Opinion ID: 1227815
Heading Depth: 3
Heading Rank: 2

Heading: Moran's appeal of the Standing Order

Text: We begin with Moran's argument that the district court erred in its determination that he lacks standing to appeal the bankruptcy court's Standing Order. Under the person aggrieved doctrine, a party does not have standing to appeal a bankruptcy court order unless that party is directly and adversely affected pecuniarily by the order. Marlow, 146 F.3d at 423. Parties may not appeal a bankruptcy order unless they have a direct financial stake in the order such that it diminishes [their] property, increases [their] burdens, or impairs [their] rights. Fid. Bank, 77 F.3d at 882. This standing requirement is more limited than Article III standing or the prudential requirements associated therewith. Harker v. Troutman (In re Troutman Enter., Inc. ), 286 F.3d 359, 364 (6th Cir.2002) (citing In re PWS Holding Corp., 228 F.3d 224, 248 (3d Cir.2000)). We are not persuaded that Moran is a person aggrieved by the Standing Order. Although that order paved the way for the ACC to sue him, we are aware of no court that has held that the burden of defending a lawsuit, however onerous or unpleasant, is the sort of direct and immediate harm that makes a party aggrieved so as to confer standing in a bankruptcy appeal. See Fid. Bank, 77 F.3d at 883 (being subject[ed] to the possibility of future litigation by a bankruptcy court order is insufficient to confer standing); see also Travelers Ins. Co. v. H.K. Porter Co., Inc., 45 F.3d 737, 743 (3d Cir.1995) ([A]n order which simply allows a lawsuit to go forward does not necessarily aggrieve the potential defendant for purposes of appellate standing.); In re El San Juan Hotel, 809 F.2d 151, 155 (1st Cir. 1987) (holding that an appellant whose only interest is as a party defendant ... has no standing because the order in question has no direct and immediate impact on appellant's pecuniary interests. (citation and internal quotation marks omitted)); Travelers Cas. & Sur. v. Corbin (In re First Cincinnati, Inc. ), 286 B.R. 49, 53 (B.A.P. 6th Cir.2002) ([M]ost, if not all, of the courts that have considered this question have held that a bankruptcy court's order does not produce the direct and adverse pecuniary impact necessary to bestow standing on an appellant if the order's effect on the appellant is merely to expose it to the risks of litigation.). This key point is clarified by the dissenting opinion in Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. ( In re Trailer Source, Inc. ), 555 F.3d 231 (6th Cir.2009), where Hyundai sought to sue several creditors of the Trailer Source estate (the JT & T parties) to recover alleged fraudulent transfers of estate assets. Id. at 233-34. The bankruptcy court analyzed the Gibson Group factors and denied Hyundai's request, but Hyundai appealed and the district court reversed. Id. at 234-35. In response, the JT & T parties adversary defendants in the newly authorized lawsuit by Hyundaiappealed to this court. Id. at 235. Hyundai argued on appeal that the JT & T parties did not have standing under the person aggrieved doctrine to challenge the district court's grant to Hyundai of the right to bring suit. Id. The majority held that the bankruptcy appellate-standing doctrine is not applicable to the second layer of appeal, from the district court to the court of appeals, when it is uncontested that the party who appealed the bankruptcy court's order to the district court had appellate standing. Id. at 237. Judge Rogers dissented on this point, opining that the rationale behind the person aggrieved doctrineprevent[ing] indirectly affected parties from stalling bankruptcy proceedingsis implicated in the context of an appeal from a district court to a court of appeals as much as in an appeal from a bankruptcy court to a district court. Id. at 247 (Rogers, J., dissenting). He accordingly proceeded to analyze whether the JT & T parties were persons aggrieved in their capacity as defendants to future litigation and concluded that they were not. Id. Because the ACC's right to sue the defendants in the present case was granted by the bankruptcy court in the first instance, the Trailer Source majority's holding regarding the inapplicability of the person aggrieved doctrine to the second layer of appeal is not relevant here. This caused the majority to state that it had no need to address Judge Rogers's detailed arguments as to why ... the JT & T parties lack[ed] appellate standing, id. at 238 n. 4 (majority opinion), but we find his thoughtful analysis of the standing issue persuasive in regard to the case before us. We agree with Judge Rogers's observation that parties are not aggrieved by an order granting a creditor derivative standing when their interest in the order is as party defendants in the resulting adversary proceeding ... because the interest that [such parties] assert as defendants to an adversary proceeding is not protected by the Bankruptcy Code. Id. at 247 (Rogers, J., dissenting) (citations omitted). Moran, like the JT & T parties in Trailer Source, is interested in avoiding liability to the estate. Id. at 248. This interest is diametrically opposed to the primary goal of ... the Bankruptcy Code in general, which `is to minimize the injury to creditors.' Id. (citing In re Harwald Co., 497 F.2d 443, 444 (7th Cir.1974)). Moran argues in the alternative that even if one could reasonably conclude that the bare threat of litigation is insufficient to confer standing, the fact that here a lawsuit has already been filed should be enough to give him person aggrieved standing. He contends that any lawsuit against the appellants in Fidelity Bank, Nat'l Ass'n v. M.M. Group, Inc., 77 F.3d 880 (6th Cir.1996), was remote and consequential rather than direct and immediate. Id. at 883. We find this to be a distinction without a difference. Central to Fidelity Bank 's reasoning was the observation that the order at issue d[id] not impair appellants' ability to defend themselves in future suits. Those defenses that would have been available to them ... will still be available in future suits. Id. We do not believe that the actual filing of the lawsuit, as opposed to the bare threat of one, alters the applicability of this rationale. Therefore, as in the case of the JT & T adversary defendants, it is irrelevant that it is no longer uncertain whether Moran will be sued by the estate. Trailer Source, 555 F.3d at 248 (Rogers, J., dissenting). The Standing Order's authorization of a suit against Moran did not directly diminish [his] property, increase [his] burdens, or detrimentally affect [his] rights, and he therefore does not have standing to appeal the order. See, e.g., San Juan Hotel, 809 F.2d at 155 (citing In re Fondiller, 707 F.2d 441, 443 (9th Cir. 1983)). Moran next argues that his status as an administrative claimant makes him a person aggrieved by the Standing Order. But Moran's only claim on estate funds results from the fact that, pursuant to a bylaws indemnity provision, his expenses in defending against the ACC's lawsuit are being paid by the estate. He insists that this administrative claim creates in him an interest equal to that of the other creditorsthe members of the ACCin seeing that the estate's assets are distributed appropriately and without waste. See Kane v. Johns-Manville Corp., 843 F.2d 636, 642 (2d Cir.1988) (As a general rule, creditors have standing to appeal orders of the bankruptcy court disposing of property of the estate because such orders directly affect the creditors' ability to receive payment of their claims.). But simply holding a claim of any type against the estate does not automatically confer appellate standing under the person aggrieved doctrine. Trailer Source, 555 F.3d at 250 (Rogers, J., dissenting) (collecting cases that make this point). Rather, [t]o have standing to appeal, Moran must demonstrate he has a direct and adverse pecuniary interest in each order he challenges. Lopez v. Behles (In re Am. Ready Mix, Inc.), 14 F.3d 1497, 1500 (10th Cir.1994). The argument that Moran ha[s] an interest in ensuring the maximization of estate assets is clearly disingenuous as asserted here. See Trailer Source, 555 F.3d at 251-52 (Rogers, J., dissenting) (It is obvious from the adverse interests of the [named defendants] and the estate that [the named defendants] are not appealing as creditors of the estate, but as defendants to an adversary proceeding brought for the estate.). Moran's status as an administrative claimant is solely dependant on the existence of the Standing Order that he now seeks to challenge. Were the Standing Order to be reversed, the lawsuit against him would be dismissed and his claim against the estate would disappear. The only burden that Moran bears under the Standing Orderthe possibility that he may not receive a full recovery of his administrative claim for litigation expensesflows directly from his status as a defendant. This is nothing more than an indirect way of arguing that his status as a defendant in a lawsuit is sufficient to confer person aggrieved standing. But as we have explained, being sued is not sufficient to make him a person aggrieved for bankruptcy purposes. See Fid. Bank, 77 F.3d at 883. No case to our knowledge has held that an administrative claim of this nature gives a litigant such as Moran the standing to appeal. The rationale for this result becomes even clearer upon consideration of the plight of a hypothetical group of defendants similarly situated to Moran in all but one respectthe absence of any indemnification for defense costs and damage awards against them. Such defendants would not be considered persons aggrieved by a bankruptcy court order allowing them to be sued. See, e.g., id. We decline to accept the perverse logic that Moran should be allowed to appeal the Standing Order while defendants without any indemnificationwho would clearly be burdened to a greater extent than Moran because they would have to pay all defense costs and any awards against them from their own pocketscould not. Moran's final argument is that if he does not have standing to appeal the Standing Order, then there is no one left to challenge the soundness of the bankruptcy court's decision. He focuses on the fact that, in order to authorize the ACC to derivatively pursue the estate's claims against him, the bankruptcy court was required to weigh the costs of pursuing the case against the potential benefits to the estate if the ACC succeeds. See Canadian Pac. Forest Prods. Ltd. v. J.D. Irving, Ltd. (In re Gibson Group, Inc.), 66 F.3d 1436, 1446 (6th Cir.1995). According to Moran, the bankruptcy court failed to consider all of the relevant evidence in its costs-versus-benefits analysis, and ultimately reached the wrong conclusion after only perfunctory consideration. If Moran is correct and the bankruptcy court erred in this part of its analysis, the ACC's lawsuit against him and the other officers and directors would not serve the best interests of the estate. Moran is mistaken, however, in arguing that only he can challenge the Standing Order on appeal. If the bankruptcy court's Gibson Group analysis was faulty, the appropriate parties to seek review of that analysis are those creditors of LTV Steel whose recoveries would be diminished should the ACC's lawsuit fail, ultimately decreasing the estate's value. Moran, whose only claim against the estate results from his status as a defendant in the lawsuit authorized by the Standing Order, is not among this group. The other creditors' interests align with those of the estate, because the size of their recovery depends on the potential value of the ACC's lawsuit. But all of the remaining creditors in this case are part of the ACC and have chosen to vigorously pursue the lawsuit against the officers and directors. Presumably they would not have done so if they did not believe that their actions will increase the net value of the estate. In a case where the creditors disagree about the prudence of pursuing a particular claim, those among them who object to the bankruptcy court's Gibson Group analysis would have standing to appeal the resulting order. Because no creditor in this case has objected to the Standing Order, however, that issue is not before us here.