In its fifth and sixth opinions arising from the chapter 11 reorganization of Highland Capital Management LP, the Fifth Circuit reiterated its adherence to “person aggrieved” as the standard for appellate standing and reaffirmed the jurisdiction of the bankruptcy court to approve settlements between nondebtors when the estate is affected.
The appeal on appellate standing was brought by a family trust controlled by Highland’s former chief executive, who was removed before the company confirmed a chapter 11 plan. The family trust held a limited partnership interest in the debtor amounting to about 0.2%. The family trust had filed three proofs of claim, but all were withdrawn.
The bankruptcy court in Dallas approved a settlement with a creditor that had filed a claim for more than $300 million. The settlement gave the creditor an approved, unsecured claim for $45 million and a subordinated claim of some $35 million.
Appellate Standing
The family trust appealed, but the district court dismissed the appeal for lack of appellate standing.
In a nonprecedential, per curiam opinion on July 31, the Fifth Circuit reaffirmed its own precedents by saying that the “person aggrieved” standard for appellate standing in bankruptcy cases was employed from “necessity” and is “more exacting” than Article III standing.
To be a “person aggrieved” with prudential standing in a bankruptcy case, the appellant must be directly, adversely and financially impacted by the order on appeal.
The family trust contended that it was an equity holder with standing as a “party in interest” under Section 1109(b) and on account of its three proofs of claim. Summarily, the appeals court said there was no standing from the proofs of claim because they had been withdrawn, “with prejudice.”
For its equity interest, the plan put the trust in the eleventh and last class in the waterfall. The debtor said that the debtor’s funds would be exhausted by the eighth class. Because the trust’s counsel didn’t contest the debtor’s representation, the appeals court held that the trust was not “directly” affected and lacked standing.
Because the debtor failed to establish standing as a person aggrieved, the circuit court affirmed dismissal of the appeal.
Jurisdiction over Third-Party Settlements
The former CEO’s family trust appealed another order approving a different settlement. Although the facts were more complex, they boil down to this.
A bank asserted a claim against the debtor for more than $1 billion. In a settlement approved by the bankruptcy court, the bank was given an approved, unsecured claim for $65 million and a subordinated claim for $60 million.
The approved settlement also had a third party paying the bank $18.5 million. In addition, the parties exchanged complicated releases.
The family trust appealed, contending that the settlement should have been broken into pieces and that the bankruptcy court had no jurisdiction to approve settlement between nondebtors. The district court upheld approval of the settlement. Appealing to the Fifth Circuit, the family trust again raised the alleged lack of jurisdiction to approve settlement between nondebtors.
In a nonprecedential, per curiam opinion on July 28, the Fifth Circuit said that “related to” jurisdiction under 28 U.S.C. § 1334(b) is read “broadly.” Jurisdiction is found if the outcome “could conceivably” affect the bankrupt estate, the appeals court said in citing its own precedents. The appeals court went on to say that certainty of effect is “unnecessary.”
Without deciding whether the particular matter was “core” or “noncore,” the appeals court held that jurisdiction was at least “related to.”
The family trust contended that the bankruptcy court needed jurisdiction over the claims between the nondebtors.
The circuit court rejected the argument, citing its own precedent and saying that the bankruptcy court “needed jurisdiction only over the settlement agreement itself and over the parties who entered it, not over the underlying claims.”
The appeals court upheld approval of the settlement, saying it was “undoubtedly” related to the bankruptcy since it resolved a claim for more than $1 billion and granted $125 million in approved claims, thereby altering the debtor’s rights and liabilities.
Note
In another nonprecedential Highland Capital appeal just a few days earlier in July, the Fifth Circuit had espoused its continuing adherence to “person aggrieved” as the standard for appellate standing. See NexPoint Advisors LP v. Pachulski Stang Ziehl & Jones LLP (In re Highland Capital Management LP), 22-10575, 2023 WL 4621466 (5th Cir. July 19, 2023). To read ABI’s report, click here.
The opinions are Dugaboy Investment Trust v. Highland Capital Management LP (In re Highland Capital Management LP), 22-10983 (5th Cir. July 28, 2023); and Dugaboy Investment Trust v. Highland Capital Management LP (In re Highland Capital Management LP), 22-10960 (5th Cir. July 31, 2023).
In its fifth and sixth opinions arising from the chapter 11 reorganization of Highland Capital Management LP, the Fifth Circuit reiterated its adherence to “person aggrieved” as the standard for appellate standing and reaffirmed the jurisdiction of the bankruptcy court to approve settlements between nondebtors when the estate is affected.
The appeal on appellate standing was brought by a family trust controlled by Highland’s former chief executive, who was removed before the company confirmed a chapter 11 plan. The family trust held a limited partnership interest in the debtor amounting to about 0.2%. The family trust had filed three proofs of claim, but all were withdrawn.
The bankruptcy court in Dallas approved a settlement with a creditor that had filed a claim for more than $300 million. The settlement gave the creditor an approved, unsecured claim for $45 million and a subordinated claim of some $35 million.