Light v. Whittington (In re Whittington) (Aug. 20, 2014)
The plaintiffs alleged that the Debtor breached his fiduciary duties and committed fraud and sought an award of damages along with attorney’s fees. The plaintiffs also argued that under sections 523(a)(2)(a) and 523(a)(4) their claim against the Debtor should be deemed nondischargeable. The Debtor asserted numerous affirmative defenses in response including the plaintiffs’ lack of standing. The Court addressed two separate standing issues: constitutional standing and prudential standing. As for constitutional standing, the Court held that the plaintiffs had established their status as investors who were concretely and actually injured by the Debtor’s conduct, which was sufficient to meet the constitutional standing requirement. With respect to prudential standing, the Court found that the plaintiffs were not asserting their own legal rights but rather were asserting the rights of a third party, i.e., the rights of the investor partnerships, and thus, Federal Rule of Civil Procedure 17 governed. The Court held that the real party in interest ratified the action through post-complaint assignments of the causes of action, that the ratification related back to the date of the filing of the petition, and that the plaintiffs had a reasonable basis for initially suing in their individual capacities. Thus, the prudential standing requirement was satisfied.
WL Cite: 530 B.R. 360 (Bankr. W.D. Tex. 2014)
The defendant, a restructuring consultant, contended that the liquidating trustee did not have standing to pursue the preference claims in dispute. The Court first noted that if a plan specifically and unequivocally provides for the retention and enforcement of claims, the claims may survive and be prosecuted. Predictably, the Court then turned to the plan to see if it provided for retention and enforcement of claims, but found the plan to be ambiguous due to conflicting language in two provisions. Ultimately, the Court held that the best reading of the plan, and the disclosure statement and their attachments was that the liquidating trustee wished to preserve avoidance actions generally and, noting the sophistication of the parties, found that the plan and disclosure statements put the consultant and any other parties in interest that the liquidating trustee might pursue the payments at issue.
WL Cite: Ciesla, Trustee of the KLN Liquidating Trust v. Harney Management Partners (In re KLN Steel Products Co., L.L.C.), 506 B.R. 461 (Bankr. W.D. Tex. 2014)