671 B.R. 758
Bankr. D.N.M.2025Background
- The Chapter 7 bankruptcy trustee sought court approval to sell potential legal malpractice claims ("Legal Malpractice Claims")—claims against Debtor's former state court attorneys—to Colby Dwoskin, a creditor who previously obtained a large state court judgment against the Debtor.
- Dwoskin agreed to purchase the claims for $25,000, with his bankruptcy claim remaining subordinate to all other claims.
- Rainier Legal Advocates, LLC and Morgan J. Wais (targets of the Legal Malpractice Claims) objected, offering $27,500 and arguing both that the claims are non-assignable under Washington law and that an auction should be held for the asset.
- The trustee responded that Rainier and Wais lacked standing, as they are not creditors and have no direct interest in the estate distribution.
- The Court held a preliminary hearing, accepted oral argument, and took the matter under advisement, declining to hold an evidentiary hearing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to Object to Sale | Rainier/Wais assert as targets & higher bidder | Trustee: Only parties in interest may object | Rainier/Wais lack standing; only creditors/parties in interest may object |
| Assignability of Malpractice Claims | Malpractice claims not assignable under WA law | Trustee: State law issue, not relevant to sale | Court: Merits not reached—lack of standing to raise |
| Need for Asset Auction | Court should hold auction for highest bidder | Trustee: No requirement to conduct auction | No requirement; disappointed bidders not protected class |
| Prudential/Statutory Standing | Interests as targets/higher bidder suffice | Trustee: Only interests within Bankruptcy Code zone | Rainier/Wais not in protected class; interests not protected under Code |
Key Cases Cited
- In re Moran, 566 F.3d 676 (6th Cir. 2009) (disappointed bidder in bankruptcy lacks standing to object absent special circumstances)
- Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014) (clarified prudential and zone-of-interests standing doctrines)
- Susan B. Anthony List v. Driehaus, 573 U.S. 149 (2014) (Article III standing requirements in federal courts)
- Hill v. Warsewa, 947 F.3d 1305 (10th Cir. 2020) (prudential standing limits and third-party standing doctrine)
- In re Peeples, 880 F.3d 1207 (10th Cir. 2018) (zone of interests doctrine in bankruptcy standing)