Article

Note: ms55, Inc., formerly MSHOW.COM, Inc. (Debtor) was a technology company specializing in the development of synchronized audio and video communication over the internet and telephone during the late 1990's. Debtor's business operations were seriously damaged by the "bursting of the dot-com bubble" and it typically burned through approximately US$3,000,000 per month in investment capital by late 2000. As a result, Debtor entered into an arrangement with foreign competitor, Akamai Technologies, Inc. (Beneficiary), whereby Debtor paid Beneficiary US$3,150,000 for a customer list and license fee. Half of this amount was financed by private investor and Debtor board member; Howard H. Leach (Applicant), who guaranteed an amount of US$1,575,000 towards the obligation and had a letter of credit issued by his bank in favor of Beneficiary in that same amount. Debtor promised to reimbursement Applicant US$1,575,000 if the letter of credit was drawn on.

As Debtor's business continued to erode, it was advised by Gibson Dunn & Crutcher LLP (Defendant/law firm) on its fiduciary duties to creditors as it became insolvent. Debtor approached its largest private investors and Beneficiary for a secured "bridge loan" to allow it to continue operating, which totaled US$7,037,740. Despite its efforts, Debtor never had a profitable quarter, nor could it find a suitor to acquire it. Debtor filed under Chapter 7 (liquidation) of the US Bankruptcy Code after a failed attempt to reorganize under Chapter 11.

Bankruptcy Trustee Jeffrey L. Hill (Trustee) of Debtor sued Defendant law firm on the grounds that it aided, abetted and conspired with officers of Debtor in breaching their fiduciary duties to creditors of Debtor once Debtor became insolvent. Applying Delaware law, the United States Bankruptcy Court for the District of Colorado, Campbell, J., found that Debtor did not breach the "limited" duty it had to creditors when it became insolvent, stating that "This duty only requires officers and directors of an insolvent corporation to avoid favoring their own interests at the expense of creditors." Cases where officers and directors have breached such a duty "typically involved insiders paying themselves instead of other creditors at a time when a corporation has ceased to do business. That simply is not what [Debtor]'s officers and directors did in connection with the March 2001 bridge loans."

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