(6th Cir. Jan. 3, 2017)
The Sixth Circuit affirms the bankruptcy court’s dismissal of the trustee’s fraudulent transfer complaint. The trustee alleged the defendant was the recipient of a fraudulent transfer from the debtors, but the transfer was actually made to the defendant by an LLC seperate from the debtors. The trustee failed to allege facts sufficient for the doctrine of substantive consolidation and veil piercing is inappropriate here because Kentucky courts endorse the vicarious liability approach to veil piercing rather than the identity approach. The debtor had no interest in the alleged alter ego’s assets. Opinion below.
Attorneys for Defendant: Stoll Keenon Ogden PLLC, Adam M. Back
Attorneys for Trustee: Bingham Greenebaum Doll LLP, Richard Boydston
Author: Matt Lindblom
(E.D. Ky. June 7, 2016)
The district court affirms the bankruptcy court’s orders holding the trustee failed to state a claim for substantive consolidation and could not proceed on a reverse veil piercing theory under Kentucky law. The trustee alleged the defendant was the recipient of a fraudulent transfer from the debtors, but the transfer was actually made to the defendant by a Kentucky LLC separate from the debtors. Because Kentucky courts have not recognized reverse veil piercing, the district court declines to apply it to disregard the separate existence of the debtors and the LLC. The court also agrees with the bankruptcy court that the trustee failed to allege facts sufficient to apply substantive consolidation. Opinion below.
Attorney for Defendant: Stoll Keenon Ogden PLLC, Adam M. Back
Attorneys for Trustee: Bingham Greenebaum Doll LLP, James R. Irving, Richard Boydston
2016-06-07 – in re howland
Author: Matt Lindblom
(Bankr. E.D. Ky. Oct. 2, 2014)
The bankruptcy court grants the fraudulent transfer defendant’s motion for judgment on the pleadings, dismissing the trustee’s complaint. The trustee’s claim depended on the court substantively consolidating the debtors with a non-debtor entity as of a date prior to the bankruptcy petition date. While there were some facts supporting a finding that the debtors commingled assets with the non-debtor entity, the court found that creditors of each did not consider them a single entity. Based on the trustee’s factual assertions, the court declined to permit substantive consolidation and dismissed the complaint. Opinion below.
2014-10-02 – 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