A plaintiff lacked standing to challenge the sale of a debtor's Nissan dealership because the plaintiff was not one of the bidders at the auction, the U.S. District Court for the Eastern District of Kentucky ruled Feb. 22 (Kentucky Automotive Center of Grayson LLC v. Nissan North America Inc., E.D. Ky., No. 0:12-cv-00048 (HRW), 2/22/13).
Judge Henry R. Wilhoit Jr. found that the plaintiff had suffered no injury from the allegedly fraudulent auction and therefore lacked standing to challenge the auction's validity. The district court also found that even if the plaintiff had standing, the claims would be barred by res judicata.
The Crawford Group's three principals, Donald G. Crawford, Lydia Crawford, and E.B. Lowman II, filed an objection on behalf of the Crawford Group alleging that the auction was a “sham” and the result of fraudulent and illegal actions. However, one day prior to the evidentiary hearing on the motion to approve the sale, the Crawford Group withdrew its objection and said in the notice of withdrawal that “the evidentiary hearing would be moot.” The bankruptcy court approved the sale and the Crawford Group did not appeal the sale order.
Nissan moved to dismiss the case pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, describing KAC's lawsuit in the memorandum in support of the motion as a “thinly-veiled attempt to revisit numerous issues that have already been raised--and fully and finally resolved--as part of a previous bankruptcy.” Nissan argued that KAC, who was not a bidder in the original auction, lacked standing to bring the claims. Nissan also argued that even if KAC had standing, the claims should be barred by res judicata.
In its response to the motion to dismiss, KAC alleged that it appeared at the auction and was the highest bidder, but the court found that KAC's statements “obscure[d] the true nature of the entities involved.” The court said that the fact that Donald G. Crawford and Lydia Crawford were members of KAC was irrelevant for the purposes of KAC's standing. The court said that KAC was not one of the three entities identified in the record as a member of the Crawford Group and that the plaintiff's “attempted sleigh[t] of hand” could not disguise the true nature of these “separate and district corporate entities.”
The district also found that KAC lacked standing to pursue claims under the Kentucky Motor Vehicle Sales Act and the Kentucky Consumer Protection Act because KAC did not meet the requisite criteria to have a private right of action under those statutes.
The court said that the claims alleged by KAC “relate to the bankruptcy proceedings, should have been brought there and were, in fact, filed there initially.” The court said that the issues raised by KAC were identical to those in the Crawford Group's objection. KAC argued that the bankruptcy court was not a court of competent jurisdiction to hear the claims it had filed, but the district court said that a bankruptcy court is “competent to hear all claims that affect the bankruptcy estate.”
The court said the same set of facts were present in Winget v. JP Morgan Chase Bank NA, 537 F.3d 565 (6th Cir. 2008). In Winget, the U.S. Court of Appeals for the Sixth Circuit found that a plaintiff's claims were barred by res judicata when they were nearly identical to arguments the plaintiff had made in an objection to a sale order that it later withdrew. In this case, the court said that KAC was attempting to litigate issues involving a bankruptcy asset long after its sale, which was what Winget intended to prevent.
Finding that KAC had failed to state a claim upon which relief may be granted, the court granted Nissan's motion to dismiss.
To view additional stories from Bloomberg Law® request a demo now