In Re: George Washington Bridge Bus Station Development Venture LLC
- Alison Nathan
- 1:20-cv-01324
- U.S. District Court · Southern District of New York
- 10
In Tutor Perini v. George Washington Bridge, Judge Nathan affirmed denial of derivative standing because the claims would not benefit the bankruptcy estate.
Tutor Perini could not pursue the debtor’s proposed claims on behalf of the bankruptcy estate. The ruling also affected the debtor’s estate and the other creditors whose priority could have been changed by those claims.
What happened
In In re George Washington Bridge Bus Station Development Venture LLC, Tutor Perini Building Corporation appealed a bankruptcy court decision refusing to let it pursue three claims for the bankruptcy estate against other creditors. Tutor Perini argued that the claims could improve its position among creditors.
The district court held that pursuing the claims would not add value to the estate, would favor Tutor Perini over other creditors, and would create costs and delays. Because the bankruptcy court had not abused its discretion, the district court affirmed its order denying derivative standing.
Judge Alison J. Nathan issued the opinion and closed the case. She did not decide the bankruptcy court’s separate conclusion that Tutor Perini’s proposed claims were not legally supportable.
The detailed version
- In Re: George Washington Bridge Bus Station Development Venture LLC · No. 1:20-cv-01324
- Alison Nathan
- Feb. 16, 2021
Background
George Washington Bridge Bus Station Development Venture LLC was the debtor in a Chapter 11 bankruptcy case. Tutor Perini Building Corporation, the project’s general contractor, was one of the debtor’s largest unsecured creditors, with claims totaling $113 million.
Tutor Perini asked the bankruptcy court for derivative standing. Derivative standing is permission for a creditor to pursue claims belonging to a debtor and to do so on the bankruptcy estate’s behalf. Tutor Perini sought permission to pursue three types of claims against other creditors:
- A claim under Bankruptcy Code § 510(a), based on alleged contractual subordination in the ground lease.
- A claim under Bankruptcy Code § 510(b), arguing that certain loans and mortgages were securities that should receive lower priority.
- A claim under Bankruptcy Code § 506(a), referred to as a “cure claim,” arguing that the cost of curing ground-lease defaults reduced the value of the collateral securing other creditors’ loans.
The bankruptcy court denied Tutor Perini derivative standing on two independently sufficient grounds. It found that pursuing the claims would not be in the best interests of the bankruptcy estate and that the proposed claims were not legally supportable. Tutor Perini appealed.
Legal Standard
The district court reviewed the bankruptcy court’s derivative-standing decision for abuse of discretion. Under that standard, the decision could be overturned if the bankruptcy court applied the law incorrectly or relied on a clearly erroneous factual finding.
Second Circuit precedent allows an individual creditor or creditors’ committee to pursue claims belonging to a debtor with bankruptcy-court approval. The pursuit must be in the best interests of the estate. In making that decision, a bankruptcy court may consider the likelihood and amount of recovery, litigation costs, delay, and whether the creditor’s interests conflict with those of the estate.
Court’s Analysis
The district court agreed that Tutor Perini had not shown that pursuing the claims would benefit the estate. Tutor Perini did not challenge the finding that the claims would not bring incremental value to the estate. Instead, the claims would seek to give Tutor Perini priority over other creditors. Tutor Perini had also acknowledged that a creditors’ committee might oppose the claims because they sought to elevate Tutor Perini’s interests rather than increase the estate’s overall value.
The district court also upheld the bankruptcy court’s findings that the litigation would impose substantial costs on the estate and would frustrate or delay assignment of the ground lease. Tutor Perini had indicated that it would seek reimbursement of litigation expenses from the estate if it prevailed.
The court rejected Tutor Perini’s arguments that a bankruptcy court could not consider its potential conflict of interest or the lack of incremental value to the estate. The court explained that a creditor’s personal interest does not always create a conflict, but the bankruptcy court may consider whether that creditor’s particular pursuit of claims would benefit the estate. The bankruptcy court was also permitted to weigh the lack of additional value against the expected costs and delay.
Because the finding that derivative standing was not in the estate’s best interests was sufficient, the district court did not address the bankruptcy court’s alternative conclusion that Tutor Perini’s proposed claims were not colorable, meaning legally viable enough to pursue.
Disposition
The district court affirmed the bankruptcy court’s order denying Tutor Perini derivative standing. The Clerk of Court was directed to close the case.
Read the full 10-page opinion on CourtListener, the free public archive maintained by the Free Law Project.