In re Opus East, LLC

18. In re Opus East, LLC

Citation: 528 B.R. 30 (Bankr. D. Del. 2015), Case No. 09-12261 (MFW)

Relevant Facts

• Opus East, LLC was a Delaware LLC formed in 1994 to develop and sell commercial real estate in the Northeast and Mid-Atlantic United States, part of the “Opus Group” founded by Gerald Rauenhorst.

• In 1982, Rauenhorst created irrevocable trusts for the benefit of his children and grandchildren; the Trusts owned and controlled two holding companies and five subsidiary operating entities.

• Opus East filed for Chapter 7 bankruptcy on July 1, 2009.

• The estate had approximately $59 million in assets and creditor claims ranging from $138 million to $500 million.

• The Debtor grew equity from $12 million to $75 million between 1994 and 2008 but was unable to complete real estate projects after the Lehman Brothers collapse in September 2008.

• A $23.75 million project sale (100 M Street, Washington DC) failed to close in January 2009, rendering the Debtor unable to sustain operations.

• The Chapter 7 Trustee brought claims for insolvency, veil piercing, breach of fiduciary duty, fraudulent transfers, insider preferences, and other theories.

Legal Issues

When the Debtor became insolvent; whether Opus East, the Trusts, and related entities operated as a single economic entity warranting veil piercing; whether various asset transfers were constructively fraudulent; and whether insider preference claims were established.

Positions of the Parties

Trustee: Debtor was insolvent as early as December 2006; entities operated as a single enterprise with no corporate independence; various transfers were fraudulent or preferential.

Defendants: Debtor was not insolvent until February 1, 2009; entities were independently operated; transfers were in the ordinary course for reasonably equivalent value; the Lehman Brothers collapse was an unexpected external event.

Decision of the Court

Partial judgment for the Trustee on certain preference and fraudulent transfer counts (Counts 31–33, 35–36, 39, 47). Judgment for Defendants on all remaining counts, including veil piercing, breach of fiduciary duty, and most other claims.

Reasons for the Decision

• The Debtor was solvent under the balance sheet test until February 1, 2009; the Lehman Brothers collapse was an unexpected external shock, not proof of prior insolvency.

• The corporate veil could not be pierced: Opus East was created for a legitimate business purpose, maintained its own management, financing, and reporting, and was treated as a separate entity by banks.

• Interlocking directors alone are insufficient to pierce the veil in a family-owned business structure.

• Certain transfers to related entities were constructively fraudulent because they lacked reasonably equivalent value or were made when the Debtor had unreasonably small capital.

• The Trustee failed to establish most insider preference claims with sufficient evidence.