The chapter 7 trustee asserted that a competing bidder who is the target of a malpractice claim and offered a higher price, but who otherwise is a stranger to the bankruptcy case, does not have Article III, prudential, or statutory standing to object to the trustee’s sale of the malpractice claim to the debtor at a lower price. The competing bidder objected on the ground that the claim was not assignable under state law and, in the alternative, that the trustee should be required to conduct an auction. After examining the standing issues, the Court held that the competing bidder did not need Article III standing to object and there was no prudential standing bar. But the competing bidder did not have standing to be heard to prosecute the objection to the sale because he was not within the class of persons protected by § 363.

Defendant CPLG TX Properties, LLC (as seller) and Hitendra Bhakta (as buyer) executed purchase agreements for the sale of three hotels and Mr. Bhakta wired a $300,000 deposit for each hotel to an escrow agent. The sales did not close. Plaintiffs, which are single purpose LLCs that Mr. Bhakta formed to buy the hotels, brought an adversary proceeding seeking return of the deposits. Each plaintiff is a debtor in a separate chapter 11 bankruptcy case. 

Defendants moved to dismiss the complaint including for lack of standing and jurisdiction, arguing that that Plaintiffs are not valid assignees of Mr. Bhakta’s rights under the Purchase Agreements. The Court ruled: 1) errors in the assignment documents might not be fatal to effective assignments, 2) the attack on jurisdiction was a factual not facial attack warranting discovery on jurisdictional facts, and 3) parties by contract can agree that an invalid attempted assignment is void, not voidable, meaning that a defective assignment cannot be made valid by ratification.   

The Court deferred ruling on the jurisdiction/standing issue pending completion of discovery and an opportunity for an evidentiary hearing.

Bank that obtained a judgment of foreclosure, acquired title to the property by special master’s deed, and obtained an order confirming the special master’s sale in state court before the filing of Debtor’s bankruptcy petition had standing as a party in interest to seek relief from the automatic stay.  Debtor, who was not the mortgagor, held only a possessory interest in the property as of the petition date.  The Court granted relief from the automatic stay to permit the Bank to return to state court to exercise its rights in the property.

Creditors whose unsecured, non-priority unsecured claims were disallowed against the bankruptcy estate lacked both Article III constitutional standing and statutory standing under § 1109(b) and §1128() to object to the Chapter 11 Trustee’s Chapter 11 plan.  Creditors did not have a direct pecuniary interest in the outcome of the Chapter 11 plan and could not demonstrate that they would suffer any injury in fact resulting from any of the plan’s provisions.