## Facts

- JetDirect Aviation Holdings, LLC, a Delaware LLC, borrowed substantial funds from CML V, LLC, a junior secured creditor, to finance rapid expansion.
- CML alleged JetDirect’s managers and officers approved the borrowing despite serious breakdowns in accounting and billing processes and inadequate working capital to repay.
- JetDirect defaulted on the loans and was plausibly alleged to be insolvent.
- CML sued (i) derivatively on JetDirect’s behalf for breach of fiduciary duty against current and former managers/officers and (ii) directly against JetDirect for breach of the loan agreement.
- Defendants moved to dismiss the derivative counts for lack of standing under Delaware LLC Act § 18-1002, which limits derivative plaintiffs to “a member or an assignee.”
- The parties agreed the Court of Chancery’s jurisdiction over the direct contract claim depended on the presence of a viable equitable claim under the clean-up doctrine.

## Issues

1. Whether Delaware LLC Act § 18-1002 permits a creditor of an insolvent Delaware LLC to bring a derivative action on the LLC’s behalf.
2. Whether construing § 18-1002 to bar creditor derivative standing violates Delaware’s “open courts” provision or should yield to corporate-law analogies allowing creditor derivative suits in insolvency.
3. Whether, if the derivative claims are dismissed, the Court of Chancery may retain the remaining direct contract claim under the clean-up doctrine.

## Decision

- The court held § 18-1002 unambiguously limits derivative standing to LLC members and assignees, and therefore creditors (including creditors of an insolvent LLC) lack derivative standing.
- The court rejected the constitutional challenge, concluding the statutory limitation does not deny access to courts because creditors retain other remedies.
- Counts I–III (derivative fiduciary-duty claims) were dismissed for lack of statutory standing.
- With no surviving equitable claim, the court dismissed Count IV (breach of contract) for lack of subject matter jurisdiction.
- The Delaware Supreme Court later affirmed.

## Legal Principles

- Under Delaware LLC Act § 18-1002, only an LLC “member” or an “assignee” of an LLC interest has standing to sue derivatively on the LLC’s behalf.
- Clear LLC statutory text governing derivative standing is not expanded by corporate-law doctrines that may permit creditor derivative suits for insolvent corporations.
- The legislature may restrict the form of remedies available to creditors without violating the “open courts” guarantee, so long as creditors retain meaningful avenues for redress (e.g., contract and other traditional creditor remedies).
- The Court of Chancery will not retain purely legal claims under the clean-up doctrine when all equitable claims are dismissed at the pleading stage.

## Conclusion

The court dismissed a creditor’s derivative fiduciary-duty claims because Delaware’s LLC Act restricts derivative standing to members and assignees, even when the LLC is insolvent, and dismissed the remaining contract claim for lack of Chancery jurisdiction once no equitable claim remained.


CML V, LLC v. Bax, 6 A.3d 238 (Del. Ch. 2010)