Sonnenschein Forges New Standards in Bankruptcy Law in Key Win Before the Eighth Circuit

In PW Enterprises, Inc. v. North Dakota Racing Commission, ___ F.3d ___, 2008 WL 3981809 (8th Cir. Aug. 29, 2008), Sonnenschein appellate lawyers in the bankruptcy group, Robert Millner and Chris Prince, won an important victory in a Chapter 7 bankruptcy case pending before the United States Court of Appeals for the Eighth Circuit.

With this victory, Sonnenschein persuaded the Eighth Circuit to confirm the existence of "derivative standing" in the Eighth Circuit and to adopt different standards for derivative standing depending on whether the trustee opposes the derivative suit.  Sonnenschein's client, the largest non-governmental creditor in the case, had filed a motion in the bankruptcy court seeking derivative standing to pursue avoidance claims against the state of North Dakota.  The trustee did not oppose the motion, but explained that he had declined to pursue the claims because he believed that the claims were too costly to pursue and unlikely to succeed.  The bankruptcy court denied our client's motion for derivative standing, ruling that the trustee's decision not to pursue the claims was not an abuse of discretion.

On appeal, the Eighth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court on other grounds, and Sonnenschein's appellate lawyers brought the issue to the Eighth Circuit.

In a unanimous decision, the Eighth Circuit reversed the decision of the Eighth Circuit Bankruptcy Appellate Panel, affirmed the existence of derivative standing in the Eighth Circuit and adopted new standards for derivative standing as advocated by Sonnenschein.  The Eighth Circuit then remanded the case to the bankruptcy court with instructions to consider the motion for derivative standing under the new legal standard for cases in which the trustee does not oppose the derivative suit.