The Seventh Circuit handed down an opinion standing for the proposition that unsecured creditors lack standing to appeal if reversal of the challenged order would not enhance their recoveries.
A chapter 7 trustee hired lawyers to file suit alleging under Section 363(n) that there was collusion depressing the price realized in selling estate property. Company insiders and the purchaser were the defendants.
The insiders settled, but the buyer went to trial and won. The buyer became a general unsecured creditor as a result of being awarded $5,000 in costs for prevailing in the suit.
Over the buyer’s objection, the bankruptcy court granted the trustee’s lawyers’ application for compensation for work performed in the suit. The buyer appealed to the Seventh Circuit after the district court upheld the fee award. The buyer argued that the lawyers should not have been paid because the suit never stood any chance of success.
In an opinion on July 8 by Circuit Judge Ann Claire Williams, the appeals court dismissed the appeal for lack of Article III appellate standing because the buyer would receive no distribution on its unsecured claim even if the fee allowance were set aside.
The buyer lacked standing, Judge Williams said, since the estate had only $100,000 toward payment of more than $300,000 in priority expenses of administration. Consequently, unsecured creditors like the buyer would receive no distribution even if the fee award to the lawyers were set aside.
In bankruptcies, Judge Williams cited Seventh Circuit precedent for the proposition that an appellant lacks standing if it is “‘unable to realize any economic benefit from a potential reversal.’” She likened unsecured creditors with worthless claims to chapter 7 debtors who lack standing when no assets will revert to them.
More precisely, Judge Williams said there is no standing “if it is merely ‘speculative’ — as opposed to likely’” — that the appellant will benefit from reversal.
Circuit Judge Richard A. Posner was on the three-judge panel, which included District Judge Rebecca R. Pallmeyer sitting by designation.
The Seventh Circuit handed down an opinion standing for the proposition that unsecured creditors lack standing to appeal if reversal of the challenged order would not enhance their recoveries.
A chapter 7 trustee hired lawyers to file suit alleging under Section 363(n) that there was collusion depressing the price realized in selling estate property. Company insiders and the purchaser were the defendants.