In a per curiam opinion, the Fourth Circuit rigorously enforced the requirement that an appellant have a pecuniary interest in the outcome of an appeal to avoid dismissal for lack of standing, even if the appeal purports to uphold the integrity of the bankruptcy system.
By adopting the opinion of the district court, the Richmond-based appeals court also ruled that the doctrine of equitable mootness bars an appeal from third-party releases in a consummated chapter 11 plan.
The appeal in the reorganization of coal producer Alpha Natural Resources Inc. centered around a largely two-party dispute involving the debtor’s outside financial advisory firm. One of the creditors, a competitor of the financial advisor, persistently challenged the adequacy of the advisor’s disclosure of its connections with the debtor and other creditors as required by Bankruptcy Rule 2014.
After months of wrangling, the bankruptcy court ruled in a series of orders that the advisor’s disclosures were adequate and that the firm was disinterested. However, the bankruptcy court only required the advisor to file an in camera disclosure of the names of some of the advisor’s clients. The creditor appealed, challenging the sufficiency of the disclosure and seeking to have the identity of the advisor’s clients disclosed publicly.
Over the creditor’s limited objection, the bankruptcy court confirmed the debtor’s chapter 11 plan containing typically broad releases in favor of nondebtor third parties, including the advisor. The releases barred all manner of claims short of gross negligence and willful misconduct. The creditor took a limited appeal from the confirmation order, in substance asking the district court to set aside the releases in favor of the advisor.
District Judge M. Hannah Lauck of Richmond, Va., dismissed the appeals on Sept. 30, 2017, but the creditor appealed to the Fourth Circuit.
Judge Lauck’s opinion takes on greater significance because the Fourth Circuit filed a one-paragraph, nonprecedential, per curiam opinion on Sept. 6 affirming dismissal of the appeals “for the reasons stated by the district court.” The appeals court also dispensed with oral argument.
Contending that the creditor lacked a pecuniary interest in the outcome of the appeal, the debtor had moved to dismiss the appeal from the bankruptcy court’s rulings on the adequacy of the disclosures under Rule 2014. Conceding that further disclosures would put no more money in its pocket, the creditor argued that the appeal was central to the integrity of the bankruptcy system.
In her opinion last year, Judge Lauck dismissed the appeal from the Rule 2014 orders. Even if the financial advisor were later required to disgorge all fees that it had been paid, the creditor would not benefit monetarily because additional cash coming into the estate was earmarked for senior secured lenders. The recovery by unsecured creditors was fixed in the plan.
Even if the appeal led to a monetary recovery from the financial advisor, Judge Lauck said that the creditor was “not a ‘person aggrieved’ by the Bankruptcy Court’s order, and it therefore lacks standing to appeal those rulings.”
The debtor likewise moved to dismiss the appeal from confirmation, contending that the case was equitably moot. The creditor argued that the releases in favor of the financial advisor could be carved out without upsetting the overall plan.
Judge Lauck disagreed and dismissed the confirmation appeal on the ground of equitable mootness.
Based on the findings of the bankruptcy court in the confirmation order, Judge Lauck said that the “core transaction [in the plan] was conditioned in part on the releases and exculpation provisions applying to all involved professionals.” Quoting the bankruptcy court, she said that excising the releases in favor of the financial advisor would risk “unraveling the ‘web of interrelated settlements that had been painstakingly woven together.’” This factor, she said, “also weighs in favor of finding that the . . . appeal is equitably moot.”