Hughes, et al. v. Tower Park Properties, LLC (In the Matter of Tower Park Properties, LLC)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
10 years 5 months ago

Citation:

In the Matter of Tower Park Properties, LLC, No. 13-56045 (9th Cir. Sep. 28, 2015).

Tag(s):

Ruling:

A trust beneficiary lacks standing to oppose a settlement between the trust and a bankruptcy estate.

Procedural context:

The chapter 11 debtor entered into a settlement agreement with two trustees of a trust; the trust is a creditor of the debtor. The sole noncontingent beneficiary of the trust sought and obtained in state court an order suspending the trustees and appointing a trustee ad litem. Both the beneficiary and the trustee ad litem opposed the settlement. The bankruptcy court approved the settlement. On appeal, the district dismissed the beneficiary’s appeal for lack of standing. The trustee ad litem’s district-court appeal continues. On the beneficiary’s appeal of the district court’s action, the Ninth Circuit affirmed.

Facts:

To have standing in bankruptcy court, the beneficiary must satisfy the § 1109(b) requirement that he be a “party in interest.” If that requirement is satisfied, he must also satisfy Article III and prudential standing requirements. The beneficiary’s financial stake in the trust is insufficient to confer party-in-interest status. That status does not extend to those seeking to assert rights that are purely derivative of another party’s rights. Any internal dispute between a creditor and its investors belongs elsewhere. However meritorious the beneficiary’s claims of breach against the trustees may be, those claims do not confer party-in-interest standing upon the beneficiary. Also, the trustee ad litem has shown itself willing and able to defend the interests of the trust, and the trustee ad litem’s appointment allays any remaining doubt over whether the beneficary’s objections should be heard in light of concerns about the former trustee’s loyalty to the trust. Because the beneficiary lacked party-in-interest status, the Ninth Circuit did not address whether he satisfied Article III and prudential standing requirements.

Judge(s):

Raymond C. Fisher and Jay S. Bybee, Circuit Judges, and Elizabeth E. Foote, District Judge for the Western District of Louisiana, sitting by designation. Opinion by Judge Bybee.

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