(June 19, 2015, Boston, MA) – Sheehan Phinney attorneys Charles M. Waters and Christopher M. Candon won a significant dismissal of claims asserted by a Chapter 7 bankruptcy trustee alleged to be worth millions of dollars and brought against the firm’s clients in an effort to hold them responsible for the debtor’s liabilities based on various theories and application of veil piercing and alter ego doctrines.
In a 65-page decision (Butler v. Candlewood Road Partners, LLC et al. (In re Raymond), 2015 WL 1810961 (Bankr. D. Mass., April 17, 2015)), the United States Bankruptcy Court for the District of Massachusetts (Feeney, J.) rejected each of the Chapter 7 Trustee’s veil piercing and alter ego theories of recovery and dismissed all of the claims against the firm’s clients based on those theories as well as a claim for substantive consolidation. Ultimately, the Court agreed that reverse veil piercing (the controversial form of veil piercing asserted by the Chapter 7 Trustee), if it were even to be recognized under Massachusetts law, would be viewed as a remedy, not as an independent cause of action. Since the Chapter 7 Trustee did not assert substantive claims for relief, the Court ruled that he could not rely upon the remedies of veil piercing or alter ego and dismissed the related counts. Additionally, the Court rejected the Chapter 7 Trustee’s claim that trusts established for the clients’ benefit were “sham” trusts as those trusts were created more than 30 years prior to the alleged improper conduct and further ruled that the Chapter 7 Trustee failed to state a plausible claim for substantive consolidation of the trusts and other entities with the bankruptcy estate. Notably, in rejecting the Chapter 7 Trustee’s theories, the Court was guided by the principle that because the causes of action available to a Chapter 7 trustee are limited to those that belong to the debtor at the commencement of the case and since the debtor was not harmed, the Chapter 7 Trustee either lacked standing to bring the action or could not maintain a cause of action on behalf of the debtor.
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Sheehan Phinney is a full service business law firm representing local, national and international clients with innovative approaches and practical solutions. Founded in 1937, Sheehan Phinney has grown to over 60 attorneys with four offices throughout New Hampshire and Massachusetts and is known for professional excellence, practical counsel and commitment to both its clients and the communities it serves. Sheehan Phinney is the exclusive member in New Hampshire of Lex Mundi, the world’s leading association of premier independent law firms.