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Third Circuit Revives Committee's Deepening Insolvency and Breach of Fiduciary Duty Claims

By Thomas R. Fawkes and Wendy E. Morris
November 22, 2011

In a recent opinion issued in the Chapter 11 case of In re Lemington Home for the Aged, — F.3d –, 2011 WL 4375676 (3d Cir. Sept. 21, 2011), the Third Circuit Court of Appeals revived claims of breach of fiduciary duty and deepening insolvency against directors and officers of a nonprofit Pennsylvania corporation. This decision touches upon the operation of the business judgment rule and the doctrine of in pari delicto in an insolvency context, and provides important guidance to officers and directors leading a business concern toward a potential Chapter 11 filing.

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