Court Opinion

ID: 4035567
Source: CourtListenerOpinion
Date Created: 2016-09-21 15:01:19.963166+00
Date Added: 2024-06-11T14:29:36.759337
License: Public Domain

United States Bankruptcy Appellate Panel
                        For the Eighth Circuit
                    ___________________________

                            No. 16-6009
                    ___________________________

                       In re: Michael Robert Wigley

                           lllllllllllllllllllllDebtor

                          ------------------------------

                               Barbara Wigley

                lllllllllllllllllllllInterested party - Appellant

                                       v.

                          Michael Robert Wigley

                     lllllllllllllllllllllDebtor - Appellee

                           Lariat Companies, Inc.

                    lllllllllllllllllllllCreditor - Appellee
                                  ____________

               Appeal from United States Bankruptcy Court
                for the District of Minnesota - Minneapolis
                               ____________

                        Submitted: August 12, 2016
                         Filed: September 21, 2016
                              ____________

Before SCHERMER, NAIL and SHODEEN, Bankruptcy Judges.
                           ____________
SCHERMER, Bankruptcy Judge

       Barbara Wigley appeals from the bankruptcy court’s1: (1) November 18, 2015
order denying confirmation of Robert Wigley’s (Debtor) second modified Chapter 11
plan, establishing deadlines for the Debtor to file a modified plan, and obtain
confirmation of it, and denying Lariat Companies, Inc.’s (Lariat) request to dismiss
the Debtor’s Chapter 11 case or to convert the case to Chapter 7;2 (2) February 18,
2016 order confirming the Debtor’s fourth modified Chapter 11 plan; and (3) order
granting relief from the automatic stay to allow Lariat to exercise its rights and
remedies against Barbara Wigley in state court litigation. For the reasons that follow,
we dismiss this appeal based on lack of standing. To the extent that Barbara Wigley
has standing to bring this appeal, we have jurisdiction over this appeal from the final
orders of the bankruptcy court and we affirm.3 See 28 U.S.C. § 158(b).

                                      ISSUES
       The threshold issue is whether Barbara Wigley has standing to bring this
appeal. We hold that she does not and we dismiss this appeal. To the extent that
Barbara Wigley has standing to bring this appeal, we address the two remaining
issues on appeal, whether the bankruptcy court erred when it: (1) denied approval of
a settlement in the Debtor’s Chapter 11 plan, resulting in the denial of confirmation
of the plan and confirmation of a later plan with a provision stating that the Debtor

      1
             The Honorable Katherine A. Constantine, United States Bankruptcy
Judge for the District of Minnesota.
      2
             Barbara Wigley’s appeal only concerns the portions of the order
concerning denial of confirmation of the Debtor’s second modified Chapter 11 plan
and establishing deadlines in connection therewith.
      3
              We review the November 18, 2015 order in connection with the
February 18, 2016 order, which is a final order. We have jurisdiction over “the events
and rulings leading to a final order.” Zahn . Fink (In re Zahn), 526 F.3d 1140, 1143
(8th Cir. 2008).

                                         -2-
would not pursue any avoidance actions against his wife; and (2) entered the stay
relief order. We find no error by the bankruptcy court.

                                  BACKGROUND
       Extensive litigation preceded the filing of the Debtor’s Chapter 11 bankruptcy
case, including a lawsuit holding the Debtor liable as the guarantor of a lessee’s
obligations under a real property lease and related proceedings, an involuntary
Chapter 7 bankruptcy of the Debtor, a Chapter 11 bankruptcy of the lessee, and
fraudulent transfer proceedings against the Debtor and his wife. The dispute in this
appeal focuses on the fraudulent transfer action. As background, we outline the
proceedings relating to the guarantee judgment against the Debtor.

       Lariat, the lessor under a lease for which the Debtor personally guaranteed the
obligations of the lessee (an LLC that he had formed) obtained a state court judgment
exceeding $2.2 million against the Debtor and the LLC. Non-bankruptcy attempts
by the Debtor to avoid collection of that judgment proved unsuccessful. The Debtor
unsuccessfully brought a state court lawsuit seeking relief from the guarantee
judgement. The Debtor’s lawsuit against Lariat was dismissed but the Debtor
appealed the dismissal order, which remains pending due to the Debtor’s bankruptcy.
A separate attempt by the Debtor in the LLC’s bankruptcy case to enjoin Lariat from
enforcing the guarantee judgment was also unsuccessful. Ultimately, Lariat obtained
a state court order (which was stayed by the Debtor’s Chapter 11 filing) allowing it
to liquidate the Debtor’s non-exempt assets to satisfy the guarantee judgment.

        Lariat (together with other creditors) commenced a pre-petition fraudulent
transfer action against the Debtor’s wife in state court, and later added the Debtor as
a co-defendant. Ultimately, the Debtor and his wife were held jointly and severally
liable to Lariat for fraudulent transfers totaling approximately $800,000. The Debtor
and his wife later moved in the state court for amended findings in that action. On
the petition date of the Debtor’s Chapter 11 case, the state court had not ruled on the

                                         -3-
motion for amended findings and the Debtor believed that the automatic stay applied
to the fraudulent transfer proceeding.

       The Debtor filed his bankruptcy petition on February 10, 2014. On his
schedules, the Debtor listed assets exceeding the amount of his liabilities. Lariat’s
guarantee judgment was capped under Bankruptcy Code § 502(b)(6).4 The Debtor
filed his Second Modified Plan of Reorganization (Second Modified Plan), which
proposed to release his wife, Barbara Wigley, from all claims held against her by the
Debtor or the estate (eliminating the fraudulent transfer judgment against her) in
exchange for her settlement payment (Settlement). Specifically, the Second Modified
Plan stated:

      I. DEFINED TERMS

      “Barbara Wigley Settlement Payment” means the sum of $350,000.00,
      to be paid pursuant to Section 4.3(A) of the Plan.

      4.3. Plan Performance

      A. Plan Funding.
      In exchange for the release provided for in Section 4.4 of the Plan, on
      or before the Effective Date, Barbara Wigley shall remit the Barbara
      Wigley Settlement Payment to the Debtor, and the Debtor shall
      distribute one hundred percent of such funds to the holders of Class 1
      [general unsecured] claims pursuant to the terms of the Plan. The Debtor
      shall be responsible for payment of all other amounts due and payable
      under the Plan.

      4
             Lariat appealed the bankruptcy court’s order capping its proof of claim
under § 502(b)(6). We affirmed in part, reversed in part and remanded to the
bankruptcy court for further proceedings. Following our opinion, the bankruptcy
court entered an order allowing Lariat’s claim in an amount certain. That order has
not been appealed.

                                         -4-
      4.4. Settlement and Release of Claims Against Barbara Wigley

      Confirmation of the Plan shall constitute approval of a settlement
      agreement under which all claims that the Debtor or any other
      representative of the estate could have asserted against Barbara Wigley
      as of the Confirmation Date, including but not limited to Avoidance
      Actions, shall be released in exchange for payment of the Barbara
      Wigley Settlement Payment, which shall be due no later than the
      Effective Date. The settlement and release provided for herein shall be
      binding on all creditors and other parties [sic] interest, whether or not
      entitled to receive payments or other distributions under the Plan.

The Second Modified Plan proposed to pay Lariat (and all allowed claims in Lariat’s
class of unsecured creditors) in full with interest. The other classes under the plan
were not impaired.

        Lariat objected to the Second Modified Plan and filed a motion seeking
dismissal or conversion of the Debtor’s case to Chapter 7 (specifying a preference for
dismissal over conversion) for bad faith. On November 18, 2015, the bankruptcy
court entered an order denying Lariat’s motion to dismiss or covert, denying
confirmation of the Second Modified Plan, and establishing deadlines for the Debtor
to file a modified plan and obtain confirmation of it (November 18, 2015 Order).

      The Debtor proposed a Fourth Modified Plan of Reorganization (Fourth
Modified Plan), which again proposed full payment to unsecured creditors, and also
included a provision stating that the Debtor will not pursue any avoidance actions
against his wife. Specifically, the Fourth Modified Plan states:

      4.4 Reservation of Rights, Power and Jurisdiction

      A. Rights and Powers

      After confirmation of the Plan, the Debtor will retain authority to:

                                         -5-
      ...
      (3) Pursue any claims against any third parties; provided, however, that
      the Debtor (whether as Debtor in Possession, pre- or postconfirmation
      Debtor, or any Chapter 11 trustee, agent, or committee) shall not pursue
      any Avoidance Actions against Barbara Wigley, except as may be
      permitted pursuant to further Court order;
      ....

Over Barbara Wigley’s objection, the Fourth Modified Plan was confirmed.

       Following confirmation of the Fourth Modified Plan and upon Lariat’s motion,
the bankruptcy court granted limited relief from the automatic stay (Stay Order),
stating that “[t]he automatic stay, if any, imposed by 11 U.S.C. § 362(a) is terminated
such that [Lariat] may exercise its rights and remedies under applicable
nonbankruptcy law with respect to continuing the pending fraudulent conveyance
action . . . against Barbara Wigley based on prepetition events.” We denied a motion
by Barbara Wigley for a stay pending appeal of the Stay Order. At oral argument,
counsel advised us that she planned to participate in an August state court hearing in
the fraudulent transfer action.

                            STANDARD OF REVIEW
       The bankruptcy court’s findings of fact are reviewed for clear error and its
conclusions of law are reviewed de novo. Loop Corp. v. U.S. Trustee (In re Loop
Corp.), 379 F.3d 511, 515 (8th Cir. 2004) (citing Cedar Shore Resort, Inc. v. Mueller
(In re Cedar Shore Resort, Inc.), 235 F.3d 375, 379 (8th Cir. 2000)). “A bankruptcy
court's approval of a settlement will not be set aside unless there is plain error or
abuse of discretion.” Tristate Financial, LLC v. Lovald, 525 F.3d 649, 654 (8th Cir.
2008) (quoting Martin v. Cox (In re Martin), 212 B.R. 316, 319 (8th Cir. BAP 1997)
(citation omitted)). We review for an abuse of discretion the decision whether to
grant or deny relief from the automatic stay under Bankruptcy Code § 362(a). Wiley
v. Hartzler (In re Wiley), 288 B.R. 818, 821 (B.A.P. 8th Cir. 2003).

                                         -6-
                                    DISCUSSION
       Barbara Wigley characterizes the matter before us as involving issues related
to denial of administration of an avoidance action (particularly recovery under § 550)
and the rights of Lariat and the Debtor with respect to that action. We disagree. It
is nothing more than a matter concerning the propriety of the bankruptcy court’s
denial of the Settlement proposed in the Second Modified Plan, which led to
confirmation of the Fourth Modified Plan. We also review the bankruptcy court’s
grant to Lariat of relief from the automatic stay to pursue its cause of action against
Barbara Wigley in the fraudulent transfer state court action.

Standing

       Bankruptcy appellate standing is narrower than Article III standing.
Opportunity Finance, LLC v. Kelley, 822 F.3d 451, 458 (8th Cir. 2016) (citing O&
S Trucking, Inc.v. Mercedes Benz Fin. Svs. USA (In re O&S Trucking, Inc.), 811 F.3d
1020, 1022–23 (8th Cir. 2016)). To have standing to bring this appeal, Mrs. Wigley
must be a “person aggrieved.” Id. at 457 (declining request to reconsider the “person
aggrieved” standard). The “person aggrieved” doctrine “ limits standing to persons
with a financial stake in the bankruptcy court's order, meaning they were directly and
adversely affected pecuniarily by the order.” Id. at 458 (quoting Peoples v. Radloff
(In re Peoples), 764 F.3d 817, 820 (8th Cir.2014)). “An appellant is a party
aggrieved ‘if the bankruptcy court order diminishes the person's property, increases
the person's burdens, or impairs the person's rights.’ ” Id. (quoting Williams v. Marlar
(In re Marlar), 267 F.3d 749, 753 n. 1 (8th Cir.2001)); O& S Trucking, Inc., 811 F.3d
at 1023 (“the appellate has the burden to demonstrate ‘the challenged order directly
and adversely affect[ed] his pecuniary interests.’ ”) (quoting Splenlinhauer v.
O’Donnell, 261 F.3d 113, 118 (1st Cir. 2001)). “The [person aggrieved] doctrine is
designed ‘to prevent bankruptcies from being needlessly prolonged by parties whose
interests are not central to the process.’” Id. at 459-60 (quoting In re Ernie Haire
Ford, Inc., 764 F.3d 1321, 1327 (11th Cir. 2014)).

                                          -7-
       Mrs. Wigley lacks standing to bring this appeal because she is not a person
aggrieved.5 She complains about the bankruptcy court’s denial of approval of the
Settlement of the fraudulent transfer ruling that would have benefitted her, and which
led to confirmation the Debtor’s Fourth Modified Plan. It is ironic that Mrs. Wigley
appealed a decision to confirm her husband’s Fourth Modified Plan when he, the
Debtor, did not. Mrs. Wigley submits that if the Settlement had been approved and
the Fourth Modified Plan had not been confirmed, she would have retained her
interest in the transferred property in return for the Settlement payment and she would
not have to participate in further state court litigation. She also complains that Lariat
should not have been granted relief to proceed with the state court fraudulent transfer
action against her.

       “Generally, a bankruptcy court order allowing litigation to proceed against an
adversary defendant does not make that defendant a party aggrieved.” Opportunity
Finance, LLC, 822 F.3d at 458 (citation omitted). This principle applies even where
“litigation has already begun against the defendant, and the possibility of liability is
more than theoretical.” Id. The fact that Mrs. Wigley is not a person aggrieved is
apparent here where on the petition date, the state court had already ruled in favor of
Lariat in the fraudulent transfer action (subject only to a motion to amend and a
possible appeal). The bankruptcy court’s decisions did not change Mrs. Wigley’s
rights or interests in the state court action. In addition, the stay relief order does not
make Mrs. Wigley a “person aggrieved” since the stay did not apply to the action by
Lariat against Mrs. Wigley. There is no direct pecuniary harm to Mrs. Wigley from
the bankruptcy court’s orders.

      5
             Earlier in this appeal, Lariat filed a Motion to Dismiss Appeal, which was
based primarily on lack of standing. We denied that motion because we wanted to
make a full plenary review of the issues.

                                           -8-
       Even if Mrs. Wigley held a direct financial interest, she would lack standing
because her interest in settling her fraudulent transfer liability on her own terms,
rather than facing the ruling entered against her in state court, is not an interest
protected by the Bankruptcy Code. Westlb AG v. Kelly, 531 B.R. 783, 789 (D. Minn.
2015) (citing Ernie Haire Ford, Inc., 764 F.3d at 1327) (“Even when an appellant has
a direct pecuniary interest in a bankruptcy-court order, he may nevertheless lack
standing to appeal that order if the interest he seeks to vindicate is not one that is
protected by the Bankruptcy Code.”), aff’d 822 F.3d 451 (8th Cir. 2016).

       Overall, Mrs. Wigley’s appeal amounts to nothing more than an expression of
her dissatisfaction with the failed attempt by her husband in his bankruptcy case to
protect her from the state court’s ruling. Her interests are not central to the
bankruptcy process and she is not a person aggrieved. Opportunity Finance, LLC,
822 F.3d at 460 (no standing where appellants’ interest were not central to the
bankruptcy process).

       Because Barbara Wigley lacks standing, dismissal of this appeal is proper.
However, to the extent she has standing, we address the merits of the remaining
issues.

Plan Confirmation

      The bankruptcy court did not abuse its discretion when it denied approval of
the Settlement in the Debtor’s Second Modified Plan and confirmed the Debtor’
Fourth Modified Plan.

       Bankruptcy Code § 1129 sets forth the requirements for confirmation of a plan.
Section 1129(a)(1) requires that a plan comply with the applicable provisions of the
Bankruptcy Code. Bankruptcy Code § 1123(b)(3)(A) states that “a plan may provide
for the settlement . . . of any claim . . . belonging to the debtor or to the estate.”
“[T]he standards for approving settlements as part of a plan of reorganization are the

                                         -9-
same as the standards for approving settlements under Fed. R. Bankr.P. 9109.” In re
Nutritional Sourcing Corp., 398 B.R. 816, 832 (Bankr. D. Del. 2008). Rule 9019(a)
states that “the court may approve a compromise or settlement.” FED. R. BANKR. P.
9019(a).

       In the Eighth Circuit, the standard for evaluation of a settlement “is whether the
settlement is fair and equitable and in the best interests of the estate.” Tristate
Financial, LLC, 525 F.3d at 654 (citing Martin, 212 B.R. at 319 (internal quotation
marks and citation omitted) (relying, in part, on Protective Comm. for Indep.
Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424, 88 S. Ct.
1157, 20 L. Ed. 2d 1 (1968)). A settlement need not be perfect. Instead, the
bankruptcy court must “determine that the settlement does not fall below the lowest
point in the range of reasonableness.” Id. at 654. To determine the reasonableness
of a settlement, we look at what are known as the Flight Transportation or Drexel
factors. Interlachen Harriet Investments Ltd. v. Kelley (In re Petters Co., Inc.), 455
B.R. 166, 175 (B.A.P. 8th Cir. 2011) (“Although these refer to different cases, the
factors are the same, Flight Transportation simply quotes Drexel.”); Drexel Burnham
Lambert Corp. v. Flight Transp. Corp. (In re Flight Transp. Sec. Litigation), 730 F.2d
1128 (8th Cir.1984); Drexel v. Loomis, 35 F.2d 800 (8th Cir.1929). The court
reviewing a settlement:

      must consider all factors bearing on the fairness of the settlement,
      including
      “(a) The probability of success in the litigation; (b) the difficulties, if
      any, to be encountered in the matter of collection; (c) the complexity of
      the litigation involved, and the expense, inconvenience and delay
      necessarily attending it; (d) the paramount interest of the creditors and
      a proper deference to their reasonable views in the premises.”

Flight Transp. Corp., 730 F.2d at 1135 (quoting Loomis, 35 F.2d at 806).

                                          -10-
      The bankruptcy court found that the first three Flight Transportation factors
did not favor approving the Settlement because the litigation of the fraudulent transfer
action was complete other than a pending motion for amended findings and any
appeal. It also stated that there is no difficulty with collection from Mrs. Wigley. On
appeal the parties have not focused on these findings by the bankruptcy court, and we
see no error with them.

       The court’s examination of Lariat’s interest under the fourth factor (the
paramount interest of the creditor and a proper deference to their reasonable views
in the premises) and its determination that the proposed Settlement prejudiced the
interest of Lariat, were appropriate. The bankruptcy court recognized that although
Lariat’s allowed claim would be satisfied in full under the plan, the Settlement
prejudiced Lariat because it was an attempt by the Debtor to control Lariat’s state
court fraudulent transfer judgment against Mrs. Wigley. This finding was firmly
supported by the record and is undeniable.

       We see no error in the bankruptcy court’s determination that the proposed
Settlement was not “fair and equitable and in the best interests of the estate.” Tristate
Financial, LLC, 525 F.3d at 654 (citation omitted). A bankruptcy court has “the right
to approve settlements, and may do so, in a proper case, over the objection of some
parties, so long as a settlement is found to be in the best interests of the estate as a
whole.” Flight Transp. Corp., 730 F.2d at 1138. The bankruptcy court appropriately
determined that the Settlement should not be approved because Lariat would be
harmed while there would be no benefit to the estate. As it stated, the only benefit
would be to Barbara Wigley (obviously an insider). It is undisputed that the Debtor
could fully fund the plan without the Settlement payment from Mrs. Wigley. The
proposed Settlement provided for Mrs. Wigley’s payment of 44% (of the amount of
the judgment against her) in satisfaction of Lariat’s fraudulent transfer judgment
against her. The amount of the offer does not change the fact that there was no
benefit to the estate. Mrs. Wigley could have offered 1% or 99%. It would not have

                                          -11-
mattered since no amount of settlement money was needed to fund the plan. In a
surplus case like this where the Debtor could fully fund the plan and the creditor has
reduced its claim to judgment, we doubt that the fourth factor of the Flight
Transportation test is relevant.

      Because we find that the Settlement passes the Flight Transportation test, we
need not discuss third-party releases under Bankruptcy Code § 524(e).

Stay Relief Order

       The stay relief order appealed by Mrs. Wigley states that “[t]he automatic stay,
if any, imposed by 11 U.S.C. § 362(a) is terminated such that [Lariat] may exercise
its rights and remedies under applicable nonbankruptcy law with respect to
continuing the pending fraudulent conveyance action . . . against Barbara Wigley
based on prepetition events.” The bankruptcy court did not abuse its discretion in
entering this order because the stay did not apply in the first instance to the action by
Lariat (a creditor) against Barbara Wigley (a non-debtor). No order was entered
extending the automatic stay to Mrs. Wigley. At oral argument, Lariat conceded that
it brought the stay relief motion as a cautionary measure.

                                   CONCLUSION
      For the reasons stated, this appeal is dismissed based on Barbara Wigley’s lack
of standing. To the extent Barbara Wigley has standing, the decisions of the
bankruptcy court are affirmed.

                                          -12-