Important Tenth Circuit Concurring Opinion Expounds on ‘Prudential’ Standing

A concurring opinion following a nonprecedential decision by the Tenth Circuit espouses a theory that expands the concept of a creditor who is “aggrieved” and thus has prudential standing to mount an appeal in a bankruptcy case.

To appeal, a creditor must have both constitutional and prudential standing. Constitutional standing emanates from the Article III requirement of a case or controversy. If the appellant lacks constitutional standing, the court is without subject matter jurisdiction and must dismiss. The court cannot assume the existence of constitutional standing and proceed to examine the merits.

Among other things, constitutional standing requires an “injury in fact.” As the Supreme Court said in Spokeo Inc. v. Robins, 136 S. Ct. 1540, 1547 (Sup. Ct. 2016), the appellant or plaintiff must show an invasion of a legally protected right that is “concrete and particularized.” To be “particularized,” it “must affect the plaintiff in a personal and individual way.” Id. at 1458.

In the case on appeal to the Tenth Circuit, constitutional standing was not an issue. However, prudential standing was in dispute.

The bankruptcy court had granted a trustee’s motion to abandon a claim to property in return for $250,000 and the waiver of a claim against the estate for more than $100 million. A competing bidder, who was also a creditor, made a similar offer of $250,000 but would have shared some of the proceeds if it were successful in establishing a claim to ownership of the property. The competing bidder did not have power to waive the $100 million claim.

The creditor with the competing bid appealed. The Bankruptcy Appellate Panel for the Tenth Circuit ruled that the appellant lacked prudential standing. However, the BAP went on to review the merits and concluded that the bankruptcy court was correct in ordering abandonment of the claim to property.

The creditor with the competing bid appealed to the Tenth Circuit. In the unsigned opinion on January 4, the appeals court assumed there was prudential standing and upheld the lower courts on the merits of abandonment.

Of greater significance than the per curiam affirmance, Circuit Judge Robert E. Bacharach wrote separately, “concurring in the order and judgment.” Unlike his colleagues, he analyzed prudential standing, disagreed with the BAP and said there was prudential standing. Although his opinion is nonprecedential, it is “must” reading with regard to prudential standing.

In bankruptcy appeals, Judge Bacharach explained that “our requirements for [prudential] standing exceed those of Article III,” or constitutional standing. “Generally,” he said, unsecured creditors have a direct pecuniary interest in an order transferring assets and thus possess prudential standing.

Judge Bacharach explained that the BAP saw no prudential standing because abandonment “benefitted unsecured creditors.” Since the appellant benefitted by abandonment as a creditor, the BAP said there was no prudential standing because the creditor was not harmed in a pecuniary sense.

In bankruptcy court, however, the appellant had argued that selling the asset rather than abandoning the asset could bring millions of dollars more into the estate. Judge Bacharach said, “[W]e must assume that the [appellant’s] relevant allegations are true and construe them in the [appellant’s] favor.” He said the BAP “reached a contrary conclusion by failing to credit the [appellant’s] allegations.”

In Judge Bacharach’s view of the law on prudential standing, the appellant had “adequately alleged aggrievement from the challenged order, and the bankruptcy court’s ultimate assessment on the merits does not preclude appellate standing.”

In other words, Judge Bacharach said that the bankruptcy court’s findings on disputed issues of fact regarding the merits should not be dispositive on the separate issue of prudential standing. That is to say, allegations in bankruptcy court survive contrary findings of fact, in terms of preserving standing to appeal. Therefore, astute pleading in bankruptcy court can assure the creditor of prudential standing on appeal.

Although Judge Bacharach’s concurrence is not binding in the Tenth Circuit, it undercuts the precedential value of the BAP’s opinion with regard to prudential standing. The BAP opinion is Slovak Republic v. Loveridge (In re Eurogas Inc.), 576 B.R. 648 (B.A.P. 10th Cir. 2017).