The attached PDF is a 23-page legal opinion issued by the U.S. Bankruptcy Court for the District of Delaware in an adversary proceeding related

The attached PDF is a 23-page legal opinion issued by the U.S. Bankruptcy Court for the District of Delaware in an adversary proceeding related

the bankruptcy case of Furniture Factory Ultimate Holding, L.P. ("FFO"). The opinion addresses two motions to dismiss filed by the defendants seeking to dismiss various counts asserted against them in

the plaintiff's amended complaint. The key points from the opinion are:

• The plaintiff, Steven Balasiano, is the trustee of the liquidation trust formed as part of FFO's chapter 11 bankruptcy plan.
• FFO was a furniture retailer owned and controlled by private equity firm Sun Capital. The plaintiff alleges Sun Capital caused FFO's bankruptcy through an improper acquisition and self-dealing transactions.
• Counts 1-3 assert breach of fiduciary duty claims against FFO's former directors and officers ("D&Os") related to the acquisition and insider transactions with Sun Capital. The court denies the D&Os' motion to dismiss these counts.
• Counts 4-6 assert aiding and abetting breach of fiduciary duty claims against Sun Capital entities. The court denies the motion to dismiss, finding the trustee adequately alleged Sun Capital's knowing participation.
• Count 7 seeks to recharacterize Sun Capital's debt as equity. The court denies dismissal, finding sufficient factors alleged to make recharacterization plausible.
• Count 8 seeks equitable subordination of Sun Capital's claims. The court denies dismissal, finding sufficient inequitable conduct pleaded.
• Count 10 asserts wrongful distribution under Delaware law against Sun

Capital. The court grants dismissal because Sun Capital was not a member of FFO's LLCs.

• Count 11 asserts breach of FFO's LLC agreements by the D&Os. Dismissed

in part because Sun Capital was not a member, but survives as to distributions to a non-member. In summary, the court allows most of the trustee's claims to proceed past the pleading stage against both the D&Os and Sun Capital defendants. The case will now proceed to discovery and further litigation.

The court denied the D&Os' motion to dismiss Count 1 against them for breach of fiduciary duty related to the Kentucky Acquisition for the following reasons:

• Count 1 alleges the Kentucky Acquisition D&Os (Borell, Zigerelli,

Klafter, McConvery, and Rogalski) failed to inform themselves fully before approving the acquisition of two retailers in Kentucky.

• The complaint alleges these D&Os did not seek any third party advice or conduct sufficient due diligence on the acquisition.
• The complaint further alleges problems that arose after the acquisition closed, including lower than expected sales and issues integrating the acquired businesses.
• The court found these allegations sufficient at the pleading stage to state a claim for breach of the fiduciary duty of care against the Kentucky Acquisition D&Os.
• The court held the D&Os cannot assert the business judgment rule as a defense on a motion to dismiss in this case.
• Taking the allegations as true, the court found the trustee pleaded

sufficient facts to infer the D&Os breached their duty of care related to the acquisition. In summary, the court ruled the complaint plausibly alleges the Kentucky Acquisition D&Os did not exercise due care in informing themselves about the acquisition, supporting the breach of fiduciary duty claim against dismissal.

The court denied dismissal of Count 2, which alleges breach of fiduciary duty by the Transfer D&Os (Borell, Klafter, McConvery, Rogalski, Zigerelli, and Feinberg) related to certain transfers made by FFO to Sun Capital.

The key reasons the court denied dismissal are:

• Count 2 alleges these D&Os approved transfers to Sun Capital that amounted to fraudulent transfers or improper distributions.
• The complaint asserts the transfers were made when FFO was insolvent or in the zone of insolvency, solely benefitting Sun Capital.
• The court found the trustee plausibly alleged the Transfer D&Os were on "both sides" of the transactions as representatives of both FFO and Sun Capital.
• Under Delaware law, being on both sides of a transaction supports a breach of the duty of loyalty.
• The court held the trustee pleaded sufficient facts to infer the

Transfer D&Os breached their duty of loyalty by approving the transfers to Sun Capital. In summary, the court found the allegations of self-dealing transactions, approved by directors and officers who represented both sides, were adequate to state a breach of loyalty claim and deny dismissal.

The court denied dismissal of Count 3, which alleges breach of fiduciary duty by the Insider Loan D&Os (Borell, Crosby, Klafter, McConvery, Rogalski, Mullany, Zigerelli, and Feinberg) related to certain insider loans and financing provided by Sun Capital to FFO.

The key reasons for denying dismissal of Count 3 are:

• Count 3 alleges the Insider Loan D&Os allowed FFO to take on significant insider debt from Sun Capital when FFO was insolvent or nearly insolvent.
• The D&Os argued this was an improper "deepening insolvency" claim, but the court disagreed.
• The court found the trustee adequately alleged the Insider Loan D&Os did not exercise due care or loyalty by approving the insider Sun Capital loans.
• The complaint asserts FFO did not seek third-party financing and Sun

Capital was the sole beneficiary of the loans.

• This states a claim for breach of fiduciary duties separate from deepening insolvency. In summary, the court ruled the trustee sufficiently alleged the Insider Loan D&Os breached their duties by approving the insider loans with Sun Capital, allowing Count 3 to proceed.

The court denied dismissal of Counts 4, 5, and 6, which allege that Sun Capital aided and abetted breaches of fiduciary duty by the D&Os. The key reasons the court denied Sun Capital's motion to dismiss these counts are:

• The court already found plausible claims for breach of fiduciary duty in Counts 1-3 against the D&Os.
• The trustee alleges Sun Capital representatives sat on FFO's board and management team.
• The complaint asserts Sun Capital directed the D&Os' alleged breaches as FFO's controlling shareholder.
• The court held the trustee sufficiently alleged Sun Capital's "knowing participation" based on its control and shared directors with FFO.
• Taking the allegations as true, the court found it reasonable to infer

Sun Capital knew of and intentionally participated in the D&Os' breaches. In summary, because the underlying fiduciary breach claims survived dismissal and the trustee adequately pleaded Sun Capital's knowing involvement, the court denied dismissing the aiding and abetting claims against Sun Capital.

If I were advising Sun Capital, I would suggest the following to potentially avoid liability based on the allegations in the Complaint: Avoid Self-Dealing Transactions

• Refrain from engaging in transactions where Sun Capital is on both sides, to avoid any appearances of conflicts of interest or self-dealing.
• Ensure any loans or other transactions with FFO are properly documented, secured, and reflect arm's length terms.
• Require approval of material transactions by fully independent and disinterested directors/officers. Exercise Care in Making Recommendations
• Conduct thorough due diligence with experienced advisors before proposing acquisitions or large transactions.
• Refrain from pressuring FFO to undertake transactions solely for Sun

Capital's benefit.

• Provide complete and balanced information and advice to FFO.

Respect Corporate Formalities

• Allow FFO's boards and management to operate independently and make their own judgments.
• Follow appropriate corporate governance protocols for board/shareholder meetings and approvals.
• Maintain proper documentation of any loans, transactions, or material decisions. Focus on Long-Term Value Creation
• Make proposals and provide financing aimed at building long-term value, not short-term gains.
• Keep FFO's financial health and stability as a priority, not Sun

Capital's interests.

• Consider long-term effects on all stakeholders when advising FFO.

In summary, by avoiding conflicts, self-dealing, undue influence, and respecting proper processes, Sun Capital may have reduced exposure to liability based on the allegations. The key is balancing Sun Capital's valid interests with FFO's independence and needs.

If I were advising Sun Capital, I would suggest the following to potentially avoid liability based on the allegations in the Complaint: Avoid Self-Dealing Transactions

• Refrain from engaging in transactions where Sun Capital is on both sides, to avoid any appearances of conflicts of interest or self-dealing.
• Ensure any loans or other transactions with FFO are properly documented, secured, and reflect arm's length terms.
• Require approval of material transactions by fully independent and disinterested directors/officers. Exercise Care in Making Recommendations
• Conduct thorough due diligence with experienced advisors before proposing acquisitions or large transactions.
• Refrain from pressuring FFO to undertake transactions solely for Sun

Capital's benefit.

• Provide complete and balanced information and advice to FFO.

Respect Corporate Formalities

• Allow FFO's boards and management to operate independently and make their own judgments.
• Follow appropriate corporate governance protocols for board/shareholder meetings and approvals.
• Maintain proper documentation of any loans, transactions, or material decisions. Focus on Long-Term Value Creation
• Make proposals and provide financing aimed at building long-term value, not short-term gains.
• Keep FFO's financial health and stability as a priority, not Sun

Capital's interests.

• Consider long-term effects on all stakeholders when advising FFO.

In summary, by avoiding conflicts, self-dealing, undue influence, and respecting proper processes, Sun Capital may have reduced exposure to liability based on the allegations. The key is balancing Sun Capital's valid interests with FFO's independence and needs.