Employing the “person aggrieved” standard for appellate standing, an opinion from the Seventh Circuit could be cited for the principle that an owner of a limited liability corporation has no standing to appeal the LLC’s conversion from chapter 11 to chapter 7.

The Seventh Circuit’s nonprecedential opinion raises the question of whether the Supreme Court’s Truck Insurance decision last term silently overruled “person aggrieved.”

Companion Chapter 11 Cases

An individual owned an LLC. Evidently, the individual and the LLC were insolvent, and both filed chapter 11 petitions. The owner and the LLC were represented by the same counsel, and the cases were substantively administered.

A creditor filed a motion to convert both cases to chapter 7, followed by motions for summary judgment in both cases. The LLC and the owner both opposed summary judgment in their own cases.

The per curiam opinion from the Seventh Circuit on October 23 says that the owner did not join the LLC’s opposition to summary judgment, nor did the owner file an opposition to summary judgment in the LLC’s case.

The bankruptcy court converted the LLC’s case to chapter 7. The owner appealed, but the district court dismissed the appeal for the owner’s lack of standing. The owner appealed to the circuit.

‘Person Aggrieved’ Lives in the Seventh Circuit

Addressing the merits, the appeals court began by citing and quoting decisions from the Seventh Circuit in 2010 and 2006:

“Bankruptcy standing is narrower than Article III standing”; only a person “aggrieved” by an order of the bankruptcy court can appeal it.

The panel said that the owner had standing under the “person aggrieved” standard only if he had objected to conversion of the LLC’s case and was “affected pecuniarily” by conversion. Even if the owner had appeared and opposed conversion of the LLC’s case, the panel said he “lack[ed] standing to appeal for the reason that the order did not pecuniarily affect him.”

Citing and quoting a Seventh Circuit opinion from 1998, the panel said, “ An order pecuniarily affects him only if it diminishes his property, increases his burdens, or impairs his rights.” Once again quoting the 1998 decision, the panel went on to say, “This rule limits appeals to ‘only those persons whose interests are directly affected by a bankruptcy order to appeal.’”

The owner contended that he was directly affected because he lost his interest in the LLC’s assets. The panel said that “he is incorrect,” because the LLC’s “property, rights, and burdens are legally distinct from” the owner’s. In short, “the conversion order had no direct pecuniary effect on him,” the panel said.

Nonetheless, the owner might have retained an interest in the LLC had it reorganized in chapter 11. The panel dispensed with the argument by saying that the “liquidation of [the LLC’s] assets in Chapter 7 did not diminish the value of [the owner’s] interest in those assets — the company’s insolvency already did that.”

The panel affirmed dismissal of the appeal, saying that injuries must be “imminent” and not “conjectural” to confer standing. “[W]ithout a pecuniary loss from the conversion order itself, [the owner] lacked standing to appeal it.”

Observations

The panel does not cite Truck Insurance Exchange v. Kaiser Gypsum Co., 602 U.S. 268 (2024), the Supreme Court’s pronouncement on June 6 about standing in bankruptcy cases. Truck Insurance involved Section 1109(b), which gives standing in a chapter 11 case to a “party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee.” [Emphasis added.]

The unanimous Court in Truck Insurance said that the “text is capacious” and that “parties in interest” refers “to entities that are potentially concerned with or affected by a proceeding.” Id., 602 U.S. at 271, 276. To read ABI’s report on Truck Insurance, click here.

Truck Insurance would mean that the owner indeed had standing in the bankruptcy court to oppose conversion of the LLC’s case because he was the equivalent of an equity security holder. It is not clear whether Truck Insurance means that parties with standing in bankruptcy court always have standing to appeal anything that happens in a chapter 11 case. It is also unclear whether Truck Insurance effectively overrules “person aggrieved,” because the Court did not mention “person aggrieved” even once.

This writer believes that Truck Insurance should be read as having overruled “person aggrieved,” sub silentio.

The insurance company’s financial rights in Truck Insurance were not impaired by the debtor’s chapter 11 plan, but the insurance company wanted the plan to be more favorable to it. If the “person aggrieved” standard were alive and well, the Supreme Court would not have heard the case.

In the comment box below, we invite readers to opine on whether Truck Insurance overrules “person aggrieved.”