Yesterday a panel of the U.S. Court of Appeals for the Ninth Circuit issued an opinion reversing a district court order dismissing an appeal from the bankruptcy court for lack of standing. See Harkey v. Grobstein (In re Point Center Financial, Inc.), Bankr. No. 16-56321, D.C. No. 8:16-cv-1336-DSF (May 29, 2018, 9th Cir.).
The appeal was related to the U.S. Bankruptcy Court for the Central District of California’s order authorizing a chapter 7 trustee to assume the operating agreement of a limited liability company whose interests were implicated in the bankruptcy proceedings.
On appeal, the U.S. District Court for the Central District of California found that the members and president of the LLC lacked standing to challenge the Bankruptcy Court order because, despite receiving notice of the trustee’s assumption motion, they did not object or attend the hearing on the motion. The Ninth Circuit explained that standing to appeal a bankruptcy court order is limited to “persons aggrieved” by the order. Id. at 7 (collecting cases).
A person aggrieved is someone “‘directly and adversely affected pecuniarily’ by a bankruptcy court’s order.” Id. (citing Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 443 (9th Cir. 1983)). This can include an order “that diminishes one’s property, increases one’s burdens, or detrimentally affects one’s rights….” Id. (citation omitted). The Court explained that this standard exists because Bankruptcy Court orders can implicate the interests of various stakeholders, including entities and individuals who are not formally parties to proceedings.
In reversing the District Court opinion, the Ninth Circuit considered whether attendance at the hearing and filing an objection are “prerequisites” to appellate standing under the person aggrieved standard and found that “[b]ankruptcy standing concerns whether an individual or entity is ‘aggrieved,’ not whether one makes that known to the bankruptcy court.” Id. at 10. Thus, the Ninth Circuit concluded that an appellant need not attend the hearing or file objections to be adversely affected by a bankruptcy court decision and have standing to appeal. Id. (reversing and remanding).