Compass Lexecon Client Yucaipa Companies Prevails in Breach of Duty and Damages Bankruptcy Trial

Court Repeatedly Cites and Relies Upon Testimony of Compass Lexecon President Professor Daniel R. Fischel

Following a seven-day trial in March 2022, Judge Christopher S. Sontchi of the United States Bankruptcy Court for the District of Delaware on May 2, 2022, ruled in favor of Compass Lexecon’s client Yucaipa Companies. The case involved claims by the litigation Trustee for Allied Systems Holdings Inc.'s estate that Yucaipa’s wrongful conduct had constituted a breach of fiduciary duty that harmed Allied and its creditors and resulted in damages of over $200 million.

The Court criticized Yucaipa’s conduct but nevertheless held that “the Trustee has failed to meet her burden of establishing a reasonable basis for her claimed damages,” that “the Trustee’s damages are purely speculative,” and that the Trustee’s expert’s “opinions and conclusions [were] based upon unsupportable and arbitrary assumptions, rendering his opinions unreliable and not credible.”

Judge Sontchi extensively cited Compass Lexecon President Professor Daniel R. Fischel’s testimony which explained why the Trustee’s expert’s damages analysis was fundamentally flawed. The court agreed with Professor Fischel that it was unreasonable for the Trustee’s expert to have relied upon a preliminary term sheet to calculate damages because the Trustee’s expert had ignored conditions precedent that were not satisfied and had not conducted any analysis of whether the buyer could have raised additional debt to close a transaction (including any financial analysis or the risk-rating of the buyer’s existing debt at the time). Judge Sontchi also cited Fischel’s testimony that the Trustee’s assumption that the buyer would purchase the first lien creditors’ debt at face value was unreliable because it bore no relation to the actual market trading prices of that debt.

Compass Lexecon worked closely with Patricia Glaser and Gali Grant of Glaser Weil Fink Howard Avchen & Shapiro LLP and Maxim Litvak, Gabriel Glazer, and Steven Kahn of Pachulski Stang Ziehl & Jones LLP who successfully represented Yucaipa. Professor Fischel was assisted by a Compass Lexecon team that included Rajiv Gokhale, Cliff Ang, Avisheh Mohsenin, and Andrew Linde.