Capacity-Standing Borderline

The Fifth Court revisited the borderline between “capacity” and “standing” in the context of a claim acquisition from bankruptcy in Obsidian Solutions, LLC v. KBIDC Investments, LLC, No. 05-19-00440-CV (July 30, 2021) (mem. op.).

Substantively, the Court reminded: “The issue of standing focuses on whether a party has a sufficient relationship with the lawsuit so as to have a ‘justiciable interest’ in its outcome; in contrast, the issue of capacity ‘is conceived of as a procedural issue dealing with the personal qualifications of a party to litigate.’ …  ‘When the issue involves capacity arising from a contractual right, “Texas law is clear, and this court has previously held numerous times, that a challenge to a party’s privity of contract is a challenge to capacity, not standing.”‘” (citations omitted, emphasis added).

Procedurally, the issue was tried by consent, even if the correct label was not applied.   “[A]t trial, the issue of whether KBIDC bought the assets out of bankruptcy and which assets were purchased arose during KBIDC’s direct examination of Kent. … The trial court listened to arguments from both sides on their interpretations of the APA before finding that the APA gave ‘authority to the Plaintiff for … the advancement of this suit.’ Given the parties’ arguments and the trial court’s ruling, we conclude that capacity was tried by consent in the trial court.” (emphasis added).