NOT PRECEDENTIAL

           UNITED STATES COURT OF APPEALS
                FOR THE THIRD CIRCUIT
                   ________________

                          No. 16-1679
                       ________________


     In re: ULTIMATE ESCAPES HOLDINGS LLC, et al,
                                 Debtors

  EDWARD T. GAVIN, Trustee of the UE Liquidating Trust,
On behalf of the Estates of Ultimate Escapes Holdings LLC, et al.,
                                           Appellants

                                v.

        JAMES M. TOUSIGNANT; RICHARD KEITH

                      ________________

          Appeal from the United States District Court
                    for the District of Delaware
             (D.C. Civil Action No. 1-15-cv-00241)
         District Judge: Honorable Richard G. Andrews
                        ________________

           Submitted Under Third Circuit LAR 34.1(a)
                       January 18, 2017

  Before: AMBRO, VANASKIE, and SCIRICA, Circuit Judges

                 (Opinion filed: March 17, 2017)
                                   ________________

                                       OPINION*
                                   ________________

AMBRO, Circuit Judge

       Edward T. Gavin, the Trustee of a Chapter 11 liquidating trust, appeals the

judgment—following a three-day bench trial—of a breach-of-fiduciary-duty lawsuit in

favor of two inside directors of an insolvent company that set up memberships relating to

high-end vacation residences and related services. The alleged breach of fiduciary duty

stems from a deal an inside director negotiated at the eleventh hour to cover a cash

shortfall. The deal, which was intended to transfer, among other things, only a limited

number of members to the bankrupt company’s direct competitor, provided the basis for

that competitor later to solicit all of the company’s members. Gavin alleges this deal

transferred the company’s most valuable asset worth up to $40 million for the paltry sum

of $115,000.

       Gavin’s appeal raises factual issues masquerading as legal challenges. Because

we review factual findings for clear error, of which there are none, we affirm.

I. Background

       Ultimate Escapes Holdings, LLC, and affiliates signed up approximately 1,250

members for its services. Ultimate Escapes (sometimes referred to simply as “UE”)

maintained a proprietary database for its information, which the company’s public filings



*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.

                                             2
valued at over $14.5 million. The membership information served as collateral for a

revolving loan by its primary lender, CapSource.         The loan was also personally

guaranteed by Appellees James M. Tousignant and Richard Keith, the company’s inside

directors.   Ultimate Escapes ran into significant financial difficulties and began

confidential merger discussions with its direct competitor, Club Holdings, LLC, whose

primary lender was also CapSource.           Ultimate Escapes’ Board, which included

Tousignant, Keith, and three outside directors, viewed a merger with Club Holdings as

the best option because CapSource would need to approve the newly formed company’s

restructured debt.   The Board authorized Tousignant and Keith to take action as

reasonably necessary to effect the merger.

       While the merger discussions continued with Club Holdings, Ultimate Escapes

continued to face financial problems.        To cover cash shortfalls, Keith contributed

$100,000 for mortgage payments and Tousignant contributed $50,000 for interest

payments. The financial difficulties continued, however, and in late July 2010 the Board

discovered that Ultimate Escapes had insufficient cash to meet payroll and other urgent

obligations due Friday, August 6. Tousignant approached CapSource for funding, but it

refused. Tousignant then asked Club Holdings for funding. It agreed to purchase one of

Ultimate Escapes’ properties, but due to unanticipated closing costs Ultimate Escapes

still needed $115,000.

       To cover this unexpected shortfall, Tousignant negotiated with Club Holdings an

agreement that forms the basis of this case. The latter provided the $115,000. In

exchange, Ultimate Escapes agreed to use its best efforts to transfer three properties and

                                              3
30 members to Club Holdings. In the membership-transfer paragraph, the Agreement

also lifted confidentiality restrictions that would be inconsistent with the membership

transfers. J.A. 9 (“UE hereby knowingly and voluntarily waives any [confidentiality]

restrictions . . . that may be construed as limiting or inconsistent with the rights of CH

under this Section. . . . UE shall in no way or manner hold CH liable for any actions with

respect to the direct solicitation of its members as set forth herein.”). At 8:30 a.m. on

Monday, August 9, Tousignant made a phone call to CapSource as a final attempt to

secure funding. When it refused, Tousignant signed the Agreement with Club Holdings

on behalf of Ultimate Escapes.      It received the $115,000 and was able to pay its

employees and cover other urgent expenses that afternoon.

       Later that month, Ultimate Escapes started to doubt whether the merger would

happen, so it began seeking bidders for its assets. In September, its bidding agent

accidently sent Club Holdings an email that discussed potential bidders. Alerted that

Ultimate Escapes was pursuing alternatives to a merger, Club Holdings began mass-

soliciting Ultimate Escapes’ members. Ultimate Escapes sent a cease-and-desist letter,

but Club Holdings responded that the Agreement permitted solicitation.

       Ultimate Escapes then filed for Chapter 11 bankruptcy and sought to reject the

Agreement as an executory contract1 and requested a temporary restraining order


1
  “An executory contract is a contract under which the obligation[s] of both the bankrupt
and the other party to the contract are so far underperformed that the failure of either to
complete performance would constitute a material breach excusing the performance of
the other.” In re Exide Techs., 

, 962 (3d Cir. 2010), as amended (June 24,
2010) (citation and quotation marks omitted). A debtor may, with the court’s permission,
reject an executory contract in bankruptcy. 11 U.S.C. § 365.
                                             4
enjoining solicitation of its non-transferred members by Club Holdings. The Bankruptcy

Court allowed the company to reject the executory contract but denied the TRO, as it

concluded that the Agreement likely permitted Club Holdings to solicit Ultimate

Escapes’ members.      The confirmed liquidation plan transferred all assets into a

liquidating trust and Gavin was appointed Trustee.       He then brought suit against

Tousignant and Keith for breaching their fiduciary duties to Ultimate Escapes in

executing the Agreement on its behalf.

       Following a three-day bench trial, the Bankruptcy Court filed its Proposed

Findings of Fact and Conclusions of Law in recommending that the District Court enter

judgment in favor of Tousignant and Keith. Gavin filed objections, and the District

Court, after conducting a fresh review of the record, overruled the objections. This

appeal followed.

II. Jurisdiction and Standard of Review

       The Bankruptcy Court and District Court had jurisdiction under 28 U.S.C. §§ 157

and 1334, and we have jurisdiction under 28 U.S.C. §§ 158 and 1291. We review the

District Court’s legal conclusions without any presumption of correctness and its factual

findings for clear error. See Copelin v. Spirco, Inc., 

, 180 (3d Cir. 1999)

(citing 28 U.S.C. § 157).

III. Analysis

       Gavin primarily argues that entire fairness instead of business judgment review

should apply because Tousignant and Keith were either interested parties with conflicts

or grossly negligent. The flaw underlying all Gavin’s arguments is his use of hindsight.

                                           5
He would have us analyze the fiduciary breach because of an after-the-fact result: that

over a month after the Agreement’s execution Club Holdings was tipped off that the

merger no longer might go through, decided to mass-solicit customers, and relied on

opaque language in the Agreement to justify doing so.          Regardless of the eventual

outcome, we judge a fiduciary’s actions based on what he reasonably knew at the time he

acted.    See, e.g., Chen v. Howard-Anderson, 

, 665 (Del. Ch. 2014)

(“Fiduciary decisions are not judged by hindsight. The defendants’ actions must stand or

fall based on what they knew and did at the time.”).

         A. Business Judgment Rule or Entire Fairness

         The business judgment rule is Delaware’s default standard of review for a business

decision. It presumes that the directors “acted on an informed basis, in good faith and in

the honest belief that the action taken was in the best interests of the company.” In re

Trados Inc. S’holder Litig., 

, 43 (Del. Ch. 2013) (quotation marks and

citations omitted). A director’s decision is upheld if it has any rational basis.        

a director breaches a fiduciary duty to the entity, such as the duty of loyalty

or of care, the court applies the entire fairness standard. See 

Under this

standard, the director must prove “that the transaction was the product of both fair

dealing and fair price.”      

original) (quotation marks and citation

omitted).2


2
 In the alternative, Gavin argues that an intermediate level of review, enhanced scrutiny,
should apply. As the Bankruptcy and District Courts correctly ruled, however, enhanced
scrutiny does not apply because the Agreement did not cause a change in control and was
not a merger agreement, or any other specific, recurring, and readily identifiable situation
                                             6
       The Bankruptcy Court and District Court ruled that Gavin failed to carry his

evidentiary burden to rebut the presumption that the business judgment rule applied. See

In re Walt Disney Co. Derivative Litig., 

, 747 (Del. Ch. 2005), aff’d, 

(Del. 2006). Gavin argues that either the conflict of Tousignant and Keith or

their gross negligence calls for entire fairness review.

              1. Interestedness

       Gavin asserts that, “because he alleged interestedness, the trial court was first

required to examine whether Appellees Tousignant and Keith stood to gain a material

potential benefit or avoid a potential detriment from the challenged transaction . . .” App.

Repl. Br. 9. This misstates Delaware law. See Trados 

–52 (“At the

pleadings stage, Chancellor Chandler recognized that it was reasonably conceivable that

the VC directors faced a conflict of interest. . . . At trial, the plaintiff had the burden to

prove on the facts of this case, by a preponderance of evidence, that [they were

interested].”) (citation omitted). At any rate, the Bankruptcy and District Courts found

that Tousignant and Keith were not interested despite Gavin’s characterization that “the

District Court short-circuited the analysis and effectively assumed [they] were

disinterested and independent.” App. Repl. Br. 9-10.




in which Delaware law requires enhanced scrutiny. See Reis v. Hazelett Strip-Casting
Corp., 

, 457 (Del. Ch. 2011). Although one of the Agreement’s purposes
was to keep the company in business to facilitate a later merger, it was not a merger
agreement and contemplated no change in control. It was also not a sale of the company,
as it only intended to transfer 30 members.

                                              7
       In addition, Gavin mischaracterizes the Bankruptcy and District Courts’ decisions

as failing to take into account whether Tousignant and Keith were materially interested in

the Agreement. Delaware law requires that “the benefit received by the director and not

shared with stockholders must be ‘of a sufficiently material importance, in the context of

the director’s economic circumstances, as to have made it improbable that the director

could perform her fiduciary duties . . . without being influenced by her overriding

personal interest.’” 

(alteration in original) (citations omitted). The

Bankruptcy and District Courts found that Tousignant and Keith were not materially

interested in the Agreement. We agree: they gained no personal benefit from the transfer

of the 30 membership interests nor from the provision on which Club Holdings

eventually relied to justify mass solicitation of Ultimate Escapes’ clients.

       Gavin nonetheless contends that Tousignant and Keith were materially interested

because the Agreement would allow Ultimate Escapes to meet payroll and stay in

business, thus increasing chances of a future merger with Club Holdings. And if the

merger went through, Tousignant and Keith would have a better chance of 1) being

repaid their cash advances and relieved of personal guarantees, 2) remaining in similar

positions and commensurate salary at the new company, and 3) avoiding civil and

criminal liability for missing the August 6 payroll.

       We see no clear error in the finding that these alleged benefits—including an

increased chance of a merger with Club Holdings that might advantage Tousignant and

Keith more than other stakeholders—did not have a material influence on the decision to

enter the Agreement. The record shows that Keith was not involved in it; at most, he had

                                              8
general knowledge of the Agreement but did not know of the specific provision that

allowed solicitation of Ultimate Escapes’ members. As to Tousignant (who negotiated

the Agreement), the Board still thought a merger with Club Holdings was the best option,

and Tousignant’s actions were entirely consistent with the Board’s planned course of

action. Tousignant also credibly testified that he entered this Agreement to protect

Ultimate Escapes. If the company missed payroll, it would have to make a damaging

disclosure in securities filings, all officers and directors could face civil or criminal

liability, and it might have been forced to enter bankruptcy and cease operations. Hence,

given the potential harm that could befall Ultimate Escapes if it did not cover the cash

shortfall, we do not see sufficient evidence that an increased chance of merger-specific

benefits overrode Tousignant’s actions on the eve of a funding deadline.

             2. Gross Negligence

      Gavin next argues that entire fairness review applies because Tousignant and

Keith were grossly negligent. See In re Walt Disney Co. Derivative Litig., 

,

64 (Del. 2006). As the Courts here correctly found, they were not grossly negligent

because Tousignant, who took the lead in negotiating the Agreement, worked diligently

on a constrained deadline to cover the cash shortfall. He was in constant communication

with Keith and the rest of the Board throughout the weekend and was also steadily

working throughout that time on closing the sale of a property to shore up the funding

gap. He shared the Agreement with Ultimate Escapes’ general counsel. He also made

one last request for funding from the company’s primary lender, and only after being

rejected acquiesced to the Agreement.

                                            9
       Most importantly, Tousignant understood the Agreement to transfer 30 members

only, and we agree with the District Court that only a “keen legal eye . . . [could] have

recognized the poorly drafted language that [Club Holdings] relied upon as a basis for its

mass solicitation.” J.A. 41. Thus the record does not support the conclusion that any of

Tousignant, Keith, or the Board, working under a tight deadline, was grossly negligent.

       Because the business judgment rule applies, all Tousignant and Keith needed to

show was that the transaction had a rational business purpose. 

.

This requirement is easily met here: the transaction infused Ultimate Escapes with

necessary cash to keep it afloat.

       B. Waste

       Finally, Gavin contends the Agreement constituted “waste.” See Walt Disney 

–49 (“Corporate waste is very rarely found in Delaware courts because

the applicable test imposes such an onerous burden upon a plaintiff—proving ‘an

exchange that is so one sided that no business person of ordinary, sound judgment could

conclude that the corporation has received adequate consideration.’”) (citation omitted).

We agree that the Agreement does not qualify as wasteful. It was intended to transfer 30

members to support the additional transfer of three properties to Club Holdings, thus

following the industry custom of 10 members per home. Club Holdings did not start its

mass solicitation until over a month after the Agreement was executed, and not until it

discovered Ultimate Escapes was no longer wedded to the planned merger. 3 While


3
 Gavin also contends that the Bankruptcy Court was inconsistent because, in its early
ruling on Ultimate Escapes’ requested TRO to enjoin solicitation, it ruled that the
                                           10
perhaps Ultimate Escapes could have found a better source of funding—especially if it

were not pressed against a tight deadline—we cannot conclude on this record that the

Agreement amounted to waste.

                              *      *     *      *      *

      We thus affirm.




Agreement likely allowed the solicitation of members. At that stage, however, the Court
was working off an abbreviated record and evaluating factors for preliminary relief. Here
it conducted a three-day bench trial that included what Tousignant knew or reasonably
could have known at the time he entered the transaction.

                                           11