More on Beads &
Steeds; Denial of Leave to File Amended Complaint Asserting Substantive Consolidation
Affirmed
In the latest development in
Beads & Steeds (Spradlin v. Beads &
Steeds Inns, LLC (In re Howland), Case No. 12-51251, Adv. No.
14-5019 (Bankr. E.D. Ky.), Judge Karen Caldwell of the Eastern District
affirmed the prior determination that the trustee would not be allowed to amend
the complaint.
Initially, at least as relevant
to this discussion, the bankruptcy court had denied an effort by the bankruptcy
trustee to utilize either or both of insider reverse piercing or outsider
reverse piercing as a method to bring additional parties into the action. This
dismissal was based upon the rule that piercing the veil is a remedy, not a
substantive action, and a remedy could not be applied to create liability ab
initio. That aspect of the case was read previously reviewed; HERE is a link to that discussion. Still, at
the time it rejected the insider/outsider reverse pierce theories, the
bankruptcy court afforded the trustee the opportunity to file an amended
complaint based upon the theory of substantive consolidation. However, when
ultimately tendered, the bankruptcy court rejected the amended complaint,
finding it to be deficient in alleging facts that would justify substantive
consolidation. HERE is a link to
my review of this decision.
In an opinion rendered March
31, the District Court affirmed the ruling of the bankruptcy court denying the
motion to amend the complaint and as well affirmed the grant of judgment on the
pleadings in favor of the debtors.
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