Claim Representatives For Filing Bankruptcy Trust Claims Have No Standing To Sue Bankruptcy Trusts For Suspending Claims U.S. Court of Appeals for the Third Circuit, October 15, 2015

Plaintiff Mandelbrot Law Firm specialized in preparing and filing asbestos personal injury claims  to various bankruptcy trusts. In 2002, one such trust, the Delaware Trusts, suspended all payment of claims from claimants who the plaintiff represented, due to proceedings in California regarding allegedly fraudulent claims filed by the plaintiff.  The plaintiff then filed this declaratory judgment, arguing that this decision was unauthorized and in violation of the Trusts’ distribution procedures, and that he lost fees. The district court granted defendants’ motion to dismiss for lack of subject matter jurisdiction, and the 3rd Circuit affirmed.

The 3rd Circuit agreed with the district court that plaintiff lacked standing. Only claimants themselves, not their representatives, have standing to assert claims against the trust. “In other words, ‘no one except a beneficiary or one suing on his behalf can maintain a suit against the trustee to enforce the trust or to enjoin or obtain redress for a breach of trust.’”  Although the plaintiff argued he  had standing due to lost fees, this was insufficient to create an injury in fact; further, the trust distribution procedures did not create an implied contractual relationship.

The court declined to address the plaintiffs argument that there is no diversity jurisdiction, since this was the first time he raised this argument.

Read the full decision here.

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