The Delaware Court of Chancery has ruled against Cleveland-Cliffs Burns Harbor LLC and Cleveland-Cliffs Steel LLC in a case concerning the recovery of funds from Boomerang Tube, LLC, which is now defunct. The court found that Cleveland-Cliffs' claims for successor liability and fraudulent transfer were legally meritless, leaving them without a means to recover the unpaid debts from Boomerang Tube. This ruling affects Cleveland-Cliffs and highlights the complexities involved when dealing with asset recovery in bankruptcy cases.
The case, Cleveland-Cliffs Burns Harbor LLC v. Boomerang Tube, LLC (C.A. No. 2022-0378-LWW), was decided on September 28, 2026, after a trial that took place in January 2026. Cleveland-Cliffs, a steel products supplier, sought to recover approximately $7.35 million owed to them by Boomerang Tube for products supplied before the company went bankrupt. The ruling is significant as it clarifies the legal standards for successor liability and fraudulent transfer claims in the context of asset sales under the Delaware Uniform Fraudulent Transfer Act.
Background
Cleveland-Cliffs sold steel products to Boomerang Tube, a company that produced specialized tubing for the oil and gas industry. After Boomerang failed to pay for the products, Cleveland-Cliffs found itself with an unsecured claim when Boomerang filed for bankruptcy. Boomerang, which had previously emerged from bankruptcy in 2016, was acquired by Black Diamond Capital Management, L.L.C., which later sought to recover its debts through an Article 9 sale of Boomerang's assets.
The plaintiffs alleged that the sale of Boomerang's assets to PTC Liberty Tubulars, LLC, a company formed by Black Diamond, was fraudulent and should be set aside. They claimed that the transaction was structured to avoid paying creditors like Cleveland-Cliffs. The court had to determine whether the sale constituted a fraudulent transfer and whether PTC Liberty could be held liable for Boomerang's debts as a successor entity.
The Ruling
The court ruled in favor of PTC Liberty, stating that Cleveland-Cliffs had failed to prove the fundamental elements of their claims. Vice Chancellor Will stated, "At bottom, they are an appeal to equity by a disgruntled creditor. There are admittedly some strange facts here, like a Christmas Day sale notice and a bidding deadline just after the winter holidays. But no equities call for bending the law to pay an unsecured creditor." The court emphasized that the claims for successor liability and fraudulent transfer were not substantiated by the evidence presented.
The court's opinion highlighted that the value of the liens encumbering Boomerang's assets exceeded the value of the transferred property. As a result, the court concluded that the assets did not qualify as "assets" under the Delaware Uniform Fraudulent Transfer Act (DUFTA). The ruling effectively dismissed Cleveland-Cliffs' claims for recovery, stating that they did not meet the legal standards required for such claims.
Impact
This ruling has significant implications for creditors in similar situations. It underscores the challenges faced by unsecured creditors in recovering debts from companies that have undergone bankruptcy proceedings and asset sales. The court's decision clarifies the legal framework surrounding successor liability and fraudulent transfers, emphasizing that creditors must provide substantial evidence to support their claims.
Moreover, the ruling reinforces the importance of understanding the value of encumbered assets in bankruptcy cases. Creditors must be aware that if the value of the liens on a debtor's assets exceeds the value of those assets, they may not be able to recover any funds, even if they have valid claims against the debtor.
What's Next
The court's decision can potentially be appealed, but details regarding any appeal were not available in the court filing. Cleveland-Cliffs may consider its options moving forward, including whether to pursue further legal action against other parties involved in the bankruptcy proceedings.