Third Circuit Opens the Door to Breach of Fiduciary Duty Claims

Recently, the Third Circuit Court of Appeals, in In re Tower Air, Inc., 416 F.3d 229 (3rd Cir. 2005), queried: 'How far will the federal courthouse door swing open for a direct suit against corporate directors and officers for Breaches of Fiduciary Duties?' In firmly answering this question, the Third Circuit has widened the door for bankruptcy trustees and creditors' committees, by making it easier, at the pleading stage, to assert a claim for breach of fiduciary duty in federal court. This decision comes at a time when plaintiffs are held to high pleading standards in federal securities cases (as a result of the Private Securities Litigation Reform Act, 15 U.S.C. ' 78u-4 (1997)) and breach of fiduciary duty cases in state court, each of which have presented significant hurdles for plaintiffs. In Tower Air, the Third Circuit Court of Appeals reversed the District Court and held that it erred in assuming that Delaware state law pleading standards were 'interchangeable' with federal notice pleading standards, Thus, Tower Air evidences a particularly unique opportunity for litigants in bankruptcy cases, as the Third Circuit has made it significantly easier for plaintiffs to succeed in defeating motions to dismiss, allowing them to proceed to discovery to build and support a claim.