United States District Court, W.D. Washington
November 21, 2014
FANG LIU, on behalf of nominal defendant Dendreon corporation, Plaintiff,
MITCHELL H. GOLD, et al, Defendants
For Fang Liu, on behalf of nominal defendant Dendreon corporation, Plaintiff: Clifford A Cantor, SAMMAMISH, WA.
ORDER DENYING STAY
HONORABLE JOHN C. COUGHENOUR, UNITED STATES DISTRICT JUDGE.
This matter comes before the Court on Nominal Defendant Dendreon Corporation's notice of filing Chapter 11 Bankruptcy and request for stay (Dkt. No. 10). Having considered the notice and the relevant record, the Court hereby DENIES the requested stay for the reasons explained herein.
This is a shareholder's derivative suit meant to enforce the rights of the Dendreon Corporation (" Dendreon"). Dkt. No. 1. Plaintiff Liu brings suit not to recover from Dendreon, but on Dendrion's behalf for alleged misconduct by members of the company's Board of Directors and Audit Committee. Id. Dendreon recently filed a voluntary petition for Chapter 11 Bankruptcy. Dkt. No. 10. Dendreon notified the Court of this filing and argues that the above-captioned shareholder derivative suit is subject to an automatic stay under 11 U.S.C. § 362.
11 U.S.C. § 362 provides, in relevant part:
[A] petition filed under section 301, 302, or 303 of this title. . . operates as a stay, applicable to all entities, of--
(1) the commencement or continuation. . . of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title. . .
Notably, a shareholder derivative suit is brought on behalf of, rather than against, the debtor corporation. While there is very little legal precedent on this issue, the Sixth Circuit decision in Walters v. First Tennessee Bank, N.A. Memphis offers a persuasive reading of 11 U.S.C. § 362. 855 F.2d 267, 271 (6th Cir. 1988). There, the Sixth Circuit held, " this is not 'an action against the debtor' stayed by 11 U.S.C. § 362. . . [The corporation] is merely a nominal defendant in the derivative action. . . This is sufficient to take the derivative action out of the scope of the automatic stay provision." Id. (citing Price & Pierce Int'l, Inc. v. Spicers Int'l Paper Sales, Inc., 50 B.R. 25 (S.D.N.Y. 1985) (debtor defendant was not eligible for automatic stay, because the debtor was only a nominal defendant in the interpleader action).
The same logic applies to Dendreon. Dendreon, a nominal defendant in this shareholder derivative action, may not avail itself of the automatic stay provision in 11 U.S.C. § 362 as the above-captioned matter is not a case against it.
For the foregoing reasons, Nominal Defendant Dendreon Corporation's request to stay this matter (Dkt. No. 10) is DENIED.