Background
Boomerang Tube, LLC manufactured specialized steel tubing for oil and gas customers. After emerging from bankruptcy in 2016, it remained controlled principally by funds managed by Black Diamond Capital Management, L.L.C., which also held much of its secured debt. Boomerang later suffered substantial losses, exhausted its available credit, and defaulted on invoices for approximately $7.35 million in steel products purchased from ArcelorMittal entities. Cleveland-Cliffs Inc. subsequently acquired ArcelorMittal and assumed its rights under those invoices.
After Boomerang defaulted under its secured credit agreement, the collateral agent conducted an Article 9 sale of Boomerang’s personal property. PTC Liberty Tubulars, LLC purchased that property for $16.5 million. Separate foreclosure sales later transferred Boomerang’s Liberty and Houston real estate. The plaintiff Cleveland-Cliffs entities sued Boomerang, Black Diamond, and PTC Liberty seeking payment of the unpaid invoices. Black Diamond was dismissed before trial, and a default judgment was entered against Boomerang. Following a three-day trial, the remaining issues were whether the Article 9 sale was a fraudulent transfer under the Delaware Uniform Fraudulent Transfer Act and whether PTC Liberty was liable as Boomerang’s successor.
The Court’s Holding
The court entered judgment for PTC Liberty on all counts. The fraudulent-transfer claim failed at the threshold because the personal property sold was not an “asset” under DUFTA. The property was encumbered by approximately $126.4 million in valid liens, exceeding even Cleveland-Cliffs’ asserted valuation of $104.7 million. The court declined to disregard or reallocate the liens and rejected Cleveland-Cliffs’ effort to collapse the Article 9 sale with the later real-estate foreclosures, which were separate, independently conducted transactions involving different property and legal regimes.
The successor-liability claim also failed. PTC Liberty was not a mere continuation of Boomerang because there was no proven overlap in officers, only limited director overlap, materially different ownership, and continued post-sale existence by Boomerang. PTC Liberty also changed management, vendors, branding, processes, and corporate culture, and expressly declined to assume Boomerang’s liabilities. The fraud exception did not apply because Boomerang did not conduct the Article 9 sale, and Cleveland-Cliffs failed to prove that Black Diamond exercised the functional control over Boomerang necessary to impute an allegedly fraudulent intent to it.
Key Takeaways
- Property is not an “asset” under DUFTA to the extent valid liens exceed its value, preventing a fraudulent-transfer claim at the threshold.
- Separate personal-property and real-estate dispositions will not be collapsed absent evidence that they were interdependent parts of a single transaction.
- Delaware’s mere-continuation exception focuses on continuity of the corporate entity, not merely continuation of similar business operations.
Why It Matters
The decision underscores the difficulty unsecured creditors face when challenging a secured-creditor sale involving fully encumbered property. Irregular-looking circumstances surrounding a sale—including holiday notice and a compressed bidding schedule—do not establish a DUFTA claim when the transferred property falls outside the statute’s definition of an asset.
It also confirms Delaware’s narrow approach to successor liability. A purchaser’s use of the predecessor’s assets or operation of a similar business is insufficient without the required continuity of ownership, management, and corporate identity or proof that the transfer was intended to escape liability.