In re Tower Park Properties, LLC

19. In re Tower Park Properties, LLC

Citation: 803 F.3d 450 (9th Cir. 2015), Case No. 13-56045

Relevant Facts

• Alexander Hughes is the sole non-contingent beneficiary of the Mark Hughes Family Trust (founder of Herbalife), with an estate worth over $300 million.

• Trust principal must remain in the Trust until Alexander turns 35 in 2026; three co-trustees were named (Klein, Pair, and Reynolds).

• The Trust owned two LLCs that held virtually all trust assets, including “Tower Grove”—a 157-acre undeveloped property overlooking Beverly Hills.

• In 2004, the trustees sold Tower Grove to Tower Park Properties, LLC in an entirely seller-financed transaction ($23.75 million); Tower Park defaulted and filed Chapter 11 bankruptcy in 2008.

• A settlement agreement was negotiated reducing the Trust entities’ $57 million claims by approximately $24 million (a 30% reduction).

• Hughes filed an ex parte application in probate court seeking suspension of the trustees; the probate court suspended them and appointed a trustee ad litem (FTIC).

• Hughes objected to the settlement in bankruptcy court. The bankruptcy court approved the settlement, finding Hughes had standing but ruling against him on the merits.

Legal Issues

Whether Hughes, as the sole non-contingent beneficiary of the Trust, has “party in interest” status under 11 U.S.C. § 1109(b) and standing to object to the Settlement Agreement in bankruptcy proceedings.

Positions of the Parties

Hughes: He is a party in interest due to his future financial stake; the settlement was not negotiated in good faith and constituted an impermissible plan modification; he could bring a direct claim under Atascadero v. Merrill Lynch.

Tower park: Hughes lacks standing; trust beneficiaries’ interests are adequately represented by the trustee (FTIC); the settlement meets Rule 9019 criteria and benefits the estate.

Decision of the Court

AFFIRMED. Hughes’ appeal was dismissed for lack of standing.

Reasons for the Decision

• A trust beneficiary does not possess “party in interest” status in bankruptcy proceedings involving trust-held assets.

• The legally protected interest in trust assets rests with the trustees, not the beneficiary. Hughes has no legal title, ownership interest, or current right to control or manage the assets.

• FTIC, as trustee ad litem, is the proper representative of the Trust’s interests.

• Allowing remote trust beneficiaries to participate would clutter bankruptcy proceedings with collateral issues.

• Hughes has alternative forums available (probate court and California appellate courts).

• The probate court subsequently found the trustees breached their duty of prudence in the Tower Grove sale.