Spradlin v. Beads and Steeds Inns, LLC (In re Howland)

(Bankr. E.D. Ky. Aug. 22, 2014)

The bankruptcy court dismisses the trustee’s fraudulent transfer complaint based on a reverse veil piercing theory, which has not been adopted (or rejected) by Kentucky courts. The trustee’s complaint was filed against a limited liability company that purchased real property from the debtors’ entity for $800,000 (it had been purchased for $1.6 million a few years before this sale). Such a claim would require the debtors and their entity to be treated as the same. Even if Kentucky courts recognized reverse veil piercing, Kentucky law treats veil piercing as an equitable remedy, not as a claim itself. For these reasons, the bankruptcy court dismisses the complaint with leave for the trustee to amend (the trustee suggested at oral argument that substantive consolidation would also allow for the relief requested in the original complaint). Opinion below.

2014-08-22 – in re howland

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