Title: US Bank National Assoc v. Wood

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
U.S. BANK NATIONAL 
ASSOCIATION, U.S. BANK 
TRUST NATIONAL 
ASSOCIATION, ALEXANDER 
BURNS, HEARTLAND FAMILY 
GROUP, LLC, and GLENN 
WEBER,  
 
Defendants Below, 
Appellants, 
 
v. 
 
CHARLES DAVID WOOD, JR. and 
DNIC INSURANCE HOLDINGS, 
INC., individually and derivatively 
on behalf of LONESTAR HOLDCO, 
LLC, 
 
Plaintiffs Below, 
Appellees. 
§ 
§   
§  No. 549, 2018 
§   
§  Court Below—Court of Chancery 
§  of the State of Delaware 
§   
§  C.A. No. 2017-0034 
§   
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
§ 
 
Submitted:  October 26, 2018 
 
 
 
 
   Decided:   November 5, 2018 
 
Before STRINE, Chief Justice; VAUGHN and TRAYNOR, Justices. 
 
 
O R D E R 
 
 
 
After consideration of the notice of interlocutory appeal, the Court concludes 
that: 
(1) 
The defendants below-appellants have petitioned this Court under 
Supreme Court Rule 42 to accept an interlocutory appeal from three Court of 
Chancery orders, dated September 26, 2018, granting in part and denying in part 
2 
 
their motions to dismiss a complaint asserting direct and derivative claims.  The 
plaintiffs, who held preferred membership interests in Lonestar Holdco, LLC 
challenged transactions in which two Lonestar subsidiaries, Freestone Insurance 
Company and Redwood Reinsurance SPC (both now in receivership), allegedly 
exchanged valuable assets for less valuable assets held by defendant Alexander 
Burns, who controlled Lonestar, and his affiliates.  The Court of Chancery held, 
among other things, that the complaint validly pled derivative claims at the Lonestar 
level and double-derivative claims at the Freestone level.  The Court of Chancery 
also held that the complaint stated direct claims for fraudulent conveyance against 
Burns, Heartland Family Group, LLC, and the U.S. Bank defendants.    
(2) 
On October 8, 2018, the appellants filed an application for certification 
to take an interlocutory appeal.  They argued that certification was appropriate 
because no previous Delaware decision has addressed whether double-derivative 
standing exists when the subsidiary is in receivership and no Delaware decision has 
held that a parent company has standing to recover for harm to a subsidiary on the 
ground that the parent’s fiduciaries also had oversight responsibilities for the 
subsidiary.  The appellees opposed the application.   
(3) 
On October 24, 2018, the Court of Chancery denied the application.   In 
denying certification, the Court of Chancery found that the dismissal orders resolved 
a substantial issue, but that the Supreme Court Rule 42(d)(iii) criteria did not weigh 
3 
 
in favor of certification.  The Court of Chancery concluded that whether a parent 
company’s investors could assert derivative claims at the parent level for 
mismanagement of a subsidiary was not a novel question, the receivership did not 
preclude the plaintiffs from asserting derivative claims on behalf of Freestone, and 
certification would result in piecemeal litigation because only five defendants sought 
certification and they did not seek to appeal the ruling on the fraudulent conveyance 
claim.   
(4) 
We agree that interlocutory review is not warranted in this case.  
Applications for interlocutory review are addressed to the sound discretion of the 
Court.1  In the exercise of its discretion and giving great weight to the trial court’s 
view, this Court has concluded that the application for interlocutory review does not 
meet the strict standards for certification under Supreme Court Rule 42(b).  This case 
is not exceptional,2 and the potential benefits of interlocutory review do not outweigh 
the inefficiency, disruption, and probable costs caused by an interlocutory appeal.3   
 
 
                                                 
1 Supr. Ct. R. 42(d)(v). 
2 Supr. Ct. R. 42(b)(ii). 
3 Supr. Ct. R. 42(b)(iii). 
4 
 
NOW, THEREFORE, IT IS HEREBY ORDERED that the interlocutory 
appeal is REFUSED.   
 
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
 
/s/Gary F. Traynor 
  
 
 
 
 
 
 
 
           Justice