Gymboree Group, Inc. Prevails Against Deutsche Bank

An O’Hagan Meyer trial team led by Jim Cosby and Brandon Sieg represented Gemstone Solutions Group, Inc. (f/k/a Gymboree Group, Inc.), seven corporate affiliates, and three individuals from the company and its reorganization consultants, in a case brought against the defendants by Deutsche Bank Trust Company Americas.

Deutsche Bank brought claims for breach of trust, aiding and abetting, conversion and civil contempt, on its own behalf and on behalf of noteholders.  The claims were based on actions occurring in connection with the debtors’ first bankruptcy filed in 2017.  The debtors’ Joint Plan of Reorganization required the companies to fund a reserve account for the benefit of unsecured creditors, to be distributed through a claims resolution process. Deutsche Bank held the largest claim, and was a trustee for noteholders who also held such claims.  The companies initially complied with this plan requirement, however, the remainder of funds held in the reserve account were transferred to a separate account and used for general operating purposes, to facilitate a “soft landing” into the debtors’ second Chapter 11 case filed in January 2019. Deutsche Bank filed its Complaint on August 6, 2019, and the case proceeded as an Adversary Proceeding, Case No. 19-03071.

On the last day dispositive motions could be filed before trial, Deutsche Bank moved for partial summary judgment on one count, seeking civil contempt against all defendants on the theory that the disbursement of funds was in violation of the order confirming the 2017 Plan.  We responded on behalf of all defendants by filing a cross-motion for summary judgment on the same count, and also by renewing a prior motion to dismiss all counts under Rule 12(b)(6) which the court had taken under advisement, and an additional request for our motion to dismiss to be ruled on according to a Summary Judgment standard, citing authority from the U.S. Court of Appeals for the Fourth Circuit.

After considering all arguments, the court denied Deutsche Bank’s motion for partial summary judgment, and granted Defendants’ cross-motion for partial summary judgment, granted the renewed motion to dismiss all counts, and entered final judgment on all counts, in favor of all defendants, by Memorandum Opinion.  The opinion can be found here.  The case is currently on appeal to the U.S. District Court.