More on Beads & Steeds; Denial of Leave to File Amended Complaint Asserting Substantive Consolidation Affirmed

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.