In the Matter of: Tower Park Props.

In order for an individual to have standing in bankruptcy court, the individual must satisfy three requirements: (1) qualify as a party of interest under 11 U.S.C. § 1109(b); (2) meet Article III standing; and (3) meet federal court prudential standing.

Alexander Hughes is the sole beneficiary of the Mark Hughes Family Trust (“Trust”). The Trust owned several limited liability companies (collectively, the “Hughes Entities”), one of which conveyed a real property asset to Tower Park Properties, LLC (“Tower Park”). However, Tower Park defaulted and filed Chapter 11 bankruptcy, leading it to create a reorganization plan, which the bankruptcy court confirmed. Tower Park entered into a Settlement Agreement with the Hughes Entities and its trustees. While those negotiations were occurring, Hughes had been pursuing a petition to remove the trustees for breaches of their fiduciary duties. Hughes sought immediate suspension of the trustees, leading the probate court to appoint Fiduciary Trust International of California (“FTIC”) as trustee ad litem. The bankruptcy court approved the Settlement Agreement, which Hughes objected based on the probate proceedings, and ultimately Hughes and FTIC separately appealed. The district court dismissed Hughes’s appeal for lack of bankruptcy standing, concluding Hughes was “not a ‘party in interest’ as required under the Bankruptcy Code.” The Ninth Circuit found that in order to have standing in bankruptcy court, Hughes needed to satisfy three requirements: (1) qualify as a party in interest under 11 U.S.C. § 1109(b); (2) meet Article III standing; and (3) meet federal court prudential standing requirements. The panel held that Hughes was not a party in interest and declined to address the other prongs. The panel determined Hughes’s financial stake was insufficient, holding that a party in interest must have a legally protected interest that could be affected by the bankruptcy proceeding. The panel further held that a trust beneficiary is only entitled to take legal recourse when the beneficiary is seeking to enforce the terms of the trust. The panel therefore affirmed the district court’s dismissal. AFFIRMED.