Summary:
Schletter, Inc., a Delaware-incorporated solar racking manufacturer based in Shelby, NC, lost market competitiveness when its FS Uno system fell behind the competition. CEO Dennis Brice, after months of analysis and with approval from its German parent company, launched a new “G-Max” product intended to be cheaper, lighter, and easier to install. To meet aggressive delivery deadlines in contracts with steep liquidated damages, development was rushed, no testing was performed, costs and production capacity were misjudged, and customers struggled with installation. The product rollout failed, customer claims mounted, and Brice was terminated in 2017.
Schletter filed Chapter 11 in 2018. Post-confirmation, Plan Administrator Carol Black sued Brice for breach of fiduciary duty under Delaware law, arguing he acted for the benefit of the German parent (continuing licensing fees) rather than the debtor, and that ignoring “red flags” about the G-Max launch constituted a Caremark oversight breach. The bankruptcy court granted summary judgment for Brice, applying the business judgment rule.
On appeal, the district court affirmed:
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Wholly-owned subsidiary status – Under German corporate practice, the unissued 5% treasury shares didn’t change that Schletter Germany held 100% of outstanding stock. Brice’s fiduciary duty was to the parent, so licensing fee decisions could not be a loyalty breach.
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No Caremark claim – Alleged “red flags” (lack of testing, risky contract terms, inadequate capacity) were hindsight critiques of business risk, not evidence of knowing illegality or bad faith.
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Business judgment rule applied – The decision to launch G-Max was a rational attempt to address competitive decline, and nothing rebutted the presumption of good faith.
Because the business judgment rule shielded Brice, the court did not address his indemnification clause defenses.
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