Opinion ID: 625820
Heading Depth: 2
Heading Rank: 2

Heading: Whether MCAR has Article III Standing

Text: Lenders claim that because Mirant's creditors have been paid in full, MCAR does not have standing to pursue an avoidance action. The Court disagrees. Constitutional standing requires three elements: First, the plaintiff must have suffered an injury in fact-an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not `conjectural' or `hypothetical.' Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be fairly . . . trace[able] to the challenged action of the defendant, and not. . . th[e] result [of] the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal citations omitted). Federal courts disagree whether plaintiffs in positions similar to MCAR's have standing. In Adelphia Recovery Trust v. Bank of America, N.A., 390 B.R. 80 (S.D.N.Y.2008), a district court found that because the relevant creditors had been paid in full and would receive no benefit from avoiding a transfer, Adelphia Recovery Trust did not have standing under 544(b) to assert an avoidance claim. Id. at 91-97. In Stalnaker v. DLC, Ltd., 376 F.3d 819 (8th Cir.2004), the unsecured creditors settled their claims against the estate on the eve of trial. Id. at 821. Thereafter, the trustee attempted to avoid a fraudulent transfer, and the transferee objected and argued that the trustee could no longer pursue an avoidance action. Id. at 822-23. Despite the fact that the unsecured creditors had settled their claims, the Eighth Circuit sided with the trustee because avoiding the transfer would still benefit the bankruptcy estate as required by § 550(a). Id. at 823-824. Central to this decision is the assessment that the bankruptcy `estate' is not synonymous with the concept of a pool of assets to be gathered for the sole benefit of unsecured creditors. Id. at 823. The Eighth Circuit also noted that in that case there were still administrative claims that needed to be paid out of the estate. Id. at 823-24. We find no authority for the proposition that a debtor may settle with unsecured creditors on the eve of trial, thereby thwarting professionals in their attempt to collect fees for at least four years of work to administer the bankruptcy estate. Id. at 824. In re Acequia, 34 F.3d 800 (9th Cir. 1994), is a case in which the Ninth Circuit allowed a trustee to pursue an avoidance action even though the corporation paid all unsecured creditors in its plan of reorganization. Id. at 807-812. The Ninth Circuit made three basic points. First, the existence of a section 544(b) cause of action should be evaluated at the time the bankruptcy petition is filed. Id. at 807 (citation omitted). Second, the Bankruptcy Code authorizes post-confirmation pursuit of a debtor's causes of action. Id. (citing 11 U.S.C. § 1123(b)(3)(B) (additional citations omitted)). [T]hird, if confirmation and payment precluded application of section 544(b), debtors undoubtedly would delay filing plans of reorganization until completing all potential litigation, a result that would contravene the Bankruptcy Code's goal of quick and equitable reorganization. Id. (citation omitted). Under the law of this circuit, a trustee's right to avoid a transfer is tested at the petition date. Central to this bankruptcy is the trustee's power under § 544(b), which allows him to succeed to the actual, allowable and unsecured claims of the estate's creditors. If an actual, unsecured creditor can, on the date of the bankruptcy, reach property that the debtor has transferred to a third party, the trustee may use § 544(b) to step into the shoes of that creditor and avoid the debtor's transfer. Although the cause of action belonged to one creditor, any property the trustee recovers becomes estate property and is divided pro rata among all general creditors. The trustee may recover the full extent of the fraudulently transferred property on the basis of one creditor's claim. In other words, an entire transfer may be set aside even though the creditor's claim is nominal. In re Moore, 608 F.3d 253, 260 (5th Cir. 2010) (internal citation and quotation marks omitted) (emphasis added). Furthermore, the Court agrees with the approach taken by the Eighth and Ninth Circuits. Once a trustee's avoidance rights are triggered at the time of filing, they persist until avoidance will no longer benefit the estate under § 550. A bankruptcy trustee may still have standing to avoid a fraudulent transfer after the unsecured creditors are satisfied in full. The fraudulent transfer injured the estate and § 550 ensures that the injury is redressed because a trustee may only avoid a transfer to the extent it benefits the estate. Therefore, to the extent that MCAR's successful avoidance of fraudulent transfers will benefit the bankruptcy estate, MCAR has Article III standing to avoid transfers that injured the estate.