CML V, LLC v. Bax
2010 Del. Ch. LEXIS 220
| Del. Ch. | 2010Background
- CML V, LLC lent funds to JetDirect Aviation Holdings, LLC; JetDirect and its operating subsidiaries are in bankruptcy and allegedly insolvent.
- CML asserts derivative claims (Counts I-III) for breach of fiduciary duties against the Individual Defendants and a direct claim (Count IV) against JetDirect for breach of its loan agreement.
- Defendants move to dismiss Counts I-III for lack of standing and to dismiss Count IV for lack of jurisdiction; the parties agree dismissal of Counts I-III would strip this Court of jurisdiction over Count IV under the clean-up doctrine.
- Section 18-1002 of the Delaware LLC Act limits derivative standing to members or assignees, not creditors; JetDirect being an LLC triggers exclusive standing language.
- Delaware law and the LLC Act’s structure are used to argue that creditors lack derivative standing, with discussion of paralleled LP Act provisions and historical development of derivative standing.
- Court concludes Counts I-III are dismissed for lack of derivative standing, and Count IV is dismissed for lack of jurisdiction (subject to transfer rights).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether LLC creditors have derivative standing under 18-1002 | CML contends Gheewalla extends creditor standing to LLCs | 18-1002's exclusive language bars creditors from derivative suits | Creditors lack derivative standing; Counts I-III dismissed |
| Whether 18-1002 should be read non-exclusively due to purpose of LLC Act | Literal reading creates absurdity vs. aims of act | Plain language should control; exclusive by design | Exclusive reading preserved; 18-1002 governs derivative standing |
| Whether analogous corporate standing rules apply to LLCs | Derivative standing in Gheewalla and related cases should apply to LLCs | Differences between corporate and LLC frameworks justify exclusive LLC approach | LLC derivative standing aligned with exclusive LLC Act provisions |
| Whether the LP Act history supports creditor standing under the LLC Act | LP Act history shows derivative standing inclusion extended to assignees | Delaware chose exclusive LLC approach; LP Act history does not compel creditor standing | History supports exclusivity; no creditor derivative standing |
Key Cases Cited
- N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007) (creditors of insolvent corporations have standing to pursue derivative claims; LLCs addressed similarly)
- Schoon v. Smith, 953 A.2d 196 (Del.2008) (DGCL §327 limits but does not create derivative standing; contemporaneous ownership requirement applied)
- Prod. Res. Gp., L.L.C. v. NCT Gp., Inc., 863 A.2d 772 (Del.Ch. 2004) (corporate derivative standing principles inform LLC standing analyses)
- Harff v. Kerkorian, 324 A.2d 215 (Del.Ch.1974) (statutory interpretation and purpose considerations in derivative-standing context)