The former board of Aegean Marine Petroleum Network Inc., once the world’s top independent fuel supplier, doesn’t have to face claims that it looked the other way while its ex-CEO, Greek shipping tycoon Dimitris Melissanidis, defrauded the company out of $300 million, a Manhattan federal judge ruled.
“Plaintiff concedes that the company’s board of directors maintained an audit committee of independent directors, and that the audit committee, for the life of the company, retained Deloitte and PwC,” Judge Naomi Reice Buchwald wrote Wednesday.
“While plaintiff contends that this system was neither ‘adequate’ nor ‘appropriate,’ he does not dispute its existence,” Buchwald said.
That’s all that’s required under Delaware law, which governs the case because the Republic of the Marshall Islands, where Aegean is incorporated, explicitly adopted it, the judge found.
The lawsuit was filed in the U.S. District Court for the Southern District of New York by Aegean’s bankruptcy trustee after the massive alleged fraud by Melissanidis—nicknamed “The Tiger” within the shipping industry—drove the company from the New York Stock Exchange to insolvency.
The trustee styled the suit’s oversight allegations as breaches of the fiduciary duties of care and loyalty.
But they’re really only disloyalty claims, Buchwald found Wednesday. The suit fails to allege the sort of mismanagement, or “uninformed business decisions,” that constitute breaches of the duty of care, she said.
Under the leading Delaware case on director oversight failures, In re Caremark, a corporate board is only liable if it fails, in bad faith, to put in place any systems for monitoring the company’s legal risks, the judge said. Merely doing “a poor job” doesn’t rise to that level, she noted.
That’s why the state’s top court has “repeatedly characterized” a Caremark claim as “possibly the most difficult theory in corporation law” for a plaintiff, Buchwald said.
And it’s the reason the existence of a functioning audit committee dooms the bankruptcy trustee’s claims, she found.
The judge also rejected the trustee’s bid to get around Caremark by avoiding the application of Delaware law altogether.
His legal expert “does not even attempt to explain how his opinion” can be harmonized with “the plain language” of the Marshall Islands’ corporation statute, “which affords preeminence to Delaware law,” Buchwald said.
“Nor does he articulate how the court would determine which state’s laws would apply, if not Delaware’s,” she wrote.
The trustee was represented by Reid Collins & Tsai LLP. The board was represented by Patterson, Belknap, Webb & Tyler LLP, Sher Tremonte LLP, Cohen & Gresser LLP, and Shapiro Arato Bach LLP.
The case is Kravitz v. Tavlarios, S.D.N.Y., No. 19-cv-8438, 7/8/20.