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Jager Smith Prevails in Directors’ and Officers’ Lawsuit and Related Claim Litigation

Serving as lead counsel for the former Chief Executive Officer and President of a group of industrial manufacturing and service businesses, Steven C. Reingold, along with Howard P. Blatchford, Jr., successfully moved to dismiss a complaint asserting causes of action alleging breach of fiduciary duty and gross negligence brought against their client by the representative of a Chapter 11 liquidating trust in the United States District Court for the District of Massachusetts.  In related litigation before the United States Bankruptcy Court for the District of Massachusetts concerning the client’s claims against his former companies, Steven obtained a significant six-figure settlement for the client.

In re High Voltage Engineering Corp. was a Chapter 11 bankruptcy case initiated in February 2005.  Because that case was begun a few months after the effective date of the reorganization plan confirmed in the companies’ prior Chapter 11 case, the Bankruptcy Court appointed a Chapter 11 trustee to investigate the reasons behind the second filing.  The Chapter 11 trustee was subsequently appointed as the trustee of the liquidating trust created in the case and, in that capacity, objected to the claims which Jager Smith’s client had asserted against the companies for their rejection and resulting breach of his pre-petition consulting agreement.  In addition, the trustee filed suit against the client and two other former officers of the companies, alleging that they breached their fiduciary duties and committed gross negligence in connection with the development and confirmation of the reorganization plan in the first bankruptcy.

Working with the attorneys for the other defendants, Jager Smith filed a motion seeking an order dismissing all of the claims asserted against its client.  Arguments in support of the motion were based on several legal theories, including the doctrine of in pari delicto, pursuant to which the trustee, as the successor to the companies, was barred from seeking any recovery on their behalf because they participated in the acts he complained of, as well as on language contained in the reorganization plan from the first Chapter 11 case which granted the former officers a full release from any claims based on their having worked to secure the confirmation of that plan.  The District Court adopted the in pari delicto argument and dismissed all of the claims in the trustee’s complaint with prejudice.

 

 

Our Experience

Upon the successful dismissal of the complaint, Jager Smith pursued approval and payment of the pre-petition claims which the client had presented to the Bankruptcy Court.  Based upon the strength of the District Court’s order dismissing the trustee’s causes of action, Jager Smith was able to negotiate a settlement representing full payment, with interest, of the client’s claims.