Second Circuit – Breach of Contract: NAF Holdings, LLC v. Li & Fung (Trading) Ltd.

U.S. Court of Appeals for the Second Circuit – Breach of Contract – Derivative Claim – Corporation’s Subsidiary

NAF Holdings, LLC v. Li & Fung (Trading) Ltd.

13-830-cv

Judges Leval, Calabresi and Lynch

Background: The plaintiff appealed from the grant of summary judgment dismissing its claim for breach of contract. The district court held that under Delaware law, the claim is a derivative claim of the plaintiff’s subsidiaries and therefore may not be brought by the plaintiff as a direct claim. Also, the claims could not be brought derivatively as claims of the subsidiaries because the subsidiaries had committed themselves in a settlement agreement not to bring such claims.

Ruling: The Court of Appeals certified the question whether a corporation is barred under Delaware law from suing to enforce a contract on the ground that the damages it suffered from the contractual breach resulted from harm to the corporation’s subsidiary.

George A. Reihner of Wright & Reihner for the plaintiff-counter-defendant-appellant; John J. Hay and Ulyana Bardyn of Dentons US for the defendant-counter-claimant-appellee