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Gavin/Solmonese LLC v. Citadel Energy Partners, LLC (In re Citadel Watford City Disposal Partners, L.P.)

United States Bankruptcy Court for the District of Delaware

May 2, 2019, Decided

Chapter 11, Case No. 15-11323 (KJC) (Jointly Administered), Adv. Proc. No. 17-50024 (KJC) (Re: D.I. 236)

Opinion

 [*900]  OPINION2

BY: KEVIN J. CAREY, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the Motion to Dismiss Derivative Claims of the Amended Complaint (the "Motion") filed by defendant Mark Dunaway ("Dunaway").3 Dunaway [**4]  argues that the Liquidation Trustee does not have standing to assert the derivative fiduciary duty claims raised in the Amended Complaint. The Liquidation Trustee for the Citadel Creditors' Grantor  [*901]  Trust, successor to Citadel Watford City Disposal Partners, L.P., filed an objection to the Motion.4 For the reasons set forth below, the Motion will be granted.

BACKGROUND

The Debtors consist of four entities formed under the laws of different states: Citadel Watford City Disposal Partners, LP (Delaware), Citadel Energy SWD Holdings, LLC (North Dakota), Citadel Energy Services, LLC (Wyoming) and Pembroke Fields, LLC (North Dakota). On June 19, 2015 (the "Petition Date"), the Debtors filed voluntary chapter 11 petitions. On July 20, 2015, the Office of the United States Trustee ("OUST") filed its Notice of Appointment of Creditors' Committee. On May 6, 2016, the Debtors and The Official Committee of Unsecured Creditors (the "Committee") filed the Joint Motion for Entry of an Order: (A) Granting the Official Committee of Unsecured Creditors Standing to Pursue Causes of Action Belonging to the Debtors' Estates and Arising Under Chapter 5 of the Bankruptcy Code; and (B) Approving Procedures and [**5]  Authority Governing Settlement of Chapter 5 Causes of Action (the "Standing Motion").5 On June 21, 2016, the Court entered the Standing Order.6

On August 11, 2016, the Debtors filed their chapter 11 plan of liquidation (the "Plan").7 The Plan was amended on December 16, 2016.8 The Plan contemplated the creation of a liquidation trust to administer liquidation trust assets. On January 13, 2017, the Debtors filed the plan supplement, which included the Liquidation Trust Agreement, providing for the appointment of Gavin/Solmonese LLC as the liquidation trustee (the "Liquidation Trustee"). The Trust Agreement provides that:

In accordance with the Plan, the Liquidation Trustee on behalf of the Liquidation Trust and for the benefit of the Liquidation Trust shall be authorized and empowered to pursue and prosecute, to settle, or to decline to pursue or abandon, the Causes of Action, including all pending adversary proceedings and contested matters involving Liquidation Trust Assets, whether or not such causes of action have been commenced prior to the Effective Date, and shall be substituted as the real party in interest in any such action, commenced by or against the Debtors, the Debtors estate [**6]  or the Creditors' Committee. The Liquidation Trustee may settle, release, sell, assign, otherwise transfer or compromise such Causes of Action, in the Liquidation Trustee's business judgment, subject to the provisions of the Plan, without Bankruptcy Court Approval.

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603 B.R. 897 *; 2019 Bankr. LEXIS 1375 **

In re: Citadel Watford City Disposal Partners, L.P., et al.,1. Debtors. Gavin/Solmonese LLC, Liquidation Trustee for the Citadel Creditors' Grantor Trust, successor to Citadel Watford City Disposal Partners, L.P., et al., Plaintiff, v. Citadel Energy Partners, LLC., et al., Defendants.

Prior History: Gavin/Solmonese LLC v. Citadel Energy Partners, LLC (In re Chapter 11 Citadel Watford City Disposal Partners, L.P.), 2018 Bankr. LEXIS 3983 (Bankr. D. Del., Dec. 17, 2018)

CORE TERMS

Liquidation, limited liability company, bring an action, derivative action, assignee, cause of action, Caption, derivative claim, partner, partnership interest, derivative, insolvent, motion to dismiss, fiduciary duty, limited partnership, unsecured creditor, asserts

Civil Procedure, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Preliminary Considerations, Federal & State Interrelationships, Choice of Law, Governments, Legislation, Interpretation, Business & Corporate Compliance, Limited Liability Companies, Business & Corporate Law, Limited Liability Companies, Justiciability, Standing, Limited Partnerships, Limited Partnerships, Contracts Law, Standards of Performance, Assignments, Parties