While at Zuckerman Spaeder, Mr. Macauley was the lead attorney for Jonathon and Stephen Aust, who were the two main officers at Network Access Solutions Corporation ("NAS") when it filed its chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware. Shortly after the filing, NAS moved to assume its employment agreements with the Austs, as amended. The Court approved the motion with the support of the Official Committee of Unsecured Creditors (the "Committee") because it preferred the Austs to a crisis manager on account of their institutional knowledge and lower cost.
After the Court confirmed NAS's liquidation plan, the Committee sued the Austs to recover payments made to them prior to the bankruptcy filing on grounds of fraudulent transfer and breach of fiduciary duty. The Austs moved to dismiss the complaint based primarily on the novel argument that assumption of their amended employment agreements precluded the Committee's causes of action.
Judge Mary Walrath viewed her prior finding - that assumption of their amended employment agreements was in the best interests of NAS - to be "too antithetical to the Committee's causes of action" to allow recovery of NAS transfers to the Austs authorized under the employment agreements. The Court did not dismiss the entire complaint, however, because of allegations that some of the NAS transfers were not authorized under the employment agreements.
Although other decisions had considered contract assumption as a bar to preference actions, this is the first decision to apply such a bar to fraudulent transfer and breach of fiduciary duty causes of action.
Judge Walrath's written opinion is reported at 330 B.R. 67 (Bankr. D. Del. 2005). Click here for a copy of the opinion.