LRC Assists Trustee in Defeating RBC’s Motion to Sever and Transfer in Complex Adversary Proceeding

Wilmington, DE (June 3, 2016): Landis Rath & Cobb LLP attorneys James S. Green Jr., Joseph D. Wright, and Anne M. Steadman obtained an important initial victory for client Edward L. Lipscomb, as special trustee of the LMI GUC Trust, defeating defendant RBC Capital Markets, LLC’s motion to sever and transfer certain claims to New York.

RBC filed the motion to sever and transfer in an adversary proceeding that the Trustee asserted against sixteen other defendants relating to claims arising from a complex and lengthy series of events, including a failed sale process and failed mergers that ultimately led to Landauer-Metropolitan, Inc.’s bankruptcy.  The adversary proceeding involves eighteen separate claims – including against controlling shareholders, directors, and officers – for breaches of fiduciary duties, intentional and constructive fraud, breach of contract, recharacterization, subordination of debt, aiding and abetting breaches of fiduciary duties, and preferential transfers.  RBC had been retained by the debtors in connection with the unsuccessful pre-petition marketing process to sell the company.  RBC moved to sever and transfer the aiding and abetting and breach of contract claims against it based on a forum selection clause in its engagement letter.  But Judge Sontchi agreed with the Trustee’s opposition, which distinguished the Supreme Court’s recent Atlantic Marine opinion, and held that severance and transfer is not warranted in this case because it would waste judicial resources, risk prejudice to the other defendants, and risk inconsistent and conflicting adjudications.  Accordingly, the Court denied RBC’s motion in its entirety.

Read the Bankruptcy Court’s opinion, Lipscomb v. Clairvest Equity Partners L.P. (In re LMI Legacy Holdings, Inc.), 2016 Bankr. LEXIS 2216 (Bankr. D. Del. June 3, 2016)