June 18, 2020Alerts

Dura Creditor Committee Denied Derivative Standing Under Delaware LLC Law

On Tuesday, June 9th, Judge Karen Owens of the United States Bankruptcy Court for the District of Delaware joined other members of the Delaware bankruptcy bench in declining to grant derivative standing to an Official Committee of Unsecured Creditors to pursue estate causes of action where the debtor in question is a Delaware limited liability company.

In her oral ruling in the Dura Automotive case, Judge Owens agreed with prior Delaware bankruptcy court decisions in the HH LiquidationCitadel and PennySaver cases, each of which followed the Delaware Chancery Court decision in CML v. Bax that because a statutory creditors’ committee is neither a member nor assignee of the limited liability company, it cannot be granted creditor derivative standing to pursue claims of the limited liability company. In doing so, Judge Owens rejected the Dura Committee’s argument that Bax did not apply to claims arising distinctly under the Bankruptcy Code, focusing instead on who may bring the claims rather than whether the claims arise under federal or state law.

Finally, noting the competing – and potentially conflicting – interests inherent in leaving it to a debtor, rather than a statutory committee, to investigate and potentially pursue certain claims, the Court stated that “I suspect that there are creative and . . . effective options that may be available if experienced professionals put their minds to it . . ..”