Opinion ID: 6691
Heading Depth: 3
Heading Rank: 1

Heading: Liability in Bankruptcy

Text: 14 At the outset, it is important to analyze the precise nature of the injury of which Ortiz complains. Ortiz does not state that it has filed, will file, or even anticipates filing for bankruptcy. Ortiz merely asserts that, as a result of the district court judgment's ranking the IRS last among Fund claimants, the company might be exposed to greater liability if it ever should elect to declare bankruptcy or be placed in bankruptcy involuntarily. We are convinced, however, that Article III pretermits consideration of such a conjectural and hypothetical injury on appeal--a conclusion we reach based in large part on analogous decisions by other federal courts of appeals. 15 In the first instance, it is not even clear whether, after disavowing a stake in the Fund, Ortiz could allege any injury sufficient to give it standing to appeal the sequence or priority for distributing the money to other defendants with recognized claims to shares of the Fund. In Nationwide Mutual Fire Insurance Co. v. Eason, 17 the Fourth Circuit held that a plaintiff -interpleader who claimed no stake in a fund interpleaded into bankruptcy court lacked standing to appeal the bankruptcy court's distribution of the fund. In Nationwide, the money was deposited into the registry of a bankruptcy court for the benefit of unpaid creditors of a grain dealer that had filed for bankruptcy. After thus depositing the funds, the plaintiff-interpleader asked to be dismissed from the action, but apparently never was. When six months elapsed without any defendant responding to the action, the court entered a default judgment against all defendants. 16 Subsequently, when the trustee of the bankrupt estate moved to intervene in the interpleader action, alleging that the funds were part of the estate, the plaintiff-interpleader asked that the funds be returned to it instead. The bankruptcy court denied the plaintiff-interpleader's request that the funds be returned, and the plaintiff-interpleader appealed. 17 The Fourth Circuit held that the plaintiff-interpleader lacked standing to appeal the distribution of the fund because it had previously disavowed any stake in the money. The court noted that [a]ny challenge to the disposition ultimately made by the bankruptcy court must be by parties with the requisite stake in the outcome. 18 Here we need not go so far, however, because, even if we assume arguendo that Ortiz might be able to allege an indirect interest in the Fund sufficient to give it standing to appeal, it has failed to do so. 18 As Ortiz disavows a direct stake in the Fund, any interest that it asserts necessarily must be indirect. Indeed, injuries far more direct than those here alleged by Ortiz have been found to be too remote to satisfy standing for the purposes of Article III. For example, in Libby, McNeill, & Libby v. City National Bank, 19 the Ninth Circuit held that a defendant-appellant, City National Bank (CNB), lacked standing to appeal a district court's judgments against a plaintiff-interpleader, Libby, McNeill, & Libby (Libby), even though those judgments reduced the amount of money that CNB recovered from the interpleader fund. 19 Pursuant to a lending agreement, CNB had obtained a security interest in the accounts receivable of Shanghai Instant Foods, Inc. (Shanghai), a company that produced packaged frozen meals for Libby. The contract between Shanghai and Libby provided that Shanghai would produce meals according to Libby's specifications and obtain ingredients and materials from suppliers either recommended or approved by Libby. 20 Subsequent to entering into this contract, some suppliers notified Libby that Shanghai had stopped paying for its deliveries, and shortly thereafter, Shanghai filed for bankruptcy. While the bankruptcy proceedings were pending, Libby commenced an interpleader action in district court, depositing into the court's registry the net sum it owed Shanghai and naming as defendants the trustee in bankruptcy, various unpaid suppliers, and CNB. 21 CNB was the only defendant to allege an interest in the fund, but some unpaid suppliers counterclaimed, alleging that Libby was liable to them in contract for deliveries provided to Shanghai. The district court found for the suppliers on their counterclaims, but permitted Libby to offset the amount of these judgments against Libby's obligation to Shanghai. As a result, the amount of money in the interpleader fund was reduced by the sum of these offsets. Libby did not appeal these adverse judgments. 22 As the sole beneficiary of the interpleaded fund, CNB sought to appeal, inter alia, the suppliers' judgments against Libby. The Ninth Circuit, however, held that CNB lacked standing to appeal these adverse judgments, even though the amount of CNB's recovery from the fund was reduced by the amount of these judgments. The court expressly recognized that this is not the simple case where the outcome of the appeal can have absolutely no effect on the interests of the appellant, but noted that CNB nevertheless had no direct interest in the counterclaims of [other defendants]. 20 Recognizing that an appellant's interest must be immediate and pecuniary and not a remote consequence of the judgment, 21 the court held that CNB lacked an appealable interest in the judgments against Libby. In the instant case, Ortiz's asserted injury--greater potential liability should it ever file for bankruptcy--is far more attenuated than the injury claimed by CNB in Libby. 22