defer prosecution of the claims

pending resolution of the adversary proceeding. (TAC 4

{| 57, 65, 73.) However, the Court has previously

determined CARR’s fraudulent transfer claims to be

general claims (see November 10, 2005 Order at 4), and

CARR’s statements concerning deferment of

prosecution does not remedy its lack of standing.

The Court DISMISSES CARR’s Fifth, Sixth and

Seventh Claims for Fraudulent Transfer without leave

to amend.

APP. 27

F. CARR’s Eighth Claim for Declaratory

Relief is derivative of infirm claims and is

thereby, dismissed.

CARR has asked the Court to issue a “judicial

determination of the rights and duties of CARR and

[D]jefendants” with respect to NVIDIA’s alleged

successor liability and obligations under the Lease.

(See TAC § 4] 75-77.) “[A] request for declaratory relef

will not create a cause of action that otherwise does not

exist.’ Rather, ‘an actual present controversy must be

pleaded specifically’ and ‘the facts of the respective

claims concerning the [underlying] subject must be

given.” City of Cotati v. Cashman, 29 Cal. 4th 69, 80

(2002) (citations omitted). Accordingly, CARR’s claim

for declaratory relief is wholly derivative of its

foregoing claims.

The Court DISMISSES CARR’s Eighth Claim for

Declaratory Relief without leave to

amend.

G. CARR’s _Ninth Claim for Breach _ of

Fiduciary Duty fails to state a claim.

CARR alleges that the 3DFX Defendants

breached their fiduciary dutics owed to CARR as a

creditor by entering into the “secret agreement” with

NVIDIA which concealed the fact that 3DFX would be

going out of business and would eventually breach the

Lease. (TAC {| § 79-81.)

A corporation's directors and officers owe no

fiduciary duty to creditors under California law until]

the corporation becomes insolvent. In_re Jacks, 248

B.R. 385, 390 (Bankr. Ct. C.D. Cal. 1999), aff'd in part.

APP. 28

revd_in part, 266 B.R. 728 (9th Cir. B.A.P. 2001).4

“Because a director’s fiduciary duties to creditors do not

,

arise until the corporation is insolvent, the timing of

the insolvency is critical.” In re Jacks, 266 B.R. at 738.

The time of insolvency as determined under California

law is the point at which the corporation is unlikely to

be able “to meet its liabilities ... as they mature.” Id.

(quoting Cal. Corp. Code § 501).

Once a corporation becomes insolvent, the scope

of a director’s or officer’s fiduciary duty to creditors 1s to

+ As the In re Jacks Bankruptcy Court noted: “[t]o a

substantial extent, the right to recover from directors

or officers of California corporations for the violation of

their fiduciary duties has been codified in California

statute.” In re Jacks, 266 B.R. at 391. On appeal, the In

re Jacks Bankruptcy Appellate Panel commented that

although “California’s Corporation Code provides a

remedy for an _ insolvent corporation’s director's

violations of fiduciary duties to creditors .. . ‘the

common law is not repealed by implication § or

otherwise, if there is no repugnancy between it and the

statute, and it does not appear that the legislature

intended to cover the whole subject.’ California’s

corporate statutes, while modifying remedies, do not

eliminate the trust comprised of corporate assets that

arises upon a corporation’s insolvency.” In re Jacks, 266

B.R. at 737 (Gnternal citation omitted). Since CARR

does not raise this claim in a statutory context, the

Court does not consider its application, but rather,

considers the common law application of CARR’s claim

to determine if there was a breach of a fiduciary duty

for the purposes of this Order.

APP, 29

not “divert, dissipate or unduly risk assets necessary to

satisfy their claims.” In re Ben Franklin Retail Stores,

Inc., 225 B.R. 646, 655 (Bankr. Ct. N.D. JI1.1998),

amended and superseded by, 2000 WL 28266 (N.D. III.

Jan. 12, 2000). California courts have applied the “trust

fund doctrine” where “all of the assets of a corporation,

immediately on its becoming insolvent, become a trust

fund for the benefit of all of its creditors.” In re Jacks,

266 B.R. at 736 (quoting Saracco Tank & Welding Co.,

Ltd. v. Platz, 65 Cal. App. 2d 306, 315 (1944) (internal

citation omitted)). Under the trust fund doctrine, the

directors and officers of the insolvent corporation

become fiduciaries whose obligations to the creditors is

to protect the assets of the insolvent corporation to

satisfy their claims. See, e.g. Saracco, 65 Cal. App. 2d

at 315.

Recovery for breaching this fiduciary duty

generally pertains to cases where the directors or

officers of an insolvent corporation have diverted assets

of the corporation “for the benefit of insiders or

preferred creditors.” In_ re Ben Franklin, 225 B.R. at

655 (quoting from Laura Lin, Shift of Fiduciary Duty

Upon Corporate Insolvency: Proper Scope of Directors’

Duty of Creditors, 46 Vand. L. Rev. 1485, 1512 (1993));

see also Bank of America v. Musselman, 222 F. Supp.

2d 792 (E.D. Va. 2002); see also Helm Financial Corp.

v. MNVA R.R., 212 F.3d 1076, 1081 (8th Cir. 2000).

Although the Court is unaware of any California

cases that expressly limit the fiduciary duty under the

trust fund doctrine to the prohibition of self-dealing or

the preferential treatment of creditors, the scope of the

trust fund doctrine in California is reasonably limited

to cases where directors or officers have diverted,

APP. 30

dissipated, or unduly risked the insolvent corporation’s

assets. See In re Jacks, 266 B.R. at 736 (trust fund

doctrine applied to a director’s use of an insolvent

corporation’s assets to guarantee a personal debt); c.f.

Commons v. Schine, 35 Cal. App. 3d 141, 145 (1973)

(trust fund doctrine applied to a controlling partner's

preference in paying insolvent partnership’s debt to his

own creditor corporation); see also Saracco, 65 Cal.

App. 2d 306 (1944) (trust fund doctrine applied to a

director's preferential distribution of assets); see also

Wright Motor, 299 F. 106 (1924) (trust fund doctrine

applied to a director’s fraudulent transfer of corporate

assets to himself); c.f. Title Ins. etc. Co. v. California

Dev. Corp., 171 Cal. 173 (1915) (trust fund doctrine

applied to a company controlling an_ insolvent

development corporation’s preferential payment of the

insolvent development corporation’s debts); see also

Bonney v. Tilley, 109 Cal. 346 (1895) (trust fund

doctrine applied to directors of an_ insolvent

corporation, who were also creditors of the corporation,

secured a preference to their claims over other

creditors’ claims). Given the application of the trust

fund doctrine in California, the scope of the fiduciary

duty to creditors can be broadly defined as_ not

diverting, dissipating or unduly risking the corporate

assets needed to satisfy creditors’ claims.

As the court observed in In re Ben Franklin in

defining the scope of a director's fiduciary duty to

creditors under Delaware law, “the ‘insolvency

exception to the general rule that directors owe no

duty to creditors is, after all, an exception. Its scope

should be no greater than the problem it was intended

to solve.” In re Ben Franklin, 225 B.R. at 655-56. A

similar approach is taken by the Court in determining

APP. 31

whether the 3DFX Defendants could have breached a

fiduciary duty owed to CARR as a creditor by entering

into the “secret agreement”.

The Third Amended Complaint alleges that a

fiduciary relationship existed between CARR and the

3dfx Defendants because “when the [Agreement] was

being negotiated and then executed, 3DFX was

insolvent and/or in the zone of insolvency and the

officers and directors thereby owed a fiduciary duty to

CARR.” (TAC {| 79.) CARR contends given that the

Third Amended Complaint alleges that the “secret

agreement” was created during the same month as the

Agreement, which caused 3DFX’s insolvency, a

reasonable inference for the purposes of these motions

can be made that the “secret agreement” occurred when

3DFX was insolvent and the 3DFX Defendants had a

fiduciary duty to CARR.

Given that the 3DFX Defendants owed a

fiduciary duty to CARR to protect the assets of 3DFX,

the Third Amended Complaint must show that this

duty was breached. The Third Amended Complaint

alleges that this fiduciary duty was breached when the

3DFX Defendants entered into the “secret agreement”

to hide the fact “that 3DI'X would cease doing business

on or about December 15, 2000, and would thereafter

be in breach of the CARR Lease.” (TAC 4 81.) However,

this alleged breach of fiduciary duty is not related to

protecting the assets of 3DIFX in order to satisfy

creditors’ claims. Rather, the “secret agreement” is

alleged to have breached a duty to disclose the source of

3DFX’s rent payments and the fact that 3DFX was

insolvent. Since the Third Amended Complaint does

not allege that the “secret agreement” diverted,

APP. 32

dissipated or unduly risked the assets necessary to

satisfy creditors’ claims for which the 3DFX

Defendants owed a fiduciary duty toprotect, the Third

Amended Complaint has not alleged that the 3DFX

Defendants breached their fiduciary duty.

Furthermore, the nature of the “secret

agreement” as alleged in the Third Amended

Complaint reasonably suggests that the “secret

agreement” may have actually helped protect the

assets of 3DFX. The “secret agreement” is alleged to

have provided a means by which 3DFX could continue

paying its rent obligations to CARR at a time when

3DFX was allegedly unable to meet its labilities as

they became due. (TAC §| 81.) Even though the “secret

agreement” is alleged to have also included the

cessation of rent payments, the execution of the “secret

agreement” as_ alleged in the Third Amended

Complaint does not suggest that the rent payments

that would otherwise go to CARR were diverted to a

preferred creditor or used by the 3DFX Defendants in

promoting their own self-interest.

The Court DISMISSES CARR’s Ninth Claim for

Breach of Fiduciary Duty with leave to amend.

H. CARR’s Tenth Claim for Fraud __is

indistinguishable from the First Claim

and is thereby dismissed on the same

ground.

CARR’s Tenth Claim for Fraud is a new claim

asserted in the Third Amended Complaint. The fraud

claim is primarily based upon a failure to disclose the

“secret agreement.” As discussed above, the injury from

the alleged “secret agreement” is indistinguishable

from those allegedly inflicted upon the corporation

through the implementation of the Asset Purchase

Agreement and are consequently unparticularized as

the CARR.

Without reaching the merits of the claim, the

Court DISMISSES CARR’s Tenth Claim for Fraud fox

lack ot standing; the dismissal is with prejudice.

[. CARR’s Eleventh Claim for Conspiracy is

dismissed for lack of standing.

CARR alleges in its Third Amended Complaint

that the Defendants conspired in creating the

Agreement and the “secret agreement.” (TAC 4 95.)

Under California law, “[n]o cause of action exists

for conspiracy itself; the pleaded facts must show

something which, without the conspiracy, would give

rise to a cause of action.” Zumbrun v. Univ. of Southern

California, 25 Cal. App. 3d 1, 12 (1972). “Conspiracy is

not a cause of action, but a legal doctrine that imposes

hability on persons who, although not actually

committing a tort themselves, share with the

immediate tortfeasors a common plan or design in its

perpetration.” Apphed Equip. v. Litton Saudi Arabia

Ltd., 7 Cal. 4th 508, 510-11 (1994) (citing Wyatt _v.

Union Mortgage Co., 24 Cal.3d 773, 784 (1979)). Given

that CARR has no standing to pursue the contractual

interference claim against the NVIDIA Defendants, it

has no standing to pursue the conspiracy claim.

The Court DISMISSES CARR’s Eleventh Claim

for Conspiracy without leave to amend.

APP. 34

J. CARR’s Twelfth Claim for relief under a

“Tort of Another” theory is dismissed.

Under the American rule, each party must

generally pay his or her own attorney fees. Gray v. Don

Miller & Associates, Inc., 35 Cal. 3d 498, 504 (1984).

This rule is subject to several exceptions, one of which

is the “tort of another,” or “third party tort” exception,

which allows recovery of attorney fees where the

plaintiff is required to employ counsel to prosecute or

defend an action against a third party because of the

tort of the defendant. Id. at 505. CARR’s alleged

entitlement to recoupment of any attorney fees as

damages arising from NVIDIA's allegedly tortious

behavior toward 3DFX derives from its having standing

to sue NVIDIA for the alleged tort. Lacking standing,

CARR may not maintain this claim.

The Court DISMISSES CARR’s Twelfth Claim

for relief under a “Tort of Another” theory without

leave to amend.

V. CONCLUSION

The Court GRANTS Defendants’ Motions to

Dismiss CARR’s Third Amended Complaint.

With respect to the NVIDIA Defendants, the

Court finds that there are no circumstances which

would entitle CARR to proceed against NVIDIA for the

alleged harm it inticted on 3DFX and derivatively

upon CARR. Therefore, the First, Fourth, Fifth, Sixth,

Seventh, Eighth, Tenth, Eleventh, and Twelfth claims

against NVIDIA are dismissed with prejudice.

APP. 35

With respect to the 3DFX Defendants, all claims

are dismissed with prejudice except the Ninth Claim

for Breach of Fiduciary Duty. Should CARR wish to file

an amended complaint, it shall file within 30 days from

the date of this Order.

JAMES WARE

Dated: September 29, 2006 United States

District Judge

APP. 36

THIS IS TO CERTIFY THAT COPIES OF THIS

ORDER HAVE BEEN DELIVERED TO:

Douglas A. Applegate daa@sezalaw.com

Dwight Craig Donovan Dwight@mbvlaw.com

George M. Lee gml@sezalaw.com

Henry H. Oh henry.oh@dlapiper.com

James N. Kramer jkramer@orrick.com

John L. Fitzgerald jfitzgerald@pinnaclelawgroup.com

Jonathan B. Gaskin jgaskin@orrick.com

Jonathan S. O&#039;Donnell jon@mbvlaw.com

Justin Myer Lichterman jlichterman@orrick.com

Karen Johnson-McKewan kjohnson-mckewan@orrick.com

Kim Y. Arnone karnone@buchalter.com

Leah Anne Nutting Inutting@orrick.com

Morgan William Tovey mtovey@reedsmii 1.com

Richard C. Darwin rdarwin@buchalter.com

Robert P. Varian rvarian@orrick.com

Ruth Young Kwon rkwon@orrick.com

William R. Overend woverend@reedsmith.com

Office of the U.S. Trustee/SJ

U.S. Federal Bld.

280 S lst St. #268

San Jose, CA 95113-3004

USBC Manager-San Jose

US Bankruptcy Court

280 South First Street

Room 3035

San Jose, CA 95113

APP. 37

Dated: September 29, 2006 Richard W. Wieking, Clerk

By: /s/ JW Chambers

Elizabeth Garcia

Courtroom Deputy

APP. 38

11 U.S.C. § 541. Property of the estate

(a) The commencement of a case under section 301,

302, or 303 of this title creates an estate. Such estate

is comprised of all the following property, wherever

located and by whomever held:

(1) Except as provided in subsections (b) and (c)(2) of

this section, all legal or equitable interests of the

debtor in property as of the commencement of the

case.

(2) All interests of the debtor and the debtor’s spouse

in community property as of the commencement of

the case that is--

(A) under the sole, equal, or joint management and

control of the debtor; or

(B) liable for an allowable claim against the debtor,

or for both an allowable claim against the debtor and

an allowable claim against the debtor’s spouse, to

the extent that such interest is so hable.

(3) Any interest in property that the trustee recovers

under section 329(b), 363(n), 543, 550, 553, or 723 of

this title.

(4) Any interest in property preserved for the benefit

of or ordered transferred to the estate under

section 510(c) or 551 of this title.

(5) Any interest in property that would have been

property of the estate if such interest had been an

interest of the debtor on the date of the filing of the

APP. 39

petition, and that the debtor acquires or becomes

entitled to acquire within 180 days after such date--

(A) by bequest, devise, or inheritance;

(B) as a result of a property settlement agreement

with the debtor’s spouse, or of an interlocutory or

final divorce decree; or

(C) as a beneficiary of a life insurance policy or of a

death benefit plan.

(6) Proceeds, product, offspring, rents, or profits of or

from property of the estate, except such as are

earnings from services performed by an individual

debtor after the commencement of the case.

(7) Any interest in property that the estate acquires

after the commencement of the case

wk ke

APP. 40

11 U.S.C. § 704. Duties of trustee

(a) The trustee shall--

(1) collect and reduce to money the property of the

estate for which such trustee serves, and close such

estate as expeditiously as is compatible with the best

interests of parties in intcrest;

(2) be accountable for all property received;

(3) ensure that the debtor shall perform his

intention as specified in section 521(2)(B) of this

title;

(4) investigate the financial affairs of the debtor;

(5) if a purpose would be served, examine proofs of

claims and object to the allowance of any claim that

is Improper;

(6) if advisable, oppose the discharge of the debtor;

(7) unless the court orders otherwise, furnish such

information concerning the estate and the estate’s

administration as is requested by a party in interest:

(8) if the business of the debtor is authorized to be

operated, file with the court, with the United States

trustee, and with any governmental unit charged

with responsibility for collection or determination of

any tax arising out of such operation, periodic

reports and summaries of the operation of such

business, including a statement of receipts and

disbursements, and such other information as the

United States trustee or the court requires;

APP. 41

(9) make a final report and file a final account of the

administration of the estate with the court and with

the United States trustee;

(10) if with respect to the debtor there is a claim for

a domestic support obligation, provide the applicable

notice specified in subsection (c);

(11) if, at the time of the commencement of the case,

the debtor (or any entity designated by the debtor)

served as the administrator (as defined in section 3

of the Employee Retirement Income Security Act of

1974) of an employee benefit plan, continue to

perform the obligations required of the

administrator; and

(12) use all reasonable and best efforts to transfer

patients from a health care business that is in the

process of being closed to an appropriate health care

business that--

(A) is 1n the vicinity of the health care business that

is closing;

(B) provides the patient with services that are

substantially similar to those provided by the health

care business that is in the process of being closed;

and

(C) maintains a reasonable quality of care.

**e *