A hedge fund that bought pieces of loans to a Texas corporation sued the borrower's directors. The hedge fund alleged breach of fiduciary duty. But it didn't claim that the firm had ceased operations.

The hedge fund argued in response to the directors' motion to dismiss that the absence of such a charge didn't matter.

Today, the U.S. District Court for the Northern District of Texas  ruled that it does matter. The Court pointed to the fact that Texas has no statute that allows creditors to sue derivatively and that Texas cases applying Texas common law have never permitted such a derivative claim except under the "trust fund" doctrine. That doctrine requires that the corporation have ceased operations.

The defect in the complaint proved fatal to it, although the Court did allow the hedge fund 21 days to try to replead if it can.

[Barry Barnett, who wrote this post, represents the directors in the case, Aurelius Capital Master, Ltd. v. Acosta, No. 3:13-cv-173-P (N.D. Tex.).]