Eighth Circuit argues lender lacks standing to assert claims against another lender | King and Spalding

On September 13, 2022, the United States Court of Appeals for the Eighth Circuit upheld the dismissal of claims for fraudulent conveyance and aiding and abetting a Ponzi scheme brought by a lender to a series of owned companies by Tom Petters against another lender. Defendant JPMorgan Chase had secured repayment of its Petters Company loans while plaintiff Ritchie Special Credit Investments (with affiliates) was a “subsequent lender” that defaulted on its $189 million loan. During the Petters Companies bankruptcy cases, the trustees in bankruptcy settled the estates’ claims against JPMorgan and obtained an order restraining any creditor whose claim “arises from or is in any way related to the [debtors]” to assert or prosecute any claim belonging to the trustees. Seeking a way around the bankruptcy court order, Ritchie alleged that JPMorgan aided and abetted Petters’ fraud and received fraudulent transfers.

The district court dismissed the case, finding that the claims belonged to the respective bankruptcy trustees and the plaintiff lender lacked standing to enforce them. The Eighth Circuit confirmed. “The basic rule is that, if the debtor could have asserted the claim at the time before its bankruptcy, the trustee must present it now,” observed the court. Because Petters stole funds lent to his own companies, the debtor companies had the same right to sue JPMorgan as Ritchie. In fact, debtors sued JPMorgan, and JPMorgan paid more than $30 million to settle a group of claims filed by bankruptcy trustees. The bar order and standing doctrine thus prevented Ritchie from suing JPMorgan separately.

The deal is Ritchie Special Credit Inv., Ltd. vs. JPMorgan Chase & Co., no. 21-2707 (8th Cir. 2022). Ritchie is represented by Larson King, LLP. JPMorgan is represented by Simpson Thacher & Bartlett LLP and Taft Stettinius & Hollister LLP. The opinion is available here.

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