In the Fifth Circuit and elsewhere, chapter 7 debtors won’t have standing to appeal unless the debtor would be directly, adversely and financially affected by the order.
The debtor was an individual in chapter 7. One of his creditors was objecting to the dischargeability of its debt.
The chapter trustee lacked funds to retain counsel to prosecute claims belonging to the estate. The creditor objecting to dischargeability agreed to finance the trustee’s litigation in return for a portion of recoveries. The bankruptcy court approved the litigation financing agreement.
The district court affirmed, and the debtor appealed to the circuit.
In an opinion on December 7, Circuit Judge Jacques L. Wiener, Jr. never reached the merits. He dismissed the appeal because the debtor lacked standing.
Judge Wiener said that appellate standing is a prudential question. The circuit therefore addresses standing even if the issue was not raised below.
Like other circuits, the Fifth Circuit employs the “person aggrieved” standard to decide whether the appellant has standing in a bankruptcy case. Judge Wiener said that “person aggrieved” is “even more exacting than traditional constitutional standing.”
Citing Fifth Circuit precedent, Judge Wiener said that the “appellant must show that he is ‘directly, adversely, and financially impacted by a bankruptcy order.’” In re Technicool Sys., Inc., 896 F.3d 382, 384 (5th Cir. 2018). To read ABI’s report on Technicool, click here.
In another opinion, the Fifth Circuit said that “the order of the bankruptcy court must directly and adversely affect the appellant pecuniarily.” Fortune Nat. Res. Corp. v. U.S. Dep’t of Interior, 806 F.3d 363, 36y (5th Cir. 2015). [Emphasis in original.]
Again citing a prior Fifth Circuit opinion, Judge Wiener said that a chapter 7 debtor ordinarily has no concrete interest in how the court divides up the estate. On the other hand, he said that the debtor has standing if the order on appeal might affect the debtor’s discharge.
Judge Wiener summed up precedents by saying that appellants “cannot demonstrate bankruptcy standing when the court order to which they are objecting does not directly affect their wallets.” For instance, a chapter 7 debtor could not object to the retention of special counsel because it would not affect discharge. Similarly, a debtor could not object to the sale of assets.
The debtor argued that the creditor’s pending objection to dischargeability conferred standing. Judge Wiener disagreed, because the order on appeal did not affect dischargeability.
Judge Wiener dismissed the appeal for lack of standing because the debtor “cannot show how the order approving the litigation funding agreement would directly, adversely and financially impact him.”
In the Fifth Circuit and elsewhere, chapter 7 debtors won’t have standing to appeal unless the debtor would be directly, adversely and financially affected by the order.
The debtor was an individual in chapter 7. One of his creditors was objecting to the dischargeability of its debt.
The chapter trustee lacked funds to retain counsel to prosecute claims belonging to the estate. The creditor objecting to dischargeability agreed to finance the trustee’s litigation in return for a portion of recoveries. The bankruptcy court approved the litigation financing agreement.
The district court affirmed, and the debtor appealed to the circuit.
In an opinion on December 7, Circuit Judge Jacques L. Wiener, Jr. never reached the merits. He dismissed the appeal because the debtor lacked standing.