Spizz v. Eluz (In re Ampal-American Isr. Corp.)

543 B.R. 464

In re: Ampal–American Israel Corp., Debtor.

Alex Spizz, as Chapter 7 Trustee for Ampal–American Israel Corp., Plaintiff,

v.Irit Eluz, Yehuda Karni, Menahem Morag, Daniel Vaknin and Revital Degani, Defendants.

Case No. 12–13689 (SMB)

Adv. Proc. No. 14–02110 (SMB)

United States Bankruptcy Court, S.D. New York.

Signed January 5, 2016

Troutman Sanders LLP, Special Litigation Counsel to the Chapter 7 Trustee, The Chrysler Building, 405 Lexington Avenue, New York, NY 10174, John P. Campo,

Esq., J. David Dantzler, Jr., Esq., Of Counsel

Cole, Schotz, Meisel, Forman & Leonard, P.A., Attorneys for Defendant Irit Eluz, 900 Third Avenue, 16th Floor, New York, NY 10022, Michael D. Sirota, Esq., Steven L. Klepper, Esq., Of Counsel

Clarick Gueron Reisbaum LLP, Attorneys for Defendants Revital Degani, Yehuda Karni, Menahem Morag and Daniel Vaknin, 220 Fifth Avenue, 14th Floor, New York, NY 10001, Nicole Gueron, Esq., Isaac B. Zaur, Esq., Sarah Louise Bishop, Esq., Of Counsel

MEMORANDUM DECISION GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS

STUART M. BERNSTEIN, United States Bankruptcy Judge:

The chapter 7 trustee (the "Trustee") of the debtor, Ampal–American Israel Corporation ("Ampal"), commenced this adversary proceeding against Irit Eluz, Ampal's former Chief Financial Officer, and Revital Degani, Yehuda Karni, Menahem Morag and Daniel Vaknin, Ampal's former independent directors (the "Independent Directors," and collectively with Eluz, the "Defendants"), alleging breach of fiduciary duty. Eluz and the Independent Directors filed separate motions to dismiss. For the following reasons, the Court grants the Independent Directors' motion to dismiss and grants Eluz's motion in part.

BACKGROUND

The facts are derived from the well-pleaded allegations in the Complaint, dated August 27, 2014 ("Complaint ") (ECF Doc. # 1), and other information that the Court may consider on a motion to dismiss for failure to state a claim. In addition, at oral argument, the Trustee agreed that the Court could also consider the minutes of the meetings of Ampal's Board of Directors (the "Board") or of the Special Committee of independent directors (the "Committee") referred to in the Complaint . (Transcript of hearing held on Mar. 3, 2015 ("Tr."), at 47:2–14 (ECF Doc. # 19).)

Ampal is a corporation organized under the laws of the State of New York with its principal place of business in Herzliya, Israel. (¶ 4.)¹ From its inception, Ampal acted as a holding company that invested in various businesses in the State of Israel. (¶ 12.) In or around 2002, Yosef Maiman acquired a majority interest in Ampal. (¶ 13.) At the time, Maiman was also conducting business through another Israeli corporation, Merhav (M.N.F.) Ltd. ("MNF"). (¶ 14.) Following his acquisition of a majority stake in Ampal, Maiman became a director of Ampal and the Chairman of the Board. (¶ 15.) Maiman also "installed" former employees of MNF in management positions at Ampal, including Irit Eluz, who had been a junior executive at MNF. (¶ 16.) At all relevant times, Eluz was the Chief Financial Officer, Senior Vice President, and Treasurer of Ampal.² (¶ 7.) In 2006, Maiman became the President and Chief Executive Officer of Ampal and maintained that position up through the commencement of Ampal's bankruptcy case. (¶ 17.)

In or about 2005, Maiman proposed that Ampal purchase a portion of MNF's interest in East Mediterranean Gas Company, S.A.E. ("EMG"), an Egyptian company that was constructing a natural gas pipeline across the Sinai Peninsula to Israel. (¶ 20.) Because it was a "related party transaction" under the New York Business Corporation Law, the deal had to be approved by the "disinterested" members of the Board. (¶ 21.) Consequently, the Board formed the Committee, which initially consisted of Karni, Morag, and Eitan Haber.³ (¶ 22.) The Committee was assisted by Bryan Cave LLP ("Bryan Cave"), its legal counsel, and Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey"), its financial advisor. (¶¶ 23–24.) Based on the advice of Bryan Cave and Houlihan Lokey, the Committee recommended, and the Board approved, the purchase of MNF's interest in EMG. (¶ 25.) Subsequent to the transaction, the Committee continued as a standing committee of the Board. (¶ 26.)

A. The Management Agreements

In February 2009, the Committee reviewed and considered a proposed Management Service Agreement (the "2009 Agreement") with MNF. (¶ 28.) The Committee was composed of Karni, Morag, and Vaknin at this time.⁴ (¶ 29.) Eluz informed the Committee at a meeting held on February 15, 2009, that the purpose of the agreement was to compensate MNF for managing several of Ampal's projects. (Id. ; Minutes of a Meeting of the Special Committee of Ampal–American Israel Corporation Held on February 15, 2009 ("Feb. 2009 Minutes "), at 1.)⁵ Eluz further explained that there was no prior agreement providing compensation for MNF's services, although the parties had discussed entering into a long term management agreement in 2008. (¶¶ 30–31; Feb. 2009 Minutes at 1.) MNF had originally asked for 20 million NIS as compensation, but Eluz explained that the parties had negotiated an annual management fee of 10 million NIS payable in quarterly installments, which the parties deemed to be fair. (¶¶ 32–33; Feb. 2009 Minutes at 2.) Eluz also stated that Ampal's management would "monitor" the compensation paid to MNF in accordance with "detailed reports" submitted quarterly by MNF. If necessary, the compensation might be altered. (¶ 34; Feb. 2009 Minutes at 2.)

Following the briefing from Eluz, the Committee approved the 2009 Agreement in principle. It specified in its resolutions that the agreement should require MNF to cover its own expenses and permit Ampal to terminate the contract on 30 days' notice without cause. (¶ 36.) The Committee also resolved to re-convene to "discuss and approve" the 2009 Agreement once the parties reached an understanding on its final terms. (Feb. 2009 Minutes at 3.) The Committee did not consult with its advisors prior to approving the 2009 Agreement. (¶ 37.) Neither Eluz nor the other members of Ampal's management monitored the services provided by MNF or advised the Committee on any changes to the scope, nature or extent of the services during 2009 and the first eleven months of 2010. (¶ 38.)

At a meeting of the Committee on December 19, 2010, Eluz informed the Committee that she had reviewed MNF's activities over 2010 and concluded that the compensation provided by the 2009 Agreement was "inadequate." (¶ 39; Minutes of a Meeting of the Special Committee of Ampal–American Israel Corporation Held on December 19, 2010 ("Dec. 2010 Minutes "), at 3.)⁶ The Committee, then composed of Karni, Vaknin and Morag, (¶ 40), approved in principle a new Cooperation and Management Agreement (the "Superseding Agreement") to replace the 2009 Agreement, effective retroactively to January 1, 2010. (¶ 40; Dec. 2010 Minutes at 4.)

The Superseding Agreement was executed on December 30, 2010.⁷ The Superseding Agreement recounted MNF's "extensive expertise and experience in project development, management and financing, particularly infrastructure and energy projects." (Superseding Agreement at 1.) Unlike the 2009 Agreement, which provided for the payment of a flat fee and required MNF to cover its own expenses, the Superseding Agreement provided that Ampal would pay MNF's fee⁸ based on a percentage of its Ampal-related expenses as determined by the Committee at or near the end of the year. MNF was required to present its expenses, and the parties agreed to review the fee in good faith and "make such adjustments as they agree may be reasonably appropriate in light of the work performed or to be performed by [MNF]." (Id. at 2.) Finally, the Committee determined, and MNF agreed, that the fee for 2010 would be 24,157,000 NIS. (Id. ) The Committee did not consult with its advisors before approving the 2010 Agreement. (¶ 44.)

During 2011, Ampal continued to pay MNF at the same rate, (¶ 46), despite the Committee's failure to review, evaluate, negotiate or approve the 2011 compensation as required under the Superseding Agreement. (See ¶¶ 46, 87.) In addition to management fees, Ampal also paid "consulting" fees to MNF in the amounts of 4,500,000 million NIS and 5,539,500 NIS in 2010 and 2011, respectively. The Committee did not consider or approve the payment of the "consulting" fees. (¶ 47.)

B. The Colombia Ethanol Project and the MNF Loan

At a meeting of the Board on August 9, 2007, Eluz advised the Board that MNF was developing an ethanol production project in Colombia (the "Project"). (¶ 48.) At a subsequent meeting on November 15, 2007, the Board, relying on the recommendation of the Committee, approved a $20 million loan to MNF (the "Loan"), maturing on December 31, 2008. The deal also included an option (the "Option") for Ampal to purchase a 35% interest in the Project from MNF once MNF obtained the necessary bank financing for the Project. (¶ 49.) The Loan was secured by a pledge of MNF's stock in Ampal. (¶ 50.) The Committee received a "fairness opinion" from Houlihan Lokey for the purposes of its review of the transaction. (¶ 51.)

At a meeting on November 5, 2008, Maiman informed the Board that MNF was unlikely to obtain bank financing for the Project in the first half of 2009 due to the "world financial situation." (¶ 53.) The Committee considered an extension of the maturity date of the Loan at a meeting on December 4, 2008. Eluz informed the Committee that MNF was working toward closing on bank financing in May 2009 but that a delay of six months was also possible. (¶ 54.) Relying on advice from Houlihan Lokey, the Committee approved a one year extension of the maturity date to December 31, 2009. In return, Ampal received a personal guaranty from Maiman and the right to negotiate for the Option to provide a greater share of the equity in the Project. (¶ 55.)

As the maturity date neared, the...