Lack of Authority to Initiate Bankruptcy Is Not Jurisdictional

Wednesday, March 4, 2026

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Ninth Circuit:

Lack of Authority to Initiate Bankruptcy Is Not Jurisdictional

Opinion Says Fact That Founders’ Son May Not Have Held Corporate Position to Throw Family’s Orange County Business Into Chapter 11 Proceedings Does Not Invalidate Court’s Decrees

By a MetNews Staff Writer

A bankruptcy court is not deprived of its jurisdiction by virtue of the fact that the Chapter 11 petition that initiated the proceedings for a California company may have been filed by a party who lacked corporate authority to act on behalf of the business, the Ninth U.S. Circuit Court of Appeals held yesterday.

The question arose after Richard and Lucia Parks, the founders of the Orange County-based real estate investment vehicle Parks Diversified L.P., learned that a family member, David Klein, had filed a chapter 11 bankruptcy petition on behalf of the entity in June 2021. Klein is Lucia Parks’ son and the stepson of Richard Parks.

According to the Parks, Klein had originally served as a general partner for the company when it was formed, but he voluntarily resigned his status in November 2009, retaining only a 1% economic interest in the entity. The bankruptcy court eventually dismissed claims, asserted in a complaint originally filed in Orange Superior Court by the Parks against Klein and the lawyers they say helped him initiate the proceedings, after the matter was removed.

A District Court judge partly affirmed the bankruptcy court’s orders, and the Parks appealed.

Yesterday, the Ninth Circuit affirmed the District Court’s conclusion that the bankruptcy court had subject-matter jurisdiction regardless of whether Klein had authority to file the bankruptcy petition. Circuit Judge Lawrence VanDyke, writing for the court, said:

“Today, we’re not tasked with deciding the central issue of who owns what. Instead, we must answer a narrower…question: if an individual files a voluntary chapter 11 bankruptcy petition purportedly on behalf of an entity but lacks the requisite authority to do so, does the bankruptcy court lack subject-matter jurisdiction over the bankruptcy case? The bankruptcy court and district court both said ‘no.’ Joining the reasoning of two other circuits, and declining to create a circuit split, we agree. Corporate authority to file for bankruptcy—while important and mandatory—is not jurisdictional.”

Circuit Judges John B. Owens and Holly A. Thomas joined in the opinion.

Appointments Sought

After filing the petition, Klein, purportedly acting for the company, sought to have the Irvine-based Goe Forsythe & Hodges LLP appointed as general bankruptcy counsel and the Newport Beach firm Klein & Wilson LLP appointed to act as special litigation attorneys. The Parks responded by moving to dismiss the bankruptcy case in August 2021, arguing that it was “filed without authorization …and is therefore…a fraud on the court.”

Before the bankruptcy court could rule on whether Klein was authorized to file the petition, the parties entered into an agreement to dismiss the bankruptcy case and “release and waive any…claims against” the firms involved in the filing. In April 2022, the court approved the agreement.

On March 17, 2023, the Parks filed a complaint in Orange Superior Court against Klein, Goe Forsythe & Hodges, Klein & Wilson, as well as certain individual attorneys, asserting claims for breach of fiduciary duty, malpractice, and conversion. The following month, Goe Forsythe & Hodges requested that the bankruptcy court reopen the case and removed the state court action.

Then-Chief Judge Theodor C. Albert of the U.S. Bankruptcy Court for the Central District of California (now deceased) denied a motion for remand. In November 2023, he granted motions to dismiss, without leave to amend, and special motions to strike under California’s anti-SLAPP statute the claims asserted in the state court action, finding that the settlement agreement barred the causes of action.

The plaintiffs appealed to the Central District of California. In May 2024, District Court Judge Stephen V. Wilson declared that the court “validly exercised its ancillary jurisdiction to resolve claims against [the firms] which were waived…in the Settlement Agreement” but that it “overstepped the bounds of [that] jurisdiction in resolving [their] claims against Non-Signator[ies] and [Klein].”

U.S. Supreme Court Case

VanDyke pointed out that the Parks asserted that the 1945 U.S. Supreme Court’s decision in Price v. Gurney limits bankruptcy court authority over an unauthorized bankruptcy to the dismissal of the case and that the restraint is grounded in subject-matter jurisdiction.

He acknowledged that the high court found in Price that a group of minority shareholders were not entitled to file a bankruptcy petition on behalf of the corporation and declared that “nowhere is there any indication that Congress bestowed on the bankruptcy court jurisdiction to determine that those who in fact do not have the authority to speak for the corporation as a matter of local law are entitled to…file a petition on behalf of the corporation.”

Saying that, although “[o]n its surface, this language may sound like the Price Court made a jurisdictional ruling,” he noted that “more recent Supreme Court jurisprudence has walked back [such] so-called ‘jurisdictional’ decisions and added:

“Although the bankruptcy case commences only when the petition is filed ‘by an entity that may be a debtor,’…’[n]othing in the text of [the Bankruptcy Code] indicates that Congress intended courts, on their own motion, to assure that’ the petition is filed by an authorized agent of the debtor….”

The jurist continued:

“We disagree that Price provides a rule of subject-matter jurisdiction. And although the Price rule is mandatory, it doesn’t provide a basis for reversing or vacating any of the orders below, even if we assume, without deciding, that Klein filed the chapter 11 petition without the authority of Parks Diversified.”

Single Shareholder Concern

Addressing the concern that “if we decide the Price rule is not jurisdictional, then a single shareholder of a public corporation like Apple, Inc. could subject all the property of the corporation to the ‘jurisdiction of [a] Bankruptcy Court’ by simply filing a bankruptcy petition,” he reasoned:

“[T]his hypothetical ignores reality. First, a single shareholder cannot file a corporate bankruptcy petition on his own—he’d need to hire counsel to file the petition on the corporation’s behalf. So, before the petition could even be filed, a shareholder would need to find an attorney…and convince him to file a meritless bankruptcy petition on behalf of a corporation that he has no authority to represent. Even if the shareholder got this far, his lack of authority would be obvious early in the bankruptcy proceedings, and the bankruptcy court would be required to dismiss the case as unauthorized under Price.”

Commenting that the case was complicated by the fact that the bankruptcy court had yet to reach the Price issue before the parties agreed by stipulation to dismiss the bankruptcy, he wrote:

“In their opening brief, Appellants don’t challenge any of the other orders that the bankruptcy court issued…before the stipulation. So the Price rule—even though it is mandatory, and even if it must be applied somewhat early in the grand scheme of the bankruptcy proceedings—doesn’t provide a basis for reversing or vacating any orders here.”

In a footnote, he declared:

“We do not decide here whether the bankruptcy court had jurisdiction over the removed…case or whether the bankruptcy court’s dismissal of [those] claims was proper.”

He also noted:

“The parties raise several other issues on appeal. We will decide those issues in a subsequent disposition.”

The case is Talon Diversified Holdings Inc. v. Forsythe, 24-5516.