Restructuring

Weil Summer Associate Candice Ellis contributed to this post
“All circuits…limit standing to appeal a bankruptcy court order to persons aggrieved by the order.”¹.  A “person aggrieved” is defined as someone whose rights or interests are directly and adversely affected pecuniarily by the bankruptcy court order.²  Simply put, a party must have a financial stake in the matter and the bankruptcy court order at issue must have either increased the party’s burdens, or impaired its property or rights in some way.

The circuits are split on whether attendance and objection at a bankruptcy court proceeding are prerequisites to appellate standing under the “person aggrieved” standard.  The Tenth, Seventh, and Fifth Circuits have held that, provided there is proper notice, attendance and objection are prerequisites for a party to have standing to appeal.  The Ninth and Fourth Circuits have held that attendance and objection are not prerequisites. Many other circuits have declined to reach the issue, choosing to resolve and dismiss the controversy on the ground that the party was not a “person aggrieved.”

In In re Parr, the Tenth Circuit found that the standard for appellate standing is appearance before the bankruptcy court and objection to the sale order in question.³  Though appearance was not at issue in this case, the Tenth Circuit found that the debtor lacked standing because it failed to file an objection or to challenge the sale order at issue in its response to the chapter 7 trustee’s sale motion (the debtor’s tardily filed response did not address the bankruptcy court’s sale order).  The Tenth Circuits holding here was in line with the Circuit precedent.⁴  The rationale behind maintaining attendance and objection as prerequisites is that it maintains judicial economy and efficiency.
Offering a different perspective, the Ninth Circuit held in Point Ctr., that appearance and objection are not prerequisites for appellate standing.  The standard is simply a demonstration that the bankruptcy order at issue directly and adversely affected the appellant pecuniarily.  But even the Ninth Circuit seems to weigh procedural considerations in its holding.  The Ninth Circuit deliberately noted that though the appellants had neither attended nor objected, the appellants had communicated their objections/challenges in a motion to the court.⁵  Further, the bankruptcy court considered the motion containing the appellant’s objections/challenges when it issued the order at issue.⁶  The Ninth Circuit limited its holding in Point Ctr. to those specific facts.  Thus, after considering the facts, it appears that the Ninth Circuit does require “objection” in some form, but not necessarily a filed objection for appellate standing.
The Fourth Circuit is at the other end of the spectrum.  In Urban Broadcasting, the Fourth Circuit held that appearance and objection have no bearing on appellate standing.  The court explained that to predicate standing on objection misconstrues the appellate standing requirement as defined within the Fourth Circuit.⁷  The standard for appellate standing in the Fourth Circuit is simply being directly and adversely affected by a bankruptcy court’s decision.  To demonstrate such a disposition does not require the appellant to have attended and made objections at the hearing; nor does it require the appellant to have previously notified the court of its “aggrieved” status in some other form.  Under the Urban Broadcasting holding, the range of parties who can assert standing in the Fourth Circuit is broad.
In conclusion, whether attendance and objection are prerequisites for appellate standing depends on what Circuit you are in. Only the Tenth, Seventh, and Fifth Circuits require attendance at the hearing where the bankruptcy court issued the order that aggrieved the appellant. The Tenth, Seventh, and Fifth Circuits require a party to have filed an objection with the bankruptcy court to have standing; or else the party waives the right to appeal. The Ninth Circuit seems to require that the party have communicated to the bankruptcy court its challenges to the appellee’s motion in some form, in order to have standing. Lastly, in the Fourth Circuit, there are no such prerequisites for appellate standing, a party need only to be an aggrieved person to appeal.   Although the law in different Circuits appears to differ, regardless of the Circuit where a particular controversy is heard, counsel is best advised to preserve clients’ rights by filing at the very least “placeholder” objections to motions that are likely result in bankruptcy court orders that the clients may seek to appeal.