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Supreme Court Affirms Appointment of Receiver of Dissolved Corporation

By Francis G.X. Pileggi

The Delaware Supreme Court affirmed a decision of the Court of Chancery in a one-page Order in the case styled:  In the Matter of Texas Eastern Overseas, Inc., No. 21, 2010  (Del. Supr. June  24, 2010). Read Order here.  The Chancery opinion was highlighted here. The denial of a stay pending appeal was covered on this blog here. 

The Court of Chancery had granted a petition to appoint a receiver for a dissolved corporation. The goal of the petition in this case was to allow a company called AmeriPride to sue Texas Eastern Overseas, Inc. ("TEO") in California to determine if TEO had insurance coverage for environmental clean-up costs incurred by AmeriPride but for which AmeriPride maintained that TEO is responsible. The insurance company for TEO provided counsel that filed a motion to dismiss the California suit based on the expiration of the three-year period in DGCL Section 278 during which a dissolved corporation may pursue or defend a suit. The California court stayed that case in order to allow AmeriPride an opportunity to petition the Chancery Court for the appointment of a receiver for TEO, which would allow TEO to participate in that suit, so that the California court could then determine the issue of insurance coverage for claims against TEO.

The trial court decision provides the latest Delaware law on the interface between DGCL Sections 278 and 279. That is, the trial court addresses those instances when good cause exists under Section 279 for a receiver to be appointed for a dissolved corporation to allow that corporation to participate in a lawsuit beyond the three-year period after dissolution provided in Section 278.

One of the key issues was whether the dissolved corporation had undistributed assets. In the context of a motion for judment on the pleadings pursuant to Rule 12(c), the Court of Chancery determined that there was enough of a basis to suggest a likelihood that TEO had assets in the form of available insurance coverage for the claims made against it (without actually deciding that issue as a conclusive matter).

The Court of Chancery relied on a Delaware Supreme Court decision at footnote 23 for the position that the two statutes should be read in tandem to ensure that a dissolved corporation maintains the ability to sue and be sued "incident to the winding up of its affairs". The trial court distinguished cases at footnote 26 on a factual basis when the dissolved corporation sought a receiver but did not have any demonstrable assets.

The Court of Chancery reasoned that the protection for former shareholders, officers and directors that animated the three-year cutoff period in Section 278 would not be disturbed here because the receiver would not have any authority to pursue claims against them. Moreover, AmeriPride confirmed that it was not seeking any claims againts those former constituents of the dissolved corporation.
 

 

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on June 24, 2010 (boomark / email).