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“Third Circuit Requires Plaintiffs to Prove Causal Link and Breach of Duty in Deepening Insolvency Cases” part 2

On June 1, 2010 by Schnader

The article examines the recent decision of the Third Circuit in Marion v. TDI, Inc., 591 F. 3d 137 (2010) which overturned a $32.7 million jury verdict against defendants who had been accused of deepening the insolvency of Bentley Financial Services (“BFS”) by giving it access to more cash and investors.

The suit was brought by the receiver for BFS, a Pennsylvania corporation, after BFS’s chief officer used the corporation to run a Ponzi scheme for five years, defrauding more than 200 investors and causing $375 million in losses. The receiver claimed that the defendants, together with BFS’s chief officer, had harmed the corporation by saddling it with additional liability to victims of the scheme. But the Third Circuit found that there was no causal link between the defendants’ actions and BFS’s harm because Bentley’s use of the cash received from the defendants caused the harm – not the defendants’ cash infusion itself.

This article reviews the lessons learned from the court’s decision in Marion v. TDI, Inc.