The Ninth Circuit explained when the failure to appear or object results in the loss of the right to appeal an order entered in bankruptcy court.
Basically, the failure to object or appear does not result in a loss of standing to appeal. Assuming there is a pecuniary interest at stake, standing on the sidelines instead can result in waiver or forfeiture, as District Judge Matthew F. Kennelly of Chicago explained in his May 29 opinion for the Ninth Circuit. Judge Kennelly was sitting by designation.
Although failure to appear or oppose may or may not result in loss of appellate standing depending on the circuit where the issue arises, the outcome often may end up being the same by invocation of the doctrines of waiver and forfeiture.
The Ninth Circuit Case
A chapter 7 trustee filed a motion to assume an executory contract. Individuals who had a pecuniary interest in the contract were given notice, but they did not file an objection, nor did they appear in court in opposition. At the hearing, the bankruptcy judge announced he would grant the motion as being unopposed.
Before the bankruptcy judge signed an assumption order, the individuals filed a motion for reconsideration, stating reasons for denying the assumption motion. Rather than treat the failure to oppose as a default, the bankruptcy judge denied the reconsideration motion on the merits.
After entry of the assumption order, the individuals appealed. The district judge dismissed the appeal for lack of standing, ruling that the appellants were not aggrieved parties because they had not opposed or appeared in opposition to the assumption motion.
Judge Kennelly reversed and remanded.
The Circuit Split on Standing
The district court relied on dicta from a 1985 Ninth Circuit opinion saying that objecting or appearing in bankruptcy court is “usually” a prerequisite to being an “aggrieved person” with standing to appeal. That case, however, was decided on other grounds.
Judge Kennelly said that the circuits are split on whether attendance or objection are prerequisites to being an aggrieved person with standing to appeal. The Seventh Circuit requires objection to confer appellate standing, while the Fourth Circuit does not, he said.
Siding with the Fourth Circuit, Judge Kennelly said, “We do not automatically toss a litigant out of court for noncompliance with a trial court rule without allowing the litigant to explain why the noncompliance should be excused.”
Bankruptcy standing, according to Judge Kennelly, concerns whether someone is “‘aggrieved,’ not whether one makes that known to the bankruptcy court.” He therefore held that “an appellant’s failure to attend and object at a bankruptcy court hearing has no bearing on the question of whether that appellant has standing to appeal.”
Although failure to attend and object may result in waiver or forfeiture, “it does not present a jurisdictional standing issue,” Judge Kennelly said.
Although they are often used interchangeably, Judge Kennelly said that waiver and forfeiture are different concepts. Forfeiture is the failure to assert a right in a timely fashion, while waiver is the intentional relinquishment or abandonment of a right.
Because the appellants had objected in their motion for rehearing, Judge Kennelly said they had not waived their arguments against assumption. On the other hand, he said, “the question of forfeiture is open for determination on remand.”
Since the appellants clearly had a pecuniary interest, they had standing to appeal. On remand, Judge Kennelly instructed the district court to decide whether the appellants forfeited their opposition to the assumption motion and whether the bankruptcy court’s order should be reversed for plain error.