Where the Ninth Circuit recently questioned whether the “person aggrieved” standard for appellate standing is still good law, the Fifth Circuit reaffirmed the standard, saying that the Supreme Court had only nixed a more demanding prudential standing requirement in cases under the Lanham Act.
After confirmation of a chapter 11 plan, Bankruptcy Judge Stacey G. C. Jernigan of Dallas held a hearing on final allowances of compensation to five professional firms that had served the debtor and the official committee. Alleging to be a creditor by virtue of a disputed administrative claim, the creditor objected to the allowances. The creditor may have been motivated to object because it was a defendant in a pending adversary proceeding.
Bankruptcy Judge Jernigan overruled the objection and granted the allowances. The alleged creditor appealed.
Invoking the “person aggrieved” standard, the district court dismissed the appeal. The alleged creditor appealed to the Fifth Circuit.
In his July 19 opinion, Circuit Judge Patrick E. Higginbotham noted that the bankruptcy court had dismissed the creditor’s alleged administrative claim while the appeals were pending on the fee allowances.
‘Person Aggrieved’ Survives
Judge Higginbotham opened his discussion of the merits by noting how “person aggrieved” was the standard for appellate standing set forth in Section 67(c) of the former Bankruptcy Act. The Act was repealed on adoption of the Bankruptcy Code, but the “person aggrieved” requirement was contained in neither the Code nor Title 28.
“Person aggrieved” requires that the appellant be directly and adversely affected pecuniarily, Judge Higginbotham said. “Person aggrieved” is “more exacting,” he said, because it demands a higher causal relationship between the act and the injury than the more flexible Article III standard, known as constitutional standing.
Judge Higginbotham quoted a 2018 Fifth Circuit decision to explain why appellate standing is necessarily more demanding in bankruptcy cases, even after adoption of the Bankruptcy Code:
Allowing each and every party to appeal each and every order would clog up the system and bog down the courts. Given the specter of such sclerotic litigation, standing to appeal a bankruptcy court order is, of necessity, quite limited.
In re Technicool Sys., Inc. (In re Technicool), 896 F.3d 382, 385 (5th Cir. 2018).
The Merits
Having established that “person aggrieved” survived, Judge Higginbotham examined whether the alleged creditor was aggrieved.
Even if the creditor had an administrative claim, Judge Higginbotham said that the possibility of not being paid was “too remote or speculative” to confer standing. Furthermore, disallowance of the creditor’s administrative claim “takes the legs” out from underneath the argument, he said.
The creditor also contended that status as a defendant in an adversary proceeding conferred standing. Judge Higginbotham said that “no less than” seven outcomes would be required before allowance of the fees would “impact” the creditor-defendant.
Having failed to show standing under “person aggrieved,” the creditor contended that the standard “did not survive” Lexmark Int’l, Inc. v. Static Control Components, Inc. 572 U.S. 118 (2014), where the Supreme Court dealt with standing under the Lanham Act.
The creditor argued that Lexmark precludes courts from adopting prudential rules on standing that are stricter than Article III standing.
Judge Higginbotham said that Lexmark, which was not a bankruptcy case, did not “unequivocally” overrule Fifth Circuit precedent such as Technicool. Even after Lexmark, he said that the Fifth Circuit “has repeatedly reaffirmed the ‘person aggrieved’ standard.”
The creditor cited the Ninth Circuit for having abandoned “person aggrieved” in May. See Clifton Capital Group LLC v. Sharp (In re East Coast Foods Inc.), 66 F.4th 1214 (9th Cir. May 8, 2023). To read ABI’s report, click here. Judge Higginbotham said that East Coast Foods “is not offended by the more exacting ‘person aggrieved’ metric attending the disposition of bankruptcy claims like the one at issue.”
Finally, the creditor argued that it had standing under Section 1109(b), which says:
A party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.
Judge Higginbotham said that Section 1109(b) “speaks to one’s standing to appear and be heard before the bankruptcy court, a concept distinct from standing to appeal the merits of a decision.” He cited the Collier treatise for saying that “person aggrieved” is the standard for appellate standing, not Section 1109(b).
Judge Higginbotham affirmed the district court for having dismissed the appeal for lack of appellate standing.
Where the Ninth Circuit recently questioned whether the “person aggrieved” standard for appellate standing is still good law, the Fifth Circuit reaffirmed the standard, saying that the Supreme Court had only nixed a more demanding prudential standing requirement in cases under the Lanham Act.
After confirmation of a chapter 11 plan, Bankruptcy Judge Stacey G. C. Jernigan of Dallas held a hearing on final allowances of compensation to five professional firms that had served the debtor and the official committee. Alleging to be a creditor by virtue of a disputed administrative claim, the creditor objected to the allowances. The creditor may have been motivated to object because it was a defendant in a pending adversary proceeding.
Bankruptcy Judge Jernigan overruled the objection and granted the allowances. The alleged creditor appealed.
Invoking the “person aggrieved” standard, the district court dismissed the appeal. The alleged creditor appealed to the Fifth Circuit.