---
type: "post"
id: "31-states-and-dc-object-to-character-ai-1f5875"
slug: "31-states-and-dc-object-to-character-ai-1f5875"
title: "31 states and DC object to Character.AI bidding process and Disney's stalking-horse status"
description: "A coalition of 31 US states and the District of Columbia has objected to the proposed bidding process in Character Technologies’ bankruptcy and to Disney Worldwide Services’ proposed stalking-horse status."
retrieval_nugget: "A coalition of 31 US states and the District of Columbia has objected to the proposed bidding process in Character Technologies’ bankruptcy and to Disney Worldwide Services’ proposed stalking-horse status. For AI builders, the event is a reminder that a product’s technology, licences, workforce arrangements, and sale process can become inseparable when an AI company enters court-supervised restructuring."
published_at: "2026-10-28"
updated_at: "2026-10-28"
record_date: "2026-10-28"
date_kind: "published_at"
topics: []
entities: ["Character Technologies","Character.AI","Disney Worldwide Services"]
related_patterns: []
novelty_label: "new_fact"
what_changed: "31 states and the District of Columbia objected to the proposed bidding process and Disney’s stalking-horse status, seeking fairer third-party bidding and opposing approval of prepetition activities."
prior_refs: ["memory:2cdafce7-b324-8dcd-a92f-17657087a239"]
source_url: "https://www.mealeys.com/mealeys/articles/2543098/states-file-objection-challenging-bidding-process-for-bankrupt-ai-chatbot-company"
source_urls: ["https://www.mealeys.com/mealeys/articles/2543098/states-file-objection-challenging-bidding-process-for-bankrupt-ai-chatbot-company"]
schema_version: "newruntime-agent-readable-v0.2"
stable_id: "post:31-states-and-dc-object-to-character-ai-1f5875"
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 DC object to Character.AI bidding process and Disney's stalking-horse status

## Retrieval answer

A coalition of 31 US states and the District of Columbia has objected to the proposed bidding process in Character Technologies’ bankruptcy and to Disney Worldwide Services’ proposed stalking-horse status. For AI builders, the event is a reminder that a product’s technology, licences, workforce arrangements, and sale process can become inseparable when an AI company enters court-supervised restructuring.

## Summary

A coalition of 31 US states and the District of Columbia has objected to the proposed bidding process in Character Technologies’ bankruptcy and to Disney Worldwide Services’ proposed stalking-horse status. For AI builders, the event is a reminder that a product’s technology, licences, workforce arrangements, and sale process can become inseparable when an AI company enters court-supervised restructuring.

## What happened

On October 27, 2026, a coalition of 31 states and the District of Columbia filed an objection in the bankruptcy of Character Technologies Inc., the company associated with Character.AI. The objection challenges a motion seeking court approval of the bidding process for the company and Disney Worldwide Services Inc.’s designation as the stalking horse in that process.

A stalking horse is the initial bidder proposed in a court-supervised sale process. The public source identifies Disney Worldwide Services as the proposed stalking horse but does not state that the court has approved that designation, approved the sale process, or ruled on the states’ objection. The reported development is the filing of an objection, not a completed transaction or a judicial decision.

The coalition asks the bankruptcy court not to use the bidding process to bless prepetition activities by Character Technologies and Disney. “Prepetition” refers to activity before the bankruptcy filing. The source does not provide the states’ full legal arguments, describe the activities they contest, or disclose the exact alternative procedures they seek. It does report the central request: the court should instead select a process that gives third-party bidders a fair chance.

That request matters because a bidding process is not merely a timetable for receiving offers. It determines how competing buyers can participate in a sale that is overseen by a bankruptcy court. The states’ objection frames the proposed process as potentially too closely tied to the two companies’ earlier activity, rather than as a neutral route for other prospective bidders. The public report does not establish whether other bidders exist, whether they have been excluded, or how the court will evaluate the objection.

The filing follows an earlier phase in which the states had filed notices reserving their rights. The current objection is therefore a more specific procedural intervention: it targets the request for approval of the sale mechanics and the proposed stalking-horse designation. It does not, based on the supplied material, resolve ownership of any Character.AI assets, invalidate Disney’s proposed position, or determine the ultimate buyer.

For teams that depend on AI vendors, the episode is not an operational product change. Character.AI users and developers have not been told in this source that any API, product feature, pricing plan, service level, or licence is changing. The immediate fact is narrower: the legal route intended to run the sale has been challenged by a multi-state coalition.

## What the archive adds

This is a new fact in a known story. Earlier Field Notes reported that [Disney bid to buy Character AI assets from bankruptcy](https://newruntime.com/posts/disney-bids-to-buy-character-ai-from-bankruptcy-bf658f/), that the proposed transaction involved $20 million and a non-exclusive perpetual technology licence, and that Disney planned to hire much of the workforce in [the workforce agreement](https://newruntime.com/posts/disney-agrees-to-hire-the-majority-of-character-dfc753/). The new event concerns the process for approving and conducting that sale.

## Trend signal

No supplied pattern or archive assumption genuinely fits this procedural bankruptcy objection. It is evidence about a specific sale process, not about a durable technical or organizational change in how agent systems are built or operated.

## Why now

The source places the objection after the states had previously reserved their rights and at the point when Character Technologies sought approval for the bidding process and Disney’s stalking-horse position. That timing explains why the intervention is procedural: the coalition is contesting the mechanism before the court blesses it, rather than reporting a completed sale outcome.

## Connections to other events

The objection connects directly to the previously reported proposed Disney transaction. The archive says the earlier arrangement contemplated the purchase of some Character.AI assets for $20 million, a non-exclusive perpetual technology licence, and employment offers for at least 60 employees. None of those earlier facts is overturned by this source; the new filing challenges the route through which competing bids and Disney’s position would be handled.

## Why it matters

Builders should distinguish between continuity of a product and continuity of the company that supplies it. A bankruptcy sale can involve separate questions about assets, intellectual-property rights, licences, employees, and the buyer-selection process. Here, the available report adds uncertainty at the buyer-selection layer. It does not say that Character.AI technology will disappear, that Disney will lose its proposed position, or that an alternative buyer will emerge.

For teams evaluating vendor exposure, the practical lesson is to avoid treating an announced asset transaction as final while a court-supervised process remains open. Track the status of the transaction, identify which contractual rights and services actually matter to your deployment, and avoid inferring operational changes from a legal objection alone. The report supports caution about deal certainty, not a conclusion about product availability.

## What happens next

- **The bankruptcy court will have to address the states’ objection before the proposed process can proceed as requested.** (3 months, 80%). Watch for: a court order on bidding procedures or Disney’s stalking-horse status.
- **The sale process may receive further clarification about third-party participation.** (3 months, 60%). Watch for: revised bidding procedures or filings describing bidder access.

## Limits and uncertainty

The public report is limited. It identifies the objecting coalition, the challenged motion, Disney’s proposed stalking-horse status, and the coalition’s request for a fair chance for third-party bidders. It does not provide the full objection, the precise legal theory, the terms of the proposed bidding procedures, the identities of potential competing bidders, or a court response. It also does not establish wrongdoing by Character Technologies or Disney. “Prepetition activities” is the states’ concern as reported, not a finding by the court. No inference should be made about Character.AI product operations, service continuity, or the final transaction outcome.

## Reader takeaway

The Character.AI sale is not simply a settled Disney transaction: 31 states and the District of Columbia are asking the bankruptcy court to change how the auction is run and not to ratify earlier company conduct through that process. The next meaningful signal is a court decision or revised bidding rules, not the objection by itself.

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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