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Delaware Court of Chancery Addresses Fiduciary Duties of Bankruptcy Trustee

By Francis G.X. Pileggi

Meer v. Aharoni, C.A. No. 5141-CC (Del. Ch. June 29, 2010), read opinion here.

Overview

This opinion of the Court of Chancery dealt with an interpretation of a Tolling Agreement that extended the statute of limitations for claims against the defendant. The claims were made by a liquidation trust that was acting on behalf of a company that was in bankruptcy.

Background

One of the arguments made was that the trustee of the trust breached a settlement agreement concerning the claims that were filed in an amended complaint. However, relying on a decision of the Third Circuit, the Court of Chancery explained why the fiduciary duty of the trustee prevailed over the inferior duty to fulfill the terms of any Settlement Agreement. The reasoning of the Court included the reality that the settlement had to be approved by the Bankruptcy Court and that in the face of conflicting obligations between the Settlement Agreement and the fiduciary duties of the trustee, the responsibility to approve the settlement had been delegated by the legislature to the Bankruptcy Court.

The Court of Chancery referred to the decision of the Third Circuit that explains steps the trustee should follow in circumstances such as these, in order to enable the Bankruptcy Court to determine what was in the best interest of the bankruptcy estate. See footnote 19.

Reasoning of the Court

In sum, a trustee must be allowed to fulfill his or her fiduciary duty by choosing not to support the settlement if he believes it is no longer in the best interest of the bankruptcy estate, and by doing so he does not breach any underlying stipulation or agreement.

In concluding that the trustee amended and re-filed a complaint within the time period allowed by the Tolling Agreement, the Court also rejected the defense of laches. The Court also determined that under Court of Chancery Rule 15(c), the amendment to the original complaint related back because the amended complaint was also filed within the period allowed by the Tolling Agreement.

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on July 02, 2010 (boomark / email).