Imagine that you've given a $2 million loan to your friend, Peter, but then he doesn't repay it and files for bankruptcy protection. Peter's got a business, so in the bankruptcy proceedings, Peter promises that he'll eventually pay all of his creditors 100% of what he owes each of them, plus interest, by putting a lien on his business and paying a certain amount of the profits from that business as the money rolls in. If all goes as planned, that should result in you getting your money back.
There have been a few hiccups in the road since then, however. During the heavy COVID-19 years, he didn't pay the amount he promised to pay. Moreover, you're worried. Sure, he'll have enough money to pay you off if his business does as well as expected. But if it makes less money, under the plan, it'll take a very long time for you to get paid. Plus, God forbid, if the business starts losing money, you might not get paid back at all. The plan is good, but like the saying goes, no plan survives contact with the enemy.
One day, you hear that Peter's planning on spending $1 million to go on a round-the-world cruise. You think that's a waste of money and not permitted under the bankruptcy plan. So you object, saying that he shouldn't be allowed to spend his money that way -- money that would otherwise eventually go to you and the other creditors. Peter tells you to shut up because, under the plan, you're going to get paid all that you are owed, so what do you care if he blows $1 million. You respond that you're not nearly as confident as Peter that the plan will inexorably succeed, so would like the $1 million that's sitting around to go to his creditors rather than be wasted, especially since that $1 million might make the difference between full and partial repayment in the event the business starts not throwing off the profits that were originally anticipated.
Do you have Article III standing as a creditor to object to Peter's spending of the $1 million? Do you have sufficient injury in fact?
The Ninth Circuit says: No. Objection dismissed.
I've simplified the facts, but that's the essential basis for the Ninth Circuit's holding. The actual case involves Roscoe's House of Chicken & Waffles in Los Angeles -- a fairly famous eatery.
You can see the arguments both ways on the standing issue. But it's a fairly strict interpretation of injury in fact, I think. If I'm in this setting, I definitely feel aggrieved here, and not just hypothetically or as a matter of speculation. To me, just because you say you'll eventually pay me and have a plan to do so doesn't necessarily make it so. I can still legitimately freak out if you start dissipating your equity.
Which is why, parenthetically, creditors demand an equity "cushion" when they loan you money, and insist that you keep it there. Otherwise, they up the rates.
