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FILED

NOV 14 2017

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. AZ-16-1263-SKuF

)

FIVE LOTS, LLC, ) Bk. No. 2:16-bk-06224-MCW

)

Debtor. )

______________________________)

)

FIVE LOTS, LLC, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

UNITED STATES TRUSTEE, )

)

Appellee. )

______________________________)

Argued and Submitted on October 26, 2017

at Phoenix, Arizona

Filed – November 14, 2017

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable Madeleine Carmel Wanslee, Bankruptcy Judge, Presiding

 

Appearances: David Allegrucci argued for appellant; John

Postulka argued for appellee.

 

Before: SPRAKER, KURTZ, and FARIS, Bankruptcy Judges.

*This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.
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INTRODUCTION

Chapter 71 debtor Five Lots, LLC appeals from the bankruptcy

court’s ruling that a postpetition retainer paid from a third

party to pay Five Lots’ attorney’s fees was property of Five

Lots’ bankruptcy estate. This ruling was set forth in the

court’s order authorizing Five Lots to employ bankruptcy counsel. 

Five Lots has not challenged any other aspect of the employment

order apart from the determination that the retainer is property

of its bankruptcy estate. On appeal, Five Lots has not

established that the property of the estate ruling had a direct

and adverse pecuniary affect. Consequently, this appeal will be

DISMISSED for lack of standing.

FACTS

On June 1, 2016, Five Lots commenced its bankruptcy case by

filing a voluntary chapter 11 petition. At the time of its

bankruptcy filing, its only assets were four parcels of real

property located in Arizona. As of the petition date, Five Lots’

only creditors were a secured creditor, owed roughly $700,000,

and the Maricopa County Treasurer, owed roughly $5,600 for real

property taxes.

At the first chapter 11 status conference held on July 5,

2016, Five Lots appeared through Judith V. Brown, its sole member

and manager. The bankruptcy court directed Five Lots to retain

counsel and indicated that the bankruptcy case would be dismissed

unless it did so. Several days later, Five Lots filed an

1Unless specified otherwise, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

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application for an order approving the retention of David

Allegrucci as its counsel. In the application, Five Lots

disclosed that, on July 8, 2016, Brown had paid Allegrucci

$10,000 as a retainer to cover some of Five Lots’ attorney’s

fees.

The United States Trustee objected to the employment

application. Among other things, the United States Trustee 

argued that the $10,000 retainer was estate property that needed

to be turned over to the estate. The United States Trustee also

asserted that, as debtor’s counsel, Allegrucci should be required

to comply with all employment and fee oversight provisions set

forth in §§ 327, 329 and 331.

In response to the concerns raised by the United States

Trustee, Five Lots filed a supplemental memorandum of points and

authorities urging the bankruptcy court to approve Allegrucci’s

employment. It also disputed that the retainer was estate

property. In fact, it stated that Allegrucci was in the process

of returning the $10,000 to Brown. Five Lots further requested

that Allegrucci be permitted to bill and collect compensation

directly from Brown for his legal services without having to file

any fee applications.

At the hearing on the employment application, the bankruptcy 

court approved Allegrucci’s employment. However, the court also

sustained many of the United States Trustee’s objections. The

court explained to Five Lots that it would require Allegrucci to

comply with all of the fee oversight provisions set forth in the

Code regardless of whether he was paid from estate property or

from Brown’s separate funds. In addition, the bankruptcy court

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concluded that the $10,000 retainer was property of the estate

that needed to be returned by Brown to the estate or to

Allegrucci to hold in trust for the estate.

On August 12, 2016, the bankruptcy court entered an order

approving Five Lots’ application to employ Allegrucci as its

bankruptcy counsel. In the order, the court ruled not only that

the postpetition $10,000 retainer was estate property, but also

that “any payment by third parties, to pay for legal

representation of the Debtor-in-Possession, is property of this

bankruptcy estate.” Order (Aug. 12, 2016) at p. 2. The order

required Brown to return the $10,000 retainer to the estate. The

order further specified that any compensation to be paid to

Allegrucci was subject to the fee oversight provisions set forth

in §§ 329, 330 and 331. Five Lots timely filed a notice of

appeal. 

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(A), and we have jurisdiction under

28 U.S.C. § 158.

ISSUE

Does Five Lots have standing to appeal the bankruptcy

court’s ruling that the retainer (and any other third-party funds

paid to cover Five Lots’ attorney’s fees) are property of its

bankruptcy estate?

STANDARD OF REVIEW

We review de novo questions regarding the appellant’s

standing to appeal. Giesbrecht v. Fitzgerald (In re Giesbrecht),

429 B.R. 682, 687 (9th Cir. BAP 2010).

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DISCUSSION

We must satisfy ourselves that we have jurisdiction over

this appeal and that we should exercise jurisdiction. See West

v. United States, 853 F.3d 520, 522 (9th Cir. 2017); Mastro v.

Rigby, 764 F.3d 1090, 1093 (9th Cir. 2014). Here, jurisdictional

concerns stem from the fact that Five Lots has consistently

emphasized that it appeals only the bankruptcy court’s ruling

that the $10,000 (and any other funds paid by third parties to

cover Five Lots’ legal expenses) are property of Five Lots’

bankruptcy estate. The limited scope that Five Lots has imposed

on its own appeal raises questions regarding its standing to

appeal and whether this appeal has been rendered moot. In an

order issued on October 2, 2017, we directed the parties to

address the standing and mootness issues, and each party duly

responded to our order. 

A. Standing Issue

There are two broad aspects of the standing doctrine. The

first, constitutional standing, is derived from the case and

controversy requirement of Article III of the Constitution and

requires a plaintiff to demonstrate “injury in fact, causation

and redressability.” Republic of Marshall Islands v. United

States, 865 F.3d 1187, 1199 (9th Cir. 2017) (citing Lexmark

Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377,

1386 (2014)). The second broad standing aspect, prudential

standing, is a set of “‘judicially self-imposed limits on the

exercise of federal jurisdiction.’” Veal v. Am. Home Mortg.

Servicing, Inc. (In re Veal), 450 B.R. 897, 906 (9th Cir. BAP

2011) (quoting Sprint Commc’ns Co. v. APCC Servs., Inc., 554 U.S.

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269, 289 (2008)). Five Lots bears the burden of establishing its

standing. Max Recovery, Inc. v. Than (In re Than), 215 B.R. 430,

434 (9th Cir. BAP 1997).

There is little doubt that in the bankruptcy court, Five

Lots met the relatively minimal requirements of constitutional

standing. As the debtor, it had a vested interest in whether or

not the bankruptcy court would approve the employment 

of Allegrucci as its bankruptcy counsel and whether or not the

$10,000 retainer was property of the estate.

On appeal, however, Five Lots only challenges the bankruptcy

court’s property of the estate ruling. The limited scope of Five

Lots’ appeal implicates the facet of prudential standing known as

the “person aggrieved” standard: an appellant seeking review of a

bankruptcy court’s judgment or order must be a “person aggrieved”

by the order appealed. Lehman Commercial Paper, Inc. v. 

Palmdale Hills Prop., LLC (In re Palmdale Hills Prop., LLC),

423 B.R. 655, 662 (9th Cir. BAP 2009), aff’d, 654 F.3d 868 (9th

Cir. 2011). Under this standard, only “those persons who are

directly and adversely affected pecuniarily by an order of the

bankruptcy court” have standing to appeal. Id. (quoting

Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442 (9th

Cir. 1983)). At bottom, the person aggrieved standard presents a

question of fact. Int’l Ass’n of Firefighters, Local 1186 v.

City of Vallejo (In re City of Vallejo), 408 B.R. 280, 299 (9th

Cir. BAP 2009) (citing Paine v. Dickey (In re Paine), 250 B.R.

99, 104 (9th Cir. BAP 2000)). Thus, Five Lots needs to show that

the order on appeal diminished its property, increased its

burdens or otherwise detrimentally affected its rights. See

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In re Fondiller, 707 F.2d at 442-43.

Five Lots has not persuaded us that its pecuniary interests

have been directly and adversely affected by the bankruptcy

court’s ruling that the retainer is property of its estate. To

the contrary, the court’s ruling increased Five Lots’ property by

classifying third-party payments made to Allegrucci as estate

property. There is no readily apparent detriment to its rights

or increase in its burdens resulting from this ruling. Five Lots

has not presented anything on appeal that would permit us to find

that it is a person aggrieved and, hence, has standing to appeal.

B. Mootness Issue

Because we have concluded that Five Lots lacks standing to

appeal, we decline to address the mootness issue.

CONCLUSION

For the reasons set forth above, we DISMISS this appeal for

lack of standing.

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