Court Opinion

ID: 4328023
Source: CourtListenerOpinion
Date Created: 2018-11-05 19:08:59.532094+00
Date Added: 2024-06-11T14:47:46.841990
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

 U.S. BANK NATIONAL                       §
 ASSOCIATION, U.S. BANK                   §
 TRUST NATIONAL                           §   No. 549, 2018
 ASSOCIATION, ALEXANDER                   §
 BURNS, HEARTLAND FAMILY                  §   Court Below—Court of Chancery
 GROUP, LLC, and GLENN                    §   of the State of Delaware
 WEBER,                                   §
                                          §   C.A. No. 2017-0034
        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.                        §

                            Submitted: October 26, 2018
                            Decided: November 5, 2018

Before STRINE, Chief Justice; VAUGHN and TRAYNOR, Justices.

                                     ORDER

        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
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

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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).
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     NOW, THEREFORE, IT IS HEREBY ORDERED that the interlocutory

appeal is REFUSED.

                                   BY THE COURT:

                                   /s/Gary F. Traynor
                                         Justice

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