Guess what! An individual in chapter 11 has standing to sue for violation of the Thirteenth Amendment if the bankruptcy court appoints a chapter 11 trustee.
Despite reinstating the suit, Eleventh Circuit Judge Kevin C. Newsom said in his March 10 opinion that he was “skeptical” about the debtor’s chances of prevailing on the merits.
While the debtor was a chapter 11 debtor in possession, creditors discovered that he had been transferring assets and defrauding creditors. The creditors moved for appointment of a chapter 11 trustee.
The debtor objected, contending that having a trustee would amount to involuntary servitude in violation of the Thirteenth Amendment. Why? Because his post-petition income would become part of the estate for the benefit of creditors.
The bankruptcy court overruled the objection and appointed a chapter 11 trustee. The bankruptcy judge reasoned that the Thirteenth Amendment claim was not ripe because no plan had been confirmed that would require him to work for creditors.
On appeal, the district court dismissed for lack of standing. The district court saw the debtor as not yet having suffered an injury-in-fact sufficient to confer Article III standing.
On the second appeal, Circuit Judge Newsom said that appointment of a chapter 11 trustee was a final, appealable order and that the circuit court would review de novo.
Judge Newsom listed the rights and powers of a chapter 11 debtor in possession that the debtor lost on the appointment of a trustee. Reversing, he held that “the appointment of the trustee sufficiently diminished [the debtor’s] ability to control the assets in his own bankruptcy estate to satisfy Article III’s standing requirements . . . . The resulting loss of authority and control over his bankruptcy estate is sufficient injury to confer Article III standing.”
More particularly, Judge Newsom said that the loss of authority over the estate qualified as an Article III injury-in-fact and that the debtor’s claimed injury was “fairly traceable” to the trustee’s appointment.
Rounding out the standards for Article III standing, Judge Newsom said that the injury would be redressable by restoring the debtor to the status of a debtor in possession.
Judge Newsom said he was “skeptical” about the merits of the debtor’s Thirteenth Amendment claim. He was tempted to reach the merits, “but our hands are tied,” he said.
Judge Newsom explained that the district court had dismissed without prejudice, having found no standing. Were the Eleventh Circuit to reach the merits, dismissal would be with prejudice.
Judge Newsom declined to reach the merits because the circuit court could not alter the district court’s judgment by ruling on the merits and dismissing with prejudice. He remanded the case to the district court for a decision on the merits of the Thirteenth Amendment claim.
Guess what! An individual in chapter 11 has standing to sue for violation of the Thirteenth Amendment if the bankruptcy court appoints a chapter 11 trustee.
Despite reinstating the suit, Eleventh Circuit Judge Kevin C. Newsom said in his March 10 opinion that he was “skeptical” about the debtor’s chances of prevailing on the merits.
While the debtor was a chapter 11 debtor in possession, creditors discovered that he had been transferring assets and defrauding creditors. The creditors moved for appointment of a chapter 11 trustee.
The debtor objected, contending that having a trustee would amount to involuntary servitude in violation of the Thirteenth Amendment. Why? Because his post-petition income would become part of the estate for the benefit of creditors.