In two nonprecedential opinions in July 2023, the Fifth Circuit espoused continuing adherence to “person aggrieved” as the standard for appellate standing. In a precedential opinion on May 13, the New Orleans-based appeals court cast doubt on the continuing validity of the “person aggrieved” doctrine.

In the new opinion, Circuit Judge Edith H. Jones nevertheless held that the appellants lacked appellate standing under the less-exacting Article III standard because she also held that no one has a right to serve on a creditors’ committee.

Leaked Confidential Information

Beset with sexual abuse claims, the Archdiocese of New Orleans filed a chapter 11 petition. The U.S. Trustee appointed two official committees, one representing trade creditors and another for sexual abuse tort claimants.

Bankruptcy Judge Meredith S. Grabill of New Orleans entered an elaborate confidentiality order restricting access to information and documents concerning sexual abuse claims. The order prohibited disclosure except to authorized persons and only for authorized purposes.

The protected material included information about a particular priest, the allegations made against him and the high school where he worked.

Not counsel for the official tort committee, a lawyer was representing four of the claimants on the abuse claimants’ committee in their individual capacities. Having access to the confidential information, he allegedly disclosed information about the priest, which ended up in a local newspaper.

The lawyer was identified after extensive investigations. Judge Grabill removed the four committee members whom the lawyer was representing and replaced them with other abuse claimants. The district court dismissed the former committee members’ appeal from being removed from the committee. The district court concluded that they lacked appellate standing under the “person aggrieved” standard. In re The Roman Catholic Church of the Archdiocese of New Orleans, 22-1738, 2022 BL 294980, 2022 US Dist. Lexis 151083 (E.D. La. Aug. 11, 2022). To read ABI’s report, click here.

Appellate Standing in the Circuit

The former committee members appealed to the circuit, without success.

Judge Jones began her analysis of appellate standing by reciting how the former Bankruptcy Act, repealed in 1978, limited appellate standing to “a person aggrieved.” That standard was omitted with the adoption of the Bankruptcy Code, as the Fifth Circuit noted in Matter of Highland Cap. Mgmt., L.P. (In re Highland Cap. Mgmt.), 74 F.4th 361, 366 (5th Cir. July 19, 2023). To read ABI’s report, click here.

“Nonetheless,” Judge Jones said:

[V]arious of this court’s opinions, relying largely on a footnote’s worth of dicta in a 1994 opinion, have continued to apply the “person aggrieved” standard for appeals from bankruptcy courts. Not only that, but the courts have described this as a higher and “more exacting” standard for evaluating standing in bankruptcy appeals than in cases arising under Article III.

“In light of the statutory change,” Judge Jones paraphrased the Sixth Circuit for saying that “the ground for imposing this superseded gloss on the provisions governing bankruptcy appeals to district courts and courts of appeals is uncertain at best.”

Judge Jones wasn’t through. She continued by saying that “this court’s ‘exacting’ ‘person aggrieved’ test may be incompatible with the Supreme Court’s decision in Lexmark, which cast doubt on the role of prudential standing rules in federal courts. Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 134 S. Ct. 1377, 1386 (2014).”

Unless the Fifth Circuit were to sit en banc and abandon “person aggrieved,” Judge Jones was compelled to follow the strict appellate rule. But even if “Article III standing controls this appeal,” she said, “the outcome would be the same,” because the former committee members “cannot show that the bankruptcy court’s order removing them from the Committee injured a legally protected interest.”

In particular, Judge Jones noted that the former committee members had not been sanctioned. Furthermore, “no creditor has a ‘right’ to serve or continue serving on a Creditors Committee,” she said.

Having no right to serve on a committee and not having been sanctioned, the former committee members “have failed to demonstrate an injury to any legally protected interest,” Judge Jones said.

There was more, since the “statutory procedures for appointing members of a Creditors Committee do not guarantee any member the right to remain on the Committee.” [Emphasis in original.] She pointed to Section 1102(a)(1), where the U.S. Trustee appoints committees “as the United States Trustee deems appropriate.”

The former committee members contended there was a violation of Section 1102(a)(4) when the bankruptcy judge removed the committee members with having first provided notice and a hearing. Judge Jones conceded that the former committee members were correct in that the bankruptcy judge removed them sua sponte, “without notice and hearing or a formal request from a party in interest.”

However, Judge Jones saw a distinction between having a right to serve on a committee and the procedures for changing committee membership under Section 1102(a)(2). She therefore held “that a lack of proper notice and hearing under Section 1102(a)(4) cannot violate a legally protected interest when there is no underlying right to remain on a Creditors Committee, and when the ultimate outcome of the proceeding would have been the same.”

Judge Jones also saw the case on appeal as “readily distinguishable from constitutionally footed due process cases, where courts have identified a legally protected property interest requiring a pre-deprivation hearing.” In addition, she said that the former committee members “have not pointed to any authorities suggesting that there is any right to serve on a Creditors Committee, nor have they identified any property rights that have been negatively affected by their removal from the Committee.”

Having found that neither the former committee members’ property rights nor their substantive rights were “negatively affected” or “impaired,” Judge Jones affirmed the district court and ruled that the appellants lacked standing to appeal.

Observation

In addition to Highland Capital Management, supra, the Fifth Circuit reaffirmed its adherence to “person aggrieved” as the standard for appellate standing in Dugaboy Investment Trust v. Highland Capital Management LP (In re Highland Capital Management LP), 22-10983, 2023 BL 260605, 2023 US App Lexis 19553, 2023 WL 4842320 (5th Cir. July 28, 2023).

An appeal sub judice in the Supreme Court may determine whether Judge Jones is correct in questioning the durability of “person aggrieved.” See Truck Ins. Exch. v. Kaiser Gypsum Co., 22-1079 (Sup. Ct.).

Sometimes referred to as Kaiser Gypsum, Truck Insurance will resolve a split of circuits and decide whether any creditor or “party in interest” may object to confirmation of a chapter 11 plan, even if the creditor has no financial stake underpinning the objection.

In a broader sense, Truck Insurance will tell us the extent to which concepts of standing under Article III apply to bankruptcy cases, in the first instance and on appeal. Truck Insurance was argued in the Supreme Court on March 19. To read ABI’s report, click here.