In a more recent decision, the Third Circuit has taken a more skeptical view of the
deepening insolvency concept,107 a view consistent with the outcome reached in this
decision. In fact, many of the decisions that seem to embrace the concept of deepening
insolvency do not clarify whether the concept is a stand-alone cause of action or a
measurement of damages (the extent of deepening) for other causes of action.108
E. The Complaint Fails To State A Claim For Fraud Against The Former Directors Of Trenwick And Trenwick America
The final claim made against the directors of both Trenwick and Trenwick
America is that they worked together to commit fraud that injured Trenwick America.
This is an extremely odd claim to be advanced on behalf of Trenwick America for an
obvious reason: the claim depends on the notion that Trenwick America’s controlling
stockholder, Trenwick, and Trenwick America’s board, in particular, Billett, who was on
the parent board as well, knew facts about Trenwick America that they concealed from
Trenwick America. As I will explain, that reality is but one of the reasons why the
complaint fails to state a cognizable fraud claim.
Before I get to that reason, I get to the plain vanilla reason the fraud claim fails,
which is that the complaint does not satisfy the stringent pleading standard governing
fraud claims. To state a claim for common law fraud, the Litigation Trust must plead
facts supporting an inference that: (1) the defendants falsely represented or omitted facts
, 448 F.3d at 680 n.11.
, 267 F.3d at 351,
, 448 F.3d at 11 (explaining that in
“we did describe deepening insolvency as a “type of injury,” and a “theory of injury” but that “we never held it was a valid theory of damages for an independent cause of action.”) (citations omitted).