                              In the

United States Court of Appeals
               For the Seventh Circuit

No. 09-3121

F REDERICK J. G REDE, as Trustee of the
Sentinel Liquidation Trust,
                                                  Plaintiff-Appellant,
                                  v.

T HE B ANK OF N EW Y ORK M ELLON and
T HE B ANK OF N EW Y ORK M ELLON C ORPORATION,

                                               Defendants-Appellees.


             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
                No. 09 C 1919—James B. Zagel, Judge.



    A RGUED F EBRUARY 18, 2010—D ECIDED M ARCH 18, 2010




  Before E ASTERBROOK , Chief Judge, and K ANNE and
R OVNER, Circuit Judges.
  E ASTERBROOK, Chief Judge. After Sentinel Management
Group, Inc., entered bankruptcy, the court appointed
Frederick Grede as its trustee. A plan of reorganization
under Chapter 11 of the Bankruptcy Code created a
trust to hold most of Sentinel’s assets (valued at more
2                                               No. 09-3121

than $500 million) while its business was being wound
up, its investments cashed out, and its claims paid. The
plan was confirmed in December 2008. No one asked for
a stay or appealed, and the plan took effect. Grede
changed hats from Chapter 11 Trustee to Trustee of the
Sentinel Liquidation Trust.
  Sentinel was a futures commission merchant and in-
vestment manager for commodity brokers, pension funds,
and wealthy persons. Many of its customers (collectively
the investors) believe that Sentinel defrauded them, and
they blame not only Sentinel’s managers but also
The Bank of New York Mellon, which was Sentinel’s
clearing bank, lender, and depository for investment
pools. Sentinel’s claims against the Bank, including those
seeking to recover payments that the Trustee charac-
terizes as preferential transfers or fraudulent convey-
ances, were transferred to the Trust. Investors’ claims
against the Bank did not belong to Sentinel and were
not part of the bankruptcy estate. But the terms of the
Liquidation Trust permit investors to assign their claims
to it for collection, and many of Sentinel’s investors have
done just that. The Trustee filed this action under the
diversity jurisdiction to pursue the investors’ claims.
  The Bank made two threshold objections: first that the
assignment was a collusive maneuver for the purpose
of creating jurisdiction, which if so would knock out
subject-matter jurisdiction, see 28 U.S.C. §1359; and second
that the Trustee lacks “standing” to pursue the investors’
claims. We put “standing” in scare quotes because the
usage is abnormal. A trustee owns the trust’s assets. If
No. 09-3121                                                3

these assets are depleted by fraud, the trustee may sue
to redress the injury, even though the trust will distribute
all of the proceeds to its beneficial owners. Indeed, a
claim’s assignee may sue even when the claim was as-
signed for the purpose of collection and there is no
formal trust. See Sprint Communications Co. v. APCC
Services, Inc., 128 S. Ct. 2531 (2008). But in 1972 the
Supreme Court used the phrase “lacks standing” to
describe its conclusion that a bankruptcy trustee may
not sue on behalf of investors who thought that a third
party’s acts had injured them and the debtor jointly.
Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416
(1972). The Court used the language of “standing” to
refer, not to injury, causation, and redressability, the
three ingredients of standing, see Steel Co. v. Citizens for
a Better Environment, 523 U.S. 83, 102–04 (1998), but to
whether Congress had authorized a trustee to pursue a
given kind of action. Whether a given action is within
the scope of the Code is a question on the merits rather
than one of justiciability. To avoid confusion, therefore,
the rest of this opinion refers to the Trustee’s “authority”
to act on behalf of the investors, rather than his “standing”
to do so.
  A collusive assignment is a genuine jurisdictional
problem. We treat an assignment as collusive when its
sole function is to shift litigation from state to federal
court. See, e.g., Steele v. Hartford Fire Insurance Co., 788
F.2d 441, 444 (7th Cir. 1986); Hartford Accident & Indemnity
Co. v. Sullivan, 846 F.2d 377, 382 (7th Cir. 1988).
  Assignment to a trust could be designed to take advan-
tage of the rule that a trust’s citizenship is that of the
4                                                 No. 09-3121

trustee, rather than the beneficiaries, for the purpose of
28 U.S.C. §1332(a). See Navarro Savings Association v. Lee,
446 U.S. 458 (1980). Cf. Northern Trust Co. v. Bunge Corp.,
899 F.2d 591 (7th Cir. 1990) (a non-trustee holder of
injured parties’ claims has the same citizenship as the
claims’ owners). But it would not be sensible to put the
assignments to the Sentinel Liquidation Trust in the
collusive category.
   The Bank is a citizen of New York; many investors are
not, and many individual claims exceed $75,000, so those
investors could sue under the diversity jurisdiction in
their own names. Or one investor could sue on behalf of a
class; only the plaintiff’s citizenship would count, just as
only a trustee’s citizenship counts. See Snyder v. Harris,
394 U.S. 332, 340 (1969). What’s more, the Trust already
is suing the Bank in federal court in its capacity as holder
of Sentinel’s claims to recover preferential or fraudulent
transfers; the investors’ claims could be added under
the supplemental jurisdiction. See 28 U.S.C. §1367; Exxon
Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546 (2005).
The assignments thus do not move litigation from state
to federal court; instead they facilitate efficient aggrega-
tion of claims, just as Fed. R. Civ. P. 23 does. Subject-matter
jurisdiction is secure.
  The district court dismissed the suit after concluding
that the Trustee lacks authority to act on behalf of the
investors. 409 B.R. 467 (N.D. Ill. 2009). It relied on Caplin
and one circuit’s conclusion that Caplin’s rule applies
even after the bankruptcy ends. Williams v. California 1st
Bank, 859 F.2d 664 (9th Cir. 1988). The Trustee observes
No. 09-3121                                                 5

that this approach makes him the only one of the world’s
6.8 billion people who cannot sue on assignments of the
investors’ claims; the Bank replies that the problem is
not that Grede used to be a trustee in bankruptcy, but
that the Trust holds assets that came from Sentinel’s
estate. According to the Bank, the Trust may use its assets
to subsidize suit on the assigned claims; if the Trust loses,
its beneficial owners will be out of pocket. The Bank
submits that, in order to protect the Trust’s beneficial
owners, the Trustee should be forbidden to champion
third-party claims. At least one circuit has rejected that
argument, and the Williams decision, in holding that a
liquidating trust created in bankruptcy may accept and
sue on assignments of third-party claims. Semi-Tech
Litigation, LLC v. Bankers Trust Co., 272 F. Supp. 2d 319,
323–24 (S.D. N.Y. 2003), affirmed & adopted, 450 F.3d 121,
123 (2d Cir. 2006). We must choose between the
second circuit’s holding and the ninth’s.
  Caplin gave three reasons for its conclusion that a bank-
ruptcy trustee may not pursue third-party claims. First,
the Bankruptcy Act of 1898 elaborately specified the
powers of trustees in bankruptcy; none of its provisions
so much as hinted that bankruptcy judges could transfer
third-party claims to trustees. 406 U.S. at 428–29. (Six years
after Caplin, the Bankruptcy Code of 1978 replaced the
Bankruptcy Act of 1898. The parties agree that the Code
does not make any change material to the issue in
Caplin.) Second, the third-party claims in Caplin might
have created a right of subrogation, which would have
required the debtor in bankruptcy to reimburse the third-
party defendant for anything the trustee collected on
6                                               No. 09-3121

behalf of the investors. The Court did not see any benefit
in such a roundabout process. 406 U.S. at 429–31. Third,
permitting a bankruptcy trustee to pursue third-party
claims creates a risk of inconsistent or double recov-
ery—because the claims had been placed in the trustee’s
hands by the judge rather than by the claims’ owners. 406
U.S. at 431–34. None of these reasons applies to suit by
a liquidation trustee on assigned claims.
  Although the terms of the Bankruptcy Code govern the
permissible duties of a trustee in bankruptcy, the terms
of the plan of reorganization (and of the trust instru-
ment) govern the permissible duties of a trustee after
bankruptcy. A liquidation trust is no different in this
respect from a reorganized debtor. No one believes
that the powers and duties of the managers at United
Airlines, which emerged from bankruptcy when the
court approved its plan of reorganization in 2006,
depend today on the terms of the Code. They depend on
the terms of the plan, on United’s articles of incorporation,
and on rules of corporate rather than bankruptcy law.
People are tempted to assume that bankruptcy is forever
and that the Code continues to regulate the conduct of
former debtors. We have held otherwise. See In re Zurn,
290 F.3d 861 (7th Cir. 2002); Pettibone Corp. v. Easley, 935
F.2d 120 (7th Cir. 1991). The Sentinel Liquidation Trust
is a post-bankruptcy vehicle, just like the reorganized
United Airlines. (That the bankruptcy proceeding con-
tinues after the plan’s approval does not affect this con-
clusion; proceedings after the plan is confirmed often are
necessary to value particular claims and distribute pro-
ceeds, but this process is independent of the reorganized
entity’s current operations.)
No. 09-3121                                                7

   So much for Caplin’s first reason. The Bank does not
seriously contend that a right of subrogation would enable
it to make any claim against Sentinel’s assets; the Bank
would have had to make such an argument in the bank-
ruptcy court, and it did not. Today the Bank’s rights
against the Trust are limited by the plan of reorganization.
As for Caplin’s third reason: the Trust holds only those
third-party claims that investors have assigned, so there
is no possibility of inconsistent dispositions or duplicative
recoveries. By proceeding on the investors’ voluntary
assignments rather than a bankruptcy judge’s directive,
Sentinel’s plan of reorganization cures Caplin’s third
problem.
  The Bank cites Caplin often but in the end does not rely
on any of its three reasons. As we’ve mentioned, the
Bank’s principal argument is that the Trust should not be
allowed to deplete its assets by the expense of litigating
the investors’ claims. If the Trust pursues these claims
and loses, legal fees and other expenses are out the win-
dow, for the investors assigned their claims without
promising to underwrite the Trust’s litigation. Yet this is
no skin off the Bank’s nose. The Bank is not among the
Trust’s beneficial owners—and, if it were, the time to
object would have been when the plan of reorganization
was proposed. The possibility that the Trust would use
some of its assets to sue on behalf of the assignors was
apparent to any reader of the plan or the trust documents.
Any beneficial owner could have objected and demanded
that the assignors contribute not only their claims but
also liquid assets. No one objected on this ground, how-
ever, and the plan, having taken effect, is not open to
8                                                No. 09-3121

the sort of collateral attack that the Bank now wages.
In re UNR Industries, Inc., 20 F.3d 766 (7th Cir. 1994);
In re Harvey, 213 F.3d 318, 321 (7th Cir. 2000).
   The Bank is trying to fend off the Trust’s claims not by
standing on its own rights, but by asserting that the
litigation might injure strangers (the Trust’s beneficiaries).
It is a basic principle that litigants can’t invoke the
rights of third parties. American law recognizes a few
instances in which jus tertii claims (“third-party standing”)
are allowed, but these are rare. See Kowalski v. Tesmer, 543
U.S. 125 (2004) (discussing authority); cf. MainStreet
Organization of Realtors v. Calumet City, 505 F.3d 742
(7th Cir. 2007) (discussing prudential limits when third
parties suffer the principal injury). The Bank does not
even try to show that it meets the requirements for third-
party standing, let alone for the sort of third-party
claim that would justify a belated challenge to a con-
firmed plan of reorganization.
  Although the Bank tries to recast this argument as one
about Delaware trust law (the Trust is a business trust
under Delaware law), this line of argument does more
to show Caplin’s irrelevance than to escape from the
problem that the Bank is asserting strangers’ supposed
entitlements. For if the Trust’s ability to accept and sue
on the assigned claims really does depend on Delaware
law, then Caplin, which rests on federal bankruptcy law,
does not have a role to play. We need not get into this
subject, however, because the Trust’s beneficial owners,
rather than the Bank, are the right persons to make any
contention that the Trust should not have accepted
the assignments of the investors’ choses in action.
No. 09-3121                                              9

   We conclude that Caplin does not apply to the activities
of a liquidating trust created by a plan of reorganization
(or, for that matter, an ex-debtor operating under a con-
firmed plan). The judgment of the district court is
reversed, and the case is remanded for further pro-
ceedings consistent with this opinion.




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