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Securities Class Representative Cannot Object to Bankruptcy Release on Behalf of Class

The US District Court for the Southern District of New York affirmed an order rejecting an objection to the confirmation of a Chapter 11 Plan of Reorganization for Dynegy, Inc. and Dynegy Holdings, LLC (together, Dynegy) for a lack of standing. 

In March 2012, a putative securities class action was filed against Dynegy and its officers. A lead plaintiff was appointed in that action in July. Contemporaneously, Dynegy filed for Chapter 11 bankruptcy, staying the securities litigation against itself, but not the individual defendants. The US Bankruptcy Court for the Southern District of New York approved a disclosure statement which included releases of claims against the individual defendants in the securities action. The lead plaintiff in the securities action, Stephen Lucas, opted out of the release. Lucas also objected to the release on behalf of the putative class in the securities action. The bankruptcy court overruled his objection.  

The District Court affirmed, holding that Lucas did not have standing to object to the release. Lucas could not object on his own behalf; having already opted out, the issue was moot as to him. Additionally, Lucas lacked standing to object in the bankruptcy action on behalf of the putative securities class because he never attempted to certify that class before the bankruptcy court. Lucas could not use his status to “have his cake and eat it too – to opt out of the [r]elease personally but also to challenge its validity in the separate bankruptcy proceeding.”

In re Dynegy Inc., No. 12 Civ. 8908(JGK), 2013 WL 2413482 (S.D.N.Y. 2013).

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume III, Number 167

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