Opinion ID: 3021453
Heading Depth: 3
Heading Rank: 2

Heading: Was summary judgment correctly granted on the

Text: deepening-insolvency cause of action? Seitz alleges that Detweiler should have known about the errors in the financial statements that (he further alleges) 18 eventually caused the harm to CitX. His complaint barely makes out, and his evidence completely fails to support, any allegation of fraudulent conduct on Detweiler’s part. Without fraud, Seitz must fall back on his allegation that Detweiler negligently deepened CitX’s insolvency. Therefore, we must decide whether an allegation of negligence can support a claim of deepening insolvency. As opposed to our discussion above about deepening insolvency as a theory of damages, we deal with it here as a cause of action, which Lafferty held it to be under Pennsylvania law. Lafferty, 267 F.3d at 344, 351.11 Seitz’s contention that negligence can suffice for 11 Though Lafferty and the economic tort it interpreted Pennsylvania law as approving for fraudulent conduct have provoked much comment, see, e.g., William Bates III, Deepening Insolvency: Into the Void, Am. Bankr. Inst. J., Mar. 2005, at 1; J.B. Heaton, Deepening Insolvency, 30 J. Corp. L. 465 (2005); Willett, supra, that issue is not before us. Even if it were, we cannot revisit the correctness of that interpretation of Pennsylvania law. See In re Merck & Co. Sec. Litig., 432 F.3d 261, 274 (3d Cir. 2005) (noting that only the Court en banc can overrule a precedential decision). Although some courts in this Circuit have extended Lafferty’s reasoning to other states, see, e.g., OHC Liquidation Trust v. Credit Suisse First Boston (In re Oakwood Homes Corp.), Nos. 02-13396 & 04-57060, 2006 WL 864843, at –17 (Bankr. D. Del. Mar. 31, 2006) (holding that Delaware, New York, and North Carolina would recognize the cause of action), nothing we said in Lafferty compels any extension of the doctrine beyond Pennsylvania. 19 deepening insolvency has some support. For example, the Ninth Circuit Court of Appeals recently suggested that deepening insolvency does not require intentional conduct. See Smith v. Arthur Andersen LLP, 421 F.3d 989, 995 (9th Cir. 2005) (recognizing deepening insolvency when the allegations were that the defendants “misrepresent[ed] (not necessarily intentionally) the firm’s financial condition to its outside directors and investors”); see also Bondi v. Bank of Am. Corp. (In re Parmalat Sec. Litig.), 383 F. Supp. 2d 587, 601 (S.D.N.Y. 2005). Indeed, Lafferty relied, in a string cite of five cases, on one case suggesting that negligence would suffice. 267 F.3d at 350–51 (citing Gouiran Holdings, Inc. v. DeSantis, Prinzi, Springer, Keifer & Shall (In re Gouiran Holdings, Inc.), 165 B.R. 104, 107 (E.D.N.Y. 1994)). In addressing this question, we note that Lafferty holds only that fraudulent conduct will suffice to support a deepeninginsolvency claim under Pennsylvania law. See id. at 347 (defining the injury as a “fraudulent expansion of corporate debt and prolongation of corporate life”); id. at 349 (referring to the “fraudulent and concealed incurrence of debt”); see also Corporate Aviation Concepts, Inc. v. Multi-Serv. Aviation Corp., No. Civ.A. 03-3020, 2004 WL 1900001, at  (E.D. Pa. Aug. 25, 2004) (holding that only fraudulent conduct will suffice for a deepening-insolvency claim); OHC Liquidation Trust v. Credit Suisse First Boston (In re Oakwood Homes Corp.), Nos. 0213396 & 04-57060, 2006 WL 864843, at  (Bankr. D. Del. Mar. 31, 2006) (same). We know no reason to extend the scope 20 of deepening insolvency beyond Lafferty’s limited holding. To that end, we hold that a claim of negligence cannot sustain a deepening-insolvency cause of action.12