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at the object of their ardor.105

Among the earlier federal decisions embracing the notion

  • by way of a hopeful prediction of state law — that deepening insolvency should be

recognized as a cause of action admittedly were three decisions from within the federal

Circuit of which Delaware is a part.106 None of those decisions explains the rationale for

concluding that deepening insolvency should be recognized as a cause of action or how

such recognition would be consistent with traditional concepts of fiduciary responsibility.


Good examples of this jurisprudence include: , 383 F.Supp.2d 587 (S.D.N.Y. 2005) (explaining that “[i]f officers and directors can

be shown to have breached their fiduciary duties by deepening a corporation’s insolvency, and the resulting injury to the corporation is cognizable . . . that injury is compensable on a claim for breach of fiduciary duty” and declining to recognize a separate tort for deepening insolvency under North Carolina law); , 333 B.R. 506, 517 (Bankr. D.C. 2005) (“Recognizing that a condition is harmful and calling it a tort are two different things. The District of Columbia courts have not yet recognized a cause of action for deepening insolvency, and this court sees no reason why they should . . . . There is no point in recognizing and adjudicating “new” causes of action when established ones cover the same ground. The Trust's duplicative claims will be dismissed.”); , 335 B.R. 631, 641, 644 (Bankr. N.D. Tx. 2005) (describing recent cases and the trend to decline

recognizing deepening insolvency as a separate tort because the injury caused is substantially

duplicated by torts already in existence);

, 316 B.R. at 459 (“The distinction

between “deepening insolvency” as a tort or damage theory may be one unnecessary to make. Prolonging an insolvent corporation’s life, without more, will not result in liability under either approach. Instead, one seeking to recover for ‘deepening insolvency’ must show that the defendant prolonged the company’s life in breach of a separate duty, or committed an actionable tort that contributed to the continued operation of a corporation and its increased debt.”)

(citations omitted); Sabin Willet,

, 60 BUS. LAW. 549

(2005) (providing detailed reasons not to recognize deepening insolvency as a cause of action).

., 448 F.3d 672, 679 n.11 (3d Cir. 2006) (rejecting, as without basis in reason, a request to hold that a claim of negligence will sustain a cause of action for deepening insolvency under Pennsylvania law).

106 , 267 F.3d 340 (3d Cir. 2001) (recognizing deepening insolvency as a valid cause of action under Pennsylvania law where defendants used fraudulent financial statements to raise capital in the debtor’s name, thereby deepening debtor’s insolvency and causing bankruptcy);

, 340 B.R. 510, 2006 WL 864843, at *16-17 (Bankr. D. Del. Mar. 31, 2006) (holding that Delaware, New York, and North Carolina would recognize

the cause of action);

, 299 B.R. 732 (Bankr. D. Del. 2003) (“based

on the Third Circuit's decision in

and the Delaware courts' policy of providing a remedy

for an injury, I conclude that Delaware Supreme Court would recognize a claim for deepening insolvency when there has been damage to corporate property”).


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