Derivative Suits in Bankruptcy
26 Pages Posted: 31 Dec 2005
This article addresses whether creditors have or should have standing to bring lawsuits derivatively on behalf of a bankruptcy estate. It argues that such suits are neither authorized by the Bankruptcy Code, nor reflected in recent pre-Code practice, nor necessarily wise to allow as a matter of bankruptcy policy. The issue was considered extensively in a recent en banc decision of the Third Circuit, Official Committee of Unsecured Creditors of Cybergenics Corp. v. Chinery, 330 F.3d 548 (3d Cir. 2003) (finding in favor of derivative standing), in which the author along with eight other bankruptcy scholars participated on opposing sides as amici curiae. More recently, a bankruptcy appellate panel disagreed with Cybergenics. See In re Fox, 305 B.R. 912 (B.A.P. 10th Cir. 2004) (finding against derivative standing).The article expands on the amicus brief that the author filed in Cybergenics (2003 WL 21745357) and explains why he disagrees with the position taken by both the Cybergenics majority and the other professors who participated in that case. The article concludes by urging Congress to repeal Cybergenics and the Supreme Court to overrule it.
Keywords: Bankruptcy, derivative suits, creditor derivative suits
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