(CN) - The Delaware Supreme Court dismissed a derivative action against Ambac Financial Group Inc., finding that the plaintiff lacks standing to challenge the holding company's bankruptcy exit plan.
Ambac, a bond guarantor, was hit hard during the subprime mortgage crisis. After missing an interest payment on its debt in late 2010, it filed for Chapter 11 bankruptcy reorganization in a New York's Southern District.
The Police and Fire Retirement System of Detroit (DPERS) accused Ambac directors in Chancery Court of breaches of fiduciary duties, but the action was stayed after similar claims were filed in federal court in New York.
Ambac later agreed to settle an associated federal class action complaint based on the understanding that the pension fund's Chancery Court claims and the other federal securities claims would be thrown out.
Though no creditors challenged the settlement, the pension fund and a plaintiff in the federal derivative action did. But a judge in the Southern District of New York affirmed the bankruptcy court's order, and also approved the settlement in the federal securities class action.
Ambac then asked the Chancery Court to dismiss the pension fund's derivative action. The Vice Chancellor granted the motion, finding the pension fund lacked standing to pursue the claims on Ambac's behalf, and ruled that the bankruptcy court's order properly released those claims.
Delaware Supreme Court Justice Jack Jacobs, writing for the panel which included Justices Randy Holland and Carolyn Berger, found that because the pension fund lacked standing, there was no need to examine the bankruptcy court's order.
"We agree that Ambac's bankruptcy filing, by operation of law, divested DPFRS of standing to pursue Ambac's claims derivatively, unless and until DPFRS is authorized to do so by the bankruptcy court. DPFRS has neither sought nor acquired that authority," Jacobs wrote.
Justices Randy Holland and Carolyn Berger were also .