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CML V, LLC v. Bax

Court of Chancery of Delaware

October 7, 2010, Submitted; November 3, 2010, Decided; November 3, 2010, E-Filed

C.A. No. 5373-VCL

Opinion

 [*239] LASTER, Vice Chancellor.

Plaintiff CML V, LLC ("CML") lent funds to  [**2] JetDirect Aviation Holdings, LLC ("JetDirect" or the "Company"). JetDirect's operating subsidiaries are in bankruptcy, and the complaint plausibly pleads that JetDirect is insolvent. In Counts I-III, CML asserts derivative claims for breach of fiduciary duties against defendants John Bax, Gregory S. Campbell, Louis Cappelli, Jane Garvey, Steven M. Hankin, Paul M. Harrington, Donald Hebb, Jeffrey P. Kelly, James W. Marley, Robert P. Pinkas, Peter Sinatra, and Stephanie Zimmerman (collectively, the "Individual Defendants"). In Count IV, CML sues JetDirect directly for breach of its loan agreement. The defendants have moved to dismiss Counts I-III on various grounds, including that CML lacks standing as a creditor to sue derivatively under Section 18-1002 of the Delaware Limited Liability Company Act (the "LLC Act"), 6 Del. C. § 18-1002. The parties agree that if Counts IIII are dismissed, then this Court lacks jurisdiction over Count IV. Conversely, if one of the first three counts goes forward, then jurisdiction over Count IV exists under the clean-up doctrine.

Section 18-1002 limits standing to bring a derivative claim to holders of membership interests in a limited liability company  [**3] ("LLC") and their assignees. Section 18-1002 does not grant standing to creditors. Although this limitation might surprise wizened veterans of the debates over corporate creditor standing, JetDirect is not a corporation. JetDirect is an LLC, and the plain language of the LLC Act controls. Accordingly, the motion to dismiss is granted.

I. FACTUAL BACKGROUND

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6 A.3d 238 *; 2010 Del. Ch. LEXIS 220 **; 2010 WL 4347927

CML V, LLC, individually and derivatively on behalf of JetDirect Aviation Holdings, LLC, Plaintiff, v. JOHN BAX, GREGORY S. CAMPBELL, LOUIS CAPPELLI, JANE GARVEY, STEVEN M. HANKIN, PAUL M. HARRINGTON, DONALD HEBB, JEFFREY P. KELLY, JAMES W. MARLEY, ROBERT P. PINKAS, PETER SINATRA, STEPHANIE ZIMMERMAN, and JETDIRECT AVIATION HOLDINGS, LLC, Defendants, and JETDIRECT AVIATION HOLDINGS, LLC, Nominal Defendant.

Subsequent History: Affirmed by CML V, LLC v. Bax, 2011 Del. LEXIS 480 (Del., Sept. 2, 2011)

CORE TERMS

provisions, derivative, limited partner, LLC Act, limited partnership, insolvent, derivative action, assignee, entity, bring an action, limited liability company, fiduciary duty, Sections, terms, stockholder, authorizes, ownership, courts, rights, treatise, literal, time of the transaction, contemporaneous, partner, derivative suit, LP Act, partnership interest, general partner, trust fund, contractual

Business & Corporate Law, Limited Liability Companies, General Overview, Member Duties & Liabilities, Actions Against Corporations, Derivative Actions, Governments, Legislation, Interpretation, Procedural Matters, Limited Partnerships, Corporations, Management Duties & Liabilities