Lack of Oversight May Leave Operators Liable

November 29, 2011

Publication| Bankruptcy & Corporate Restructuring

In Lemington, the Third Circuit considered an appeal from the decision of the U.S. District Court for the Western District of Pennsylvania to enter summary judgment in favor of the directors and officers (D&Os) of a Pennsylvania nonprofit corporation on claims for breach of fiduciary duty and deepening insolvency. The court reversed, finding genuine issues of material fact as to whether the D&Os breached their duties of care and loyalty. The court also discussed the application of the business-judgment rule, the doctrine of in pari delicto, and deepening insolvency as a viable independent cause of action, each under Pennsylvania law.

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