State attorneys general object to Character.AI's Disney-led auction rules; company defends the process
States objected that Character.AI's auction rules favor Disney, and the debtor defended them. The court approved the rules on November 4. Disney's bid covers a non-exclusive technology license and any unreleased claims against employees it hired, not the app or user data.
Case period:
Published by The Dispute Index editorial teamPublished Updated
Overview
In Character Technologies' Delaware bankruptcy, a coalition of states objected on October 23, 2026, to proposed auction rules involving Disney Worldwide Services, Inc. The states argue that hiring, releases and bid protections could disadvantage rival bidders and limit scrutiny of earlier transactions. They say the estate would receive at most $20 million in total, including a $5.5 million prepetition payment.
The debtor's proposed reply, attached to an October 27 motion for leave to file late, defends the arrangement as necessary to preserve operations and value. It says a winning rival could receive transition services and extend offers to 80% of former employees now at Disney. Disney's bid covers a non-exclusive license and any unreleased estate claims against employees it hired; the license excludes the app, user data and trained models. The U.S. Trustee filed a separate objection.
On November 4, Judge Brendan L. Shannon entered an order approving the bidding procedures, Disney's designation as stalking horse and a $700,000 break-up fee and expense reimbursement, and overruling objections that were not resolved. Bids are due November 24, and the sale hearing is set for December 3 and 4.
Read the full background
The states' objection and the debtor's reply are competing litigation positions. In its reply, the debtor says it added language to its proposed order stating that the order does not approve the full terms of the Disney stalking-horse agreement, and it opposes the states' requested period to challenge the prepetition releases. The reply also says the debtor is willing to consent to a consumer privacy ombudsman under appropriate circumstances. Approval of the auction rules does not by itself establish that Disney has acquired the business or that the challenged releases are valid.
On October 30, Judge Brendan L. Shannon granted the debtor leave to file its late reply, allowed parties in interest to file any joinders, and deemed those filings timely. That order addresses timing and does not rule on the bidding-procedures motion. Law360 reported the same day that the judge approved the bidding procedures, including Disney's $20 million stalking-horse bid.
The court entered the written bidding-procedures order on November 4. It overrules objections that were not withdrawn, waived or settled, and it approves Disney's bid protections: a break-up fee and expense reimbursement of $700,000, or 3.5% of the cash price, which Disney receives if another bidder wins its target assets. The order states that it does not approve the full terms of Disney's agreement. It does not address the prepetition releases or include the challenge period the states requested, and it does not mention a consumer privacy ombudsman.
The sale notice approved with the order says Disney's target assets exclude personally identifiable information. It also says that if Disney wins, the debtor will seek a sale order approving the September 18 agreements with Disney, including their releases, and releasing the debtor's claims against Disney and the employees it hired. The sale hearing is set for December 3 and 4.
People in this case
Tim GriffinDirectly involved
Timeline
8 timeline entries on this page. Dates: September 18, 2026 to November 4, 2026
September 2026
Character signs the prepetition Disney agreement
The states describe a September 18 agreement covering hiring, releases and exclusivity in return for a non-refundable $5.5 million payment. The debtor defends its benefits.
[01]The Coalition of States' Objection to the Debtor's Bidding Procedures Motion, Document 66
The states argue Disney's prepetition arrangements and proposed protections could impair competitive bidding. These are litigation arguments rather than findings.
The Coalition of States' Objection to the Debtor's Bidding Procedures Motion, Document 66Case 26-11603, Document 66, preliminary statement and requested relief[02]Debtor's Sale and Bidding Procedures Motion, Document 15
Disney's proposed target assets include a non-exclusive technology license and any unreleased estate claims against employees it hired. The license excludes the app, user data and trained models.
Debtor's Sale and Bidding Procedures Motion, Document 15Document 15, sale motion and attached agreements[03]Motion for Leave to File Late Omnibus Reply, Document 73, Exhibit B
The debtor argues the arrangement preserves operations and value and explains proposed changes to the bidding order. The reply is attached to a motion for leave to file late.
Motion for Leave to File Late Omnibus Reply, Document 73, Exhibit BDocument 73, Exhibit B, reply paragraphs 3-7
October 2026
Character Technologies seeks approval of bidding procedures
Claim
The sale motion proposes Disney as opening bidder for a non-exclusive license and describes other assets and proposed auction rules.
[02]Debtor's Sale and Bidding Procedures Motion, Document 15
Disney's proposed target assets include a non-exclusive technology license and any unreleased estate claims against employees it hired. The license excludes the app, user data and trained models.
Debtor's Sale and Bidding Procedures Motion, Document 15Document 15, sale motion and attached agreementsState coalition objects to the bidding rules
Reaction
The states challenge the treatment of earlier transactions, bid protections and conditions that they say discourage other bidders.
[01]The Coalition of States' Objection to the Debtor's Bidding Procedures Motion, Document 66
The states argue Disney's prepetition arrangements and proposed protections could impair competitive bidding. These are litigation arguments rather than findings.
The Coalition of States' Objection to the Debtor's Bidding Procedures Motion, Document 66Case 26-11603, Document 66, preliminary statement and requested reliefDebtor submits its reply with a motion for leave to file late
Reaction
The attached reply defends the Disney arrangement, describes proposed changes and says the transaction preserves operations and value.
[03]Motion for Leave to File Late Omnibus Reply, Document 73, Exhibit B
The debtor argues the arrangement preserves operations and value and explains proposed changes to the bidding order. The reply is attached to a motion for leave to file late.
Motion for Leave to File Late Omnibus Reply, Document 73, Exhibit BDocument 73, Exhibit B, reply paragraphs 3-7U.S. Trustee files a separate objection to the sale procedures
Reaction
The U.S. Trustee files a separate objection to the proposed sale and bidding procedures, alongside the coalition of states' pending objection.
[04]United States Trustee's Objection to the Debtor's Sale and Bidding Procedures Motion, Document 69
The U.S. Trustee objects to the proposed sale and bidding procedures. The filing is separate from the coalition of states' objection.
United States Trustee's Objection to the Debtor's Sale and Bidding Procedures Motion, Document 69Case 26-11603-BLS, Document 69, filed October 27, 2026Court deems Character Technologies' late bidding-procedures reply timely filed
Judge Brendan L. Shannon grants the debtor leave to file its late reply to objections to the bidding-procedures motion and grants parties in interest leave to file any joinders. The order deems the reply and any joinders timely filed. It does not rule on the bidding-procedures motion.
[05]Character Technologies, Inc.: order granting leave to file late reply and any joinders, Docket 94
Judge Brendan L. Shannon grants the debtor leave to file its reply after the deadline, grants parties in interest leave to file any joinders, and deems the reply and any joinders timely filed. The order addresses timing only and does not rule on the bidding-procedures motion.
Character Technologies, Inc.: order granting leave to file late reply and any joinders, Docket 94Case 26-11603-BLS, Docket 94, filed October 30, 2026; complete two-page order, especially paragraph 2Law360 reports the judge approved the bidding procedures at the October 30 hearing
Law360 reports that the bankruptcy judge approved the bidding procedures on October 30, including Disney's $20 million stalking-horse bid. In a November 3 filing, the debtor's counsel said the judge indicated at the hearing that he would overrule the objections and enter a revised order, and that counsel to Florida said the state continued to object. The court entered the written order on November 4.
[06]Character.AI Ch. 11 Auction With Disney Bid Moves Forward
Law360 reports that a Delaware bankruptcy judge approved the bidding procedures for Character Technologies' assets on October 30, including Disney's $20 million stalking-horse bid. This is a news report of the hearing, not the court's written order.
Character.AI Ch. 11 Auction With Disney Bid Moves ForwardOpening paragraph[07]Character Technologies, Inc.: certification of counsel regarding the further revised proposed bidding procedures order, Docket 96
The debtor's counsel certifies that at the October 30 hearing the court indicated it would overrule the objections and enter the revised proposed order subject to certain revisions. The filing says Disney and the objectors did not object to the form of the further revised order and that counsel to Florida said the state continues to object. This is the debtor's account of the hearing, filed the day before the court entered the order.
Character Technologies, Inc.: certification of counsel regarding the further revised proposed bidding procedures order, Docket 96Case 26-11603-BLS, Docket 96, filed November 3, 2026; paragraphs 6 and 8[08]Character Technologies, Inc.: order approving bidding procedures and bid protections, Docket 106
Judge Brendan L. Shannon approves the bidding procedures, Disney's designation as stalking horse for its target assets, and a $700,000 break-up fee and expense reimbursement equal to 3.5% of the cash purchase price. The order overrules objections that were not withdrawn, waived or settled, and paragraph 1 states that it does not approve the full terms of the stalking-horse agreement other than the bid protections. The order does not mention a consumer privacy ombudsman. The attached transaction notice says the Disney target assets exclude personally identifiable information and lists the releases the debtor will ask the court to approve at the sale hearing if Disney wins.
Character Technologies, Inc.: order approving bidding procedures and bid protections, Docket 106Case 26-11603-BLS, Docket 106, signed and entered November 4, 2026; order paragraphs 1 to 3, 8, 9, 11, 23 and 26, Schedule A, and Exhibit 2 (transaction notice)
November 2026
Court enters the order approving the bidding procedures and Disney's bid protections
Judge Brendan L. Shannon enters the order approving the bidding procedures, Disney's designation as stalking horse and a $700,000 break-up fee and expense reimbursement. The order overrules objections that were not resolved and states that it does not approve the full terms of Disney's agreement. It does not address the prepetition releases or mention a consumer privacy ombudsman. Bids are due November 24, with an auction on December 1 and a sale hearing on December 3 and 4.
[08]Character Technologies, Inc.: order approving bidding procedures and bid protections, Docket 106
Judge Brendan L. Shannon approves the bidding procedures, Disney's designation as stalking horse for its target assets, and a $700,000 break-up fee and expense reimbursement equal to 3.5% of the cash purchase price. The order overrules objections that were not withdrawn, waived or settled, and paragraph 1 states that it does not approve the full terms of the stalking-horse agreement other than the bid protections. The order does not mention a consumer privacy ombudsman. The attached transaction notice says the Disney target assets exclude personally identifiable information and lists the releases the debtor will ask the court to approve at the sale hearing if Disney wins.
Character Technologies, Inc.: order approving bidding procedures and bid protections, Docket 106Case 26-11603-BLS, Docket 106, signed and entered November 4, 2026; order paragraphs 1 to 3, 8, 9, 11, 23 and 26, Schedule A, and Exhibit 2 (transaction notice)
Claims
Claims separate what was said from what is contested. Follow each source for the original wording and context.
What's disputed
Disputed claim
Character.AI
The Disney transaction preserves operations and provides substantial benefits to the bankruptcy sale process.
Sources (1)
- Motion for Leave to File Late Omnibus Reply, Document 73, Exhibit BDocument 73, Exhibit B, reply paragraphs 3-7
Response record
Responses
Choose one response filter, or select All responses to see the full record.
2 matching responses. Newest first.
Character.AIDebtor, through counsel, in a proposed reply attached to a motion for leave to file lateDirectly involvedBefore this statement
The company describes operational risks, employee attrition and prior unsuccessful marketing.
"The entirety of the Disney transaction, including the Bidding Procedures and Bid Protections, has been negotiated in good faith and at arms' length between the Debtor and Disney."
Defended or excusedCase context: State attorneys general object to Character.AI's Disney-led auction rules; company defends the process
Full statement and sources
Character Technologies defends the Disney transaction and bidding protections.
After the statement
It says rivals can obtain transition services and make employment offers.
Motion for Leave to File Late Omnibus Reply, Document 73, Exhibit BDocument 73, Exhibit B, reply paragraphs 3-7Why this label?
Relative to the transaction and auction rules, the debtor argues that the terms preserve value and were negotiated in good faith.
This label describes the statement's response within the context above.
Tim GriffinArkansas attorney general, named for the State of Arkansas in the joint objectionDirectly involvedBefore this statement
The caption identifies Arkansas ex rel. Tim Griffin as a participating state.
"Action: Joined the coalition of states' objection to Character Technologies' proposed bidding procedures and bid protections."
CondemnedCase context: State attorneys general object to Character.AI's Disney-led auction rules; company defends the process
Full statement and sources
Arkansas, through Attorney General Tim Griffin, joins the coalition objection to bidding rules.
After the statement
The pleading argues that prepetition arrangements and proposed protections disadvantage other bidders.
The Coalition of States' Objection to the Debtor's Bidding Procedures Motion, Document 66Case 26-11603, Document 66, preliminary statement and requested reliefWhy this label?
Relative to the proposed rules, Arkansas joins a pleading that objects to them as proposed and asks the court to change them before approval.
This label describes the statement's response within the context above.
Sources
(8)
Original text
Debtor's Sale and Bidding Procedures Motion, Document 15
Relevant passage: Document 15, sale motion and attached agreements
About this source
Disney's proposed target assets include a non-exclusive technology license and any unreleased estate claims against employees it hired. The license excludes the app, user data and trained models.
- Author
- Character Technologies, Inc.
- Published
- Accessed
Original text
Character Technologies, Inc.: certification of counsel regarding the further revised proposed bidding procedures order, Docket 96
Relevant passage: Case 26-11603-BLS, Docket 96, filed November 3, 2026; paragraphs 6 and 8
About this source
The debtor's counsel certifies that at the October 30 hearing the court indicated it would overrule the objections and enter the revised proposed order subject to certain revisions. The filing says Disney and the objectors did not object to the form of the further revised order and that counsel to Florida said the state continues to object. This is the debtor's account of the hearing, filed the day before the court entered the order.
- Author
- Character Technologies, Inc.
- Published
- Accessed
Original text
Character Technologies, Inc.: order approving bidding procedures and bid protections, Docket 106
Relevant passage: Case 26-11603-BLS, Docket 106, signed and entered November 4, 2026; order paragraphs 1 to 3, 8, 9, 11, 23 and 26, Schedule A, and Exhibit 2 (transaction notice)
About this source
Judge Brendan L. Shannon approves the bidding procedures, Disney's designation as stalking horse for its target assets, and a $700,000 break-up fee and expense reimbursement equal to 3.5% of the cash purchase price. The order overrules objections that were not withdrawn, waived or settled, and paragraph 1 states that it does not approve the full terms of the stalking-horse agreement other than the bid protections. The order does not mention a consumer privacy ombudsman. The attached transaction notice says the Disney target assets exclude personally identifiable information and lists the releases the debtor will ask the court to approve at the sale hearing if Disney wins.
- Author
- United States Bankruptcy Court for the District of Delaware
- Published
- Accessed
Reporting
Character.AI Ch. 11 Auction With Disney Bid Moves Forward
Relevant passage: Opening paragraph
About this source
Law360 reports that a Delaware bankruptcy judge approved the bidding procedures for Character Technologies' assets on October 30, including Disney's $20 million stalking-horse bid. This is a news report of the hearing, not the court's written order.
- Author
- Ben Zigterman
- Published
- Accessed
Original text
Character Technologies, Inc.: order granting leave to file late reply and any joinders, Docket 94
Relevant passage: Case 26-11603-BLS, Docket 94, filed October 30, 2026; complete two-page order, especially paragraph 2
About this source
Judge Brendan L. Shannon grants the debtor leave to file its reply after the deadline, grants parties in interest leave to file any joinders, and deems the reply and any joinders timely filed. The order addresses timing only and does not rule on the bidding-procedures motion.
- Author
- United States Bankruptcy Court for the District of Delaware
- Published
- Accessed
Original text
United States Trustee's Objection to the Debtor's Sale and Bidding Procedures Motion, Document 69
Relevant passage: Case 26-11603-BLS, Document 69, filed October 27, 2026
About this source
The U.S. Trustee objects to the proposed sale and bidding procedures. The filing is separate from the coalition of states' objection.
- Author
- Andrew R. Vara, United States Trustee for Regions 3 and 9
- Published
- Accessed
Original text
Motion for Leave to File Late Omnibus Reply, Document 73, Exhibit B
Relevant passage: Document 73, Exhibit B, reply paragraphs 3-7
About this source
The debtor argues the arrangement preserves operations and value and explains proposed changes to the bidding order. The reply is attached to a motion for leave to file late.
- Author
- Character Technologies, Inc.
- Published
- Accessed
Original text
The Coalition of States' Objection to the Debtor's Bidding Procedures Motion, Document 66
Relevant passage: Case 26-11603, Document 66, preliminary statement and requested relief
About this source
The states argue Disney's prepetition arrangements and proposed protections could impair competitive bidding. These are litigation arguments rather than findings.
- Author
- Coalition of state attorneys general
- Published
- Accessed
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Cite this record
- Publisher
- The Dispute Index
- Title
- State attorneys general object to Character.AI's Disney-led auction rules; company defends the process
- First published
- Last updated
- Permalink
- https://disputeindex.com/cases/character-ai-disney-bankruptcy-bidding-states
The Dispute Index. "State attorneys general object to Character.AI's Disney-led auction rules; company defends the process". First published: 2026-11-09. Last updated: 2026-11-09. https://disputeindex.com/cases/character-ai-disney-bankruptcy-bidding-states