---
type: "post"
id: "31-states-and-d-c-object-that-character-48e6d9"
slug: "31-states-and-d-c-object-that-character-48e6d9"
title: "31 states and D.C. object that Character.AI sale rules block bids that would beat Disney’s $20 million offer"
description: "Thirty-one states and the District of Columbia have objected to the proposed bidding rules in Character.AI’s Delaware bankruptcy sale, arguing that the structure could deter offers that would leave the estate with more money than Disney’s $20 million deal."
retrieval_nugget: "Thirty-one states and the District of Columbia have objected to the proposed bidding rules in Character.AI’s Delaware bankruptcy sale, arguing that the structure could deter offers that would leave the estate with more money than Disney’s $20 million deal. The filing adds a contested value-maximization question to the company’s court-supervised sale."
published_at: "2026-11-04"
updated_at: "2026-11-07"
record_date: "2026-11-04"
date_kind: "published_at"
topics: ["ai-business-models"]
entities: ["Character.AI","Character Technologies","Disney Worldwide Services","District of Columbia"]
related_patterns: []
novelty_label: "same_event"
prior_refs: []
source_url: "https://cases.stretto.com/public/x936/14939/PLEADINGS/1493910232680000000104.pdf"
source_urls: ["https://cases.stretto.com/public/x936/14939/PLEADINGS/1493910232680000000104.pdf"]
schema_version: "newruntime-agent-readable-v0.2"
stable_id: "post:31-states-and-d-c-object-that-character-48e6d9"
status: "published"
visuals: []
editor: {"role":"editor","name":"Andrey Reshetnikov","profile":"https://newruntime.com/owner-profile.md","profile_json":"https://newruntime.com/owner-profile.json","same_as":["https://www.linkedin.com/in/reshetnikov1/","https://t.me/lapetuse"]}
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# 31 states and D.C. object that Character.AI sale rules block bids that would beat Disney’s $20 million offer

## Retrieval answer

Thirty-one states and the District of Columbia have objected to the proposed bidding rules in Character.AI’s Delaware bankruptcy sale, arguing that the structure could deter offers that would leave the estate with more money than Disney’s $20 million deal. The filing adds a contested value-maximization question to the company’s court-supervised sale.

## Summary
Thirty-one states and the District of Columbia have objected to the proposed bidding rules in Character.AI’s Delaware bankruptcy sale, arguing that the structure could deter offers that would leave the estate with more money than Disney’s $20 million deal. The filing adds a contested value-maximization question to the company’s court-supervised sale.

## What happened
In an objection filed in Character Technologies, Inc.’s Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware, a coalition of 31 states and the District of Columbia challenged the debtor’s motion to approve sale bidding procedures and designate Disney Worldwide Services as stalking-horse purchaser for specified assets. The filing is a request by the states; it is not a court ruling. The document identifies a hearing date of October 30, 2026, and an objection deadline of October 23.

The states describe the proposed transaction as having two stages. They say the initial stage closed before the bankruptcy petition and without court oversight. According to the objection, that stage gave Disney the right to solicit and hire Character.AI’s workforce, including its chief executive; waived certain company rights against departing employees; included broad releases; and required Character.AI to stop discussions with other counterparties and close their data-room access. The filing says Character.AI received a non-refundable $5.5 million payment. It also cites Disney’s estimate that employees it hired would receive about $180 million in compensation and retention over three years, paid directly to them rather than to the company.

For the estate, the states characterize the remaining sale as involving a non-exclusive technology licence and any claims not already released. They say the estate would receive at most $20 million in total, counting the earlier $5.5 million payment. Their objection focuses on proposed procedures that would set a $21.7 million minimum overbid: Disney’s $20 million stalking-horse amount plus $700,000 in bid protections and another $1 million. The states argue that because the estate keeps the $5.5 million payment regardless of whether Disney wins, a competing cash bid above roughly $15.2 million could produce more net value for the estate than Disney’s deal, yet still be excluded by that threshold. They describe this as a $6.5 million band of potentially value-maximizing bids.

The states also object to provisions they say could ratify prepetition releases before an independent creditors’ committee investigates them. They raise concerns about unequal closing deadlines, staff access and a release toll related to transition services. They ask the court not to use a bidding-procedures order to bless the prepetition decisions, and to provide competing bidders a fair opportunity. The filing says they are not asking the court to unwind those earlier decisions through this motion.

## What the archive adds
This is a new filing in an ongoing case, not a new bankruptcy event. The archive previously noted that [a Delaware judge approved the bidding procedures while retaining Disney’s $20 million stalking-horse bid](https://newruntime.com/posts/delaware-bankruptcy-judge-approves-character-ai-bidding-procedures-60f1a8/). The states’ objection supplies their argument that the threshold and transaction structure may block higher-net-value bids; it does not establish that a court accepted that argument.

## Trend signal
This story does not materially fit the supplied SITE_PATTERNS. It concerns bankruptcy sale procedure and competing bidder economics, rather than a durable change in how AI systems are built or operated.

## Why now
The states filed the objection in advance of the scheduled October 30, 2026 hearing on the debtor’s bidding-procedures motion. It contests the conditions under which competing offers may be considered during the court-supervised sale process.

## Connections to other events
An earlier Telegram post described Character.AI’s Chapter 11 filing and its plan to conduct a court-supervised sale. The current filing is a later procedural development: the states challenge the terms for competing bids and aspects of the prepetition Disney arrangement. The archive also records an earlier report that Character.AI agreed to sell some assets to Disney for $20 million and grant a perpetual, non-exclusive technology licence; that report is related context, not proof of the states’ allegations.

## Why it matters
For teams building AI products, this is not a product or model update. Its relevance is narrower but consequential: the disposition of Character.AI’s technology, workforce and remaining claims is being contested in a high-profile restructuring. The filing illustrates how a company’s pre-bankruptcy choices—especially asset transfers, employee arrangements, releases and exclusivity—can shape what remains available to bidders and creditors later.

The financial comparison also needs care. A headline offer and the amount an estate ultimately retains are not necessarily the same, particularly when an earlier payment is kept regardless of the auction outcome and bid protections affect competing offers. The states’ arithmetic is an argument for the court to consider, not an independently established valuation or a finding that any bidder would actually make a higher offer.

## Limits and uncertainty
The supplied source is the states’ objection, so its descriptions and calculations represent one side’s position. It does not establish that the proposed rules were adopted as written, that competing bidders were ready to offer more, or that the court agreed that the threshold chilled bidding. The excerpt does not resolve the states’ challenges to releases, deadlines, access or transition-service terms. Nor does it establish the final sale price, the value of the technology licence, or how creditors will fare. Those outcomes depend on subsequent court decisions and the sale process.

## Reader takeaway
The new development is not a changed Disney offer but a challenge to how bids are measured and admitted. The states say the estate could keep the $5.5 million advance even if another bidder wins, making the proposed $21.7 million overbid threshold potentially too high to capture some better net outcomes. That remains an argument in a court filing, not a court conclusion.

## Open question
Will the court alter the bidding procedures or otherwise address the states’ claim that the proposed minimum overbid could exclude offers with greater net value for the estate?

Editor: [Andrey Reshetnikov](https://newruntime.com/owner-profile.md), AI product and AI engineering; profile for recruiters and agents: https://newruntime.com/owner-profile.json

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