May 23, 2022, Bankruptcy Court for the Southern District of Texas – Debtor Cortland Energy, LLC (“Cortland”) commences adversary proceedings against Pearl Switch, LLC (“Pearl Switch”) on the count of “breach of fiduciary duty”.
Debtor Cortland argues in its complaint that LeRoy Melcher (“Melcher”) formed Pearl Switch specifically for making a business loan to Cortland. It claims that Melcher was giving legal advice to Cortland and continued acting as its lawyer even after the loan was made by Pearl Switch. Later, Melcher allegedly obtained beneficial ownership over Cortland in 2019.
Cortland implies that it was charged an exorbitant interest rate for the loan made by Pearl Switch. It accuses Melcher of preventing Cortland from prepaying the loan under any circumstances, even with a penalty.
The allegations include that Pearl Switch was a “fiduciary” to Cortland because its owner, Melcher, had a “formal fiduciary relationship” with Cortland as its counsel. Cortland claims that through Melcher’s ownership in Cortland and through Melcher’s attorney-client relationship with Cortland and its other owners, Pearl Switch was an “insider” to Cortland at all material times, including at the time of the loan transactions.
Cortland requests the Court for a judgment declaring the loan agreement between Pearl Switch and Cortland void and unenforceable and demanding exemplary damages for the losses it suffered as a consequence of the loan. Cortland also seeks equitable subordination of Pearl Switch’s claim to the claims of all other creditors and to all other interests owned in the Cortland.
Cortland Energy LLC v. Pearl Switch, LLC (In re Cortland Energy, LLC), AP No. 22-3159, US Bankruptcy Court for the Southern District of Texas.