Insiders Jointly Liable for Debtor’s Debt Under “Alter Ego/Reverse Veil Piercing Theory,” Alleges Trustee in National Land Records Bankruptcy Case
March 9, 2021, Eastern District of Texas – Trustee Christopher J. Moser for the bankruptcy estate of National Land Records, LLC recently commenced an adversary proceeding against “insider” defendants on the principles of “reverse veil piercing and the alter ego.”
Christopher J. McLucas (“McLucas”) created and operated dozens of entities (“McLucas Entities”) in the State of Texas including, National Land Records, LLC (the “Debtor” or “NLR”). According to the complaint, McLucas exploited the McLucas Entities for years to engage in the “fraudulent concealment, the transfer, and hiding of assets by and amongst himself and the various McLucas Entities.” McLucas purportedly organized and operated these entities as a “mere tool and business conduit to perpetrate fraud for his benefit.” He allegedly “moved money between the bank accounts of the various entities” to prevent any creditor from locating assets that may be available to satisfy any potential judgment and to “defraud the creditors” of NLR.
The Trustee argues that Defendants LRAC, McLucas Holdings, Paradise Title, and PSS all “received fraudulent transfers” from the Debtor. Since McLucas had control and ownership in these entities, he “treated them internally as a single entity.” He “freely moved and transferred money from entity to entity to avoid creditors and instead compensated himself.” Thus, despite the observance of minimum corporate formalities, these entities served as his “alter ego” and, they are essentially the same.
Through its complaint, the Trustee seeks to “reverse veil pierce” and allege that the assets held by the various McLucas Entities are the property of the Debtor’s estate, that the “insider” Defendants should “turn over” to the Trustee. Further, the Debtor’s assets were “fraudulently transferred” and distributed to McLucas Entities, and that the Trustee has the right to access and sell these assets to satisfy Debtor’s debts. The Trustee also urges the Court to order an accounting of the assets of McLucas, McLucas Holdings, PSS, Paradise Title, and LRAC due to McLucas’ “fiduciary responsibility” to the bankruptcy estate.
The case is In re National Land Records, LLC, case number:19-40923 in the United States Bankruptcy Court for the Eastern District of Texas. The Trustee is represented by Darrell W. Cook & Associates, P.C. Chief Judge Brenda T. Rhoades is presiding over the National Land Records bankruptcy cases.