Fiduciary Duties of Directors and Officers Scrutinized in Bankruptcy Case

Wilmington and Philadelphia partner Andy Kassner and associate Joe Argentina co-authored an article for the Legal Intelligencer titled, “Fiduciary Duties of Directors and Officers Scrutinized in Bankruptcy Case.”

The article discusses the case of Official Committee of Unsecured Creditors, on behalf of the Estate of Lemington Home for the Aged v. Baldwin, et al., and the myriad legal issues and exposure that may confront a corporation’s directors when a non-profit finds itself in financial and management distress.

In that case, the Third Circuit vacated a decision of the United States District Court for the Western District of Pennsylvania, granting summary judgment in favor of the defendant directors and officers of a debtor and dismissing the Creditors’ Committee’s complaint that alleged causes of action for breach of fiduciary duty and deepening insolvency. The case was remanded to the District Court.

The Third Circuit’s decision discusses the standard for asserting causes of action against officers and directors, and when such defendants can assert the defense of in pari delicto to defeat such claims.

Andy and Joe analyze the facts and the Third Circuit’s opinion and conclude that the decision is a “reminder that by agreeing to be an officer or director of a corporation, one assumes responsibilities that can later be the subject of intense scrutiny in litigation if the organization fails.”