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RSL Communications PLC v. Bildirici

September 14, 2006


The opinion of the court was delivered by: Kenneth M. Karas, District Judge


Plaintiff RSL Communications, Plc. ("RSL Plc") brings this action against the former members of its board of directors, alleging that they breached their fiduciary duties to RSL Plc itself, as well as to RSL Plc's creditors, during the decline of the international telecommunications market at the turn of the millennium. Defendants move to dismiss on the grounds that they did not breach their fiduciary duties, or, in the alternative, that any alleged breach was not the cause of the damages Plaintiff incurred. For the reasons set forth below, Defendants' Motion is DENIED.

I. Background

A. Factual History

For the purposes of deciding this motion, the following facts alleged in the Complaint are taken as true. In 1994, Defendants Ronald S. Lauder and Itzhak Fisher founded RSL Communications, Ltd. ("RSL Ltd"), a multinational telecommunications corporation. (Compl. ¶ 23) RSL Ltd was the parent company for a group of subsidiaries operating in the telecommunications industry ("RSL Group"). (Id. ¶ 23) At its peak, RSL Group provided voice, mobile, data/internet, and value-added services to small and mid-sized businesses and residential customers in twenty-two countries. (Id. ¶ 23)

Plaintiff RSL Plc was a non-operating finance subsidiary of RSL Ltd, formed in 1996 in the United Kingdom under the English Companies Act of 1985. (Id. ¶ 24) RSL Plc was to be the named borrower for note financings, the proceeds of which would be distributed to the other subsidiaries within RSL Group. (Id. ¶ 25) RSL Plc also acted as an intermediate, passive holding company between RSL Ltd and the rest of RSL Group, and was itself the holding company for the RSL Group's European subsidiaries. (Id. ¶ 25) Although RSL Plc was a British corporation, all decisions regarding RSL Plc were made by RSL Ltd executives and directors in RSL Ltd's New York City offices. (Id. ¶¶ 13, 24, 27)

From 1996 to February 2000, RSL Plc raised $1.4 billion of public debt through nine series of senior bond issues. (Id. ¶ 26) These bonds were issued out of New York under indentures governed by New York law. (Id. ¶ 27) On February 22, 2000, the last of these bonds was issued, including $100 million and €100 million in 12 and 7/8 percent (12.875%) senior notes due in 2010 ("February 2000 Bonds"). (Id. ¶ 26) These February 2000 Bonds were guaranteed by RSL Ltd and RSL COM U.S.A., Inc. (RSL USA), the United States operating subsidiary of RSL Group and an indirect subsidiary of both RSL Plc and RSL Ltd. (Id. ¶ 26) RSL Ltd and RSL USA also retroactively guaranteed RSL Plc's other issued bonds in February 2000. (Id. ¶ 27)

At the end of the first quarter of 2000, RSL Ltd had approximately $310 million in available cash. (Id. ¶ 36) In March 2000, RSL Ltd formulated a business plan in which it would obtain additional funding through an initial public offering ("IPO") of the Group's Australian subsidiary and through the sale of shares in another subsidiary. (Id. ¶ 32) However, only two months later, in May 2000, RSL Group cancelled the planned IPO of the Australian subsidiary, causing the Group to forego $200 million in anticipated funding. (Id. ¶ 38) In June 2000, Goldman Sachs warned RSL Ltd that RSL Group would run out of cash by November 2000 if additional funds were not obtained. (Id. ¶ 40) In July 2000, Defendant Lauder provided a further unsecured $100 million line of credit to RSL Plc, guaranteed by RSL Ltd, and approved by the RSL Ltd Board. (Id. ¶ 44) RSL Plc's Board did not hold a formal meeting to approve the undertaking of the Lauder loan. (Id. ¶ 45) In August 2000, RSL Plc drew down $25 million from the Lauder loan. (Id. ¶ 45)

Though no RSL Plc board meeting took place in August 2000, some of the Defendants composed and executed minutes for a RSL Plc board meeting to accept director resignations. (Id. ¶¶ 60-61) In fact, no RSL Plc board meetings were held from March to November 2000. (Id. ¶ 60) RSL Ltd also did not hold board meetings from July 2000 through early November 2000. However, on November 7, 2000, RSL Ltd's Board met, retained restructuring advisors, and implemented strict controls on its cash flow. (Id. ¶ 49) RSL Plc's Board did not meet at this time. (Id. ¶ 49)

By the end of 2000, RSL Group had less than $80 million in cash. (Id. ¶ 50) On March 14, 2001, RSL Plc held its first board meeting in a year. (Id. ¶ 62) Five days later, on March 19, 2001, RSL Ltd commenced insolvency proceedings in Bermuda, where it had been incorporated since 1996, and RSL Plc made an application to the High Court of Justice of England and Wales for the appointment of joint administrators. (Id. ¶¶ 53-54) Both RSL USA and RSL COM Primecall, Inc., a wholly owned subsidiary of RSL USA, filed Chapter 11 petitions in the United States Bankruptcy Court on March 16, 2001. (Id. ¶ 53)

Pursuant to orders of the High Court of Justice in England and Wales, Steven Anthony Pearson, Peter Norman Spratt, and Neville Barry Kahn were appointed joint administrators of the estate of RSL Plc, then in administration under the United Kingdom Insolvency Act of 1986. (Id. ¶¶ 14, 54) Kahn resigned as a joint administrator in 2002. (Id. ¶ 14) On February 19, 2003, Spratt (who was replaced by Michael John Andrew Jervis on June 24, 2003, pursuant to an order of the High Court of Justice of England and Wales (Id. ¶ 14)) and Pearson commenced a case ancillary to a foreign proceeding by filing a petition for discovery pursuant to 11 U.S.C. § 304 with the United States Bankruptcy Court for the Southern District of New York. (Id. ¶ 15) Pursuant to an Order of the Bankruptcy Court, Plaintiff was able to obtain limited discovery, including a deposition of Defendant Nesim Bildirici. (Id. ¶ 15)

B. The Defendants

Defendant Nesim Bildirici was a member of RSL Plc's Board of Directors at all times relevant to this action and is a New York resident. (Id. ¶ 16) Defendant Itzhak Fisher, a New York resident, was a Board member of RSL Plc from the beginning of the time period relevant to this action until August 21, 2000, (Id. ¶ 18) at which point Defendant Paul Domorski, a resident of New Jersey, replaced him and remained a Board member through the remainder of the time relevant to this action. (Id. ¶ 17) Defendant Steven Schiffman, a resident of Connecticut, joined RSL Plc's board of directors on August 21, 2000 and remained on the Board for all times relevant to this action. (Id. ¶ 20) Defendants Ronald S. Lauder, Jacob Schuster, and Eugene Sekulow were all Board members of RSL Plc, and are all New York residents. (Id. ¶¶ 19, 21, 22) Defendants Ronald S. Lauder, Itzhak Fisher, Jacob Schuster, and Eugene Sekulow were simultaneously directors of both RSL Plc and RSL Ltd. (Id.)

II. Discussion

A. Standard of Review

All Defendants in this action bring a Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6). "The function of a motion to dismiss 'is merely to assess the legal feasibility of the complaint . . . .'" Ryder Energy Dist. Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)). Thus, the Court should not grant the motion unless no facts could be proved by Plaintiff which would entitle Plaintiff to relief. See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). Review of such a motion requires the Court to accept as true Plaintiff's allegations in the Complaint, and draw all inferences in favor of Plaintiff. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 ...

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