Court Opinion

ID: 7799968
Source: CourtListenerOpinion
Date Created: 2022-08-11 22:00:23.196059+00
Date Added: 2024-06-11T16:29:01.118644
License: Public Domain

In the

    United States Court of Appeals
                   For the Seventh Circuit
                       ____________________
No. 21-2486
IN RE:
         MICHAEL S. HELMSTETTER,
                     Debtor-Appellant.
                       ____________________

           Appeal from the United States District Court for the
              Northern District of Illinois, Eastern Division.
          No. 1:20-cv-05485 – Rebecca R. Pallmeyer, Chief Judge.
                       ____________________

     ARGUED MAY 17, 2022 — DECIDED AUGUST 11, 2022
                ____________________

   Before SYKES, Chief Judge, and KIRSCH and JACKSON-
AKIWUMI, Circuit Judges.
    JACKSON-AKIWUMI, Circuit Judge. Chapter 7 Debtor Mi-
chael S. Helmstetter appeals the bankruptcy court’s decision
approving a settlement agreement entered into on behalf of
his estate and executed by the estate’s trustee. But because
Helmstetter fails to show how it is likely—and not merely
speculative—that his purported injury would be redressed by
a favorable decision from this court, he lacks Article III stand-
ing to appeal the bankruptcy court’s decision. Accordingly,
we affirm the district court’s judgment dismissing the bank-
ruptcy appeal for lack of jurisdiction.
2                                                     No. 21-2486

                                 I
    In 2014, five years before Helmstetter voluntarily filed for
Chapter 7 bankruptcy, he filed a lawsuit in state court against
his former employers, Kingdom Chevrolet, Inc., and Western
Avenue Nissan, Inc., and their majority shareholder, Richard
Ruscitti (collectively, the “Kingdom Entities”). The Kingdom
Entities then filed counterclaims and a separate lawsuit
against Helmstetter in state court. The state court litigation
between Helmstetter and the Kingdom Entities was automat-
ically stayed when Helmstetter filed his bankruptcy petition
in October 2019. At the time of the stay, the parties had only
completed limited written discovery.
     As expected, after Helmstetter filed his bankruptcy peti-
tion, an estate was created containing all of his legal and eq-
uitable property interests, including the state court litigation.
See 11 U.S.C. § 541(a)(1). The bankruptcy court appointed Da-
vid Herzog as trustee over Helmstetter’s estate. Trustee Her-
zog’s task was to “gather the estate’s assets for pro rata distri-
bution to the estate’s creditors.” In re Teknek, LLC, 563 F.3d 639,
645 (7th Cir. 2009) (citation omitted). To facilitate the distribu-
tion process, Helmstetter filed three schedules of assets and
liabilities under penalty of perjury with the bankruptcy court.
He filed his first set of schedules in November 2019 and his
first amended set in April 2020. In both sets of schedules,
Helmstetter valued his total assets at approximately $8.5 mil-
lion, which included his projected recovery in the state court
litigation of between $5 million and $7.5 million, and some
“other assets” worth roughly $1 million to $3.5 million. In
both sets of schedules, Helmstetter valued his liabilities be-
tween approximately $6.5 million and $10.5 million.
No. 21-2486                                                             3

     After Helmstetter filed the first amended schedules but be-
fore Helmstetter filed his second amended schedules, Trustee
Herzog moved the bankruptcy court to approve a settlement
agreement between the Kingdom Entities and Trustee Her-
zog, on behalf of the estate. Relevant to this appeal, the parties
agreed to dismiss the state court litigation; the Kingdom En-
tities agreed to pay $550,000 to Trustee Herzog for the benefit
of the estate; and Trustee Herzog agreed to transfer to the
Kingdom Entities the estate’s interests, if any, in the Kingdom
Entities and related companies.
    Subsequently, Helmstetter filed his second amended
                                                                         1
schedules wherein he valued his total assets at $43 million
and his liabilities at approximately $20 million. His total as-
sets included $16 million for the estate’s recovery in the state
court litigation and $24 million for other assets. The “other as-
sets” valuation now included $20 million from purported
claims against third parties. Helmstetter’s new valuations
copied estimates from a report produced by accountants from
The BERO Group. Helmstetter provided no evidence to sup-
port the estimates, and the report does not explain how the
accountants reached the estimates or what methodologies
they used. Helmstetter then objected to Trustee Herzog’s mo-
tion to approve the settlement, arguing that the settlement
was improper because it undervalued the state court litiga-
tion.
  The bankruptcy court held a hearing on Trustee Herzog’s
motion to approve the settlement. Relying on the second

1
 Helmstetter actually valued his total assets at nearly $60 million in the
second amended schedules, but he revised that amount to $43 million in
his district court briefing.
4                                                  No. 21-2486

amended schedules and The BERO Group report, Helmstetter
argued at the hearing that the state court litigation recovery
was worth $16 million, so the $550,000 proposed settlement
was insuﬃcient. Trustee Herzog disputed Helmstetter’s in-
creased valuation of the state court litigation. He argued that
Helmstetter wanted the estate to hire a new attorney who re-
quested a 50 percent contingency fee to recover the projected
$16 million, so even accepting the $16 million figure, the state
court litigation recovery amount was much lower than Helm-
stetter’s projections.
    Over Helmstetter’s objection, the bankruptcy court ap-
proved the settlement agreement, finding that it was fair and
reasonable and that approving it was in the best interest of the
estate.
    Without seeking a stay of the bankruptcy court’s order,
Helmstetter appealed the bankruptcy court’s decision to the
district court, arguing that the bankruptcy court improperly
approved the settlement agreement and undervalued the
state court litigation. He also filed a motion to supplement the
record, to conduct discovery, and for appointment of a special
master. Trustee Herzog moved to dismiss the appeal for lack
of standing. He argued that Helmstetter did not have a rea-
sonable expectation of recovering a surplus after the estate
paid all creditors, therefore Helmstetter would not benefit
from reversal of the bankruptcy court’s order. Helmstetter
countered that, based on The BERO Group report and the sec-
ond amended schedules, the estate would have a $20 million
surplus after paying the creditors.
    The district court granted Trustee Herzog’s motion and
denied Helmstetter’s motion. Helmstetter timely appealed to
this court. At some point before this appeal, Trustee Herzog
No. 21-2486                                                      5

and the Kingdom Entities executed the settlement agreement
and dismissed the state court litigation.
                                II
    In this appeal, Helmstetter maintains that the bankruptcy
court undervalued the estate’s potential recovery from the
state court litigation and erred in approving the settlement.
He also challenges the district court’s decision dismissing the
matter for lack of jurisdiction and denying his request to sup-
plement the bankruptcy court record. Trustee Herzog argues
that Helmstetter lacks standing to bring this appeal for the
same reasons advanced in the district court. Alternatively,
Trustee Herzog argues that the appeal is moot, both equitably
and under 11 U.S.C. § 363(m), because the settlement agree-
ment is complete and the state court litigation has been dis-
missed.
    Article III standing is jurisdictional, so if Helmstetter lacks
standing, we lack jurisdiction to address the merits of this ap-
peal. See Nowlin v. Pritzker, 34 F.4th 629, 632 (7th Cir. 2022).
Accordingly, we start (and end) our analysis with Helmstet-
ter’s standing, and our review is de novo. Id.
    “The test for standing is a familiar one: [a] plaintiff has
standing only if he can allege personal injury fairly traceable
to the defendant’s allegedly unlawful conduct and likely to be
redressed by the requested relief.’” Pavlock v. Holcomb, 35
F.4th 581, 588 (7th Cir. 2022) (quoting California v. Texas, 141
S. Ct. 2104, 2113 (2021)). “Standing is lacking if it is merely
 speculative’—as opposed to likely’—that the plaintiff’s in-
jury would be redressed by a favorable decision.” In re GT Au-
tomation Grp., Inc., 828 F.3d 602, 604 (7th Cir. 2016) (quoting
United States v. Windsor, 570 U.S. 744, 757 (2013)). We have
6                                                    No. 21-2486

“noted that debtors often lack standing to challenge bank-
ruptcy orders because no matter how the estate’s assets are
disbursed by the trustee, no assets will revert to the debtor[,]’”
and therefore, it is unlikely that a favorable decision from this
court would redress the debtor’s injury. Id. at 604–05 (citation
omitted). The party invoking federal jurisdiction bears the
burden of establishing standing. See Pavlock, 35 F.4th at 588.
     Helmstetter fails to meet his burden because he provides
only speculative support that he would recover from the es-
tate after creditor distribution, such that reversing the bank-
ruptcy court’s decision would likely redress his injury. He ar-
gues that he would recover the estate’s $20 million surplus.
But this “surplus” is based on The BERO Group’s estimates of
$16 million from the state court litigation and $20 million from
purported claims against third parties. Critically, Helmstetter
fails to provide any support for these estimates or The BERO
Group’s calculations. Indeed, at oral argument, Helmstetter’s
attorney could explain only that the estimates were based on
records available to The BERO Group. He could not articulate
what methodologies The BERO Group used to produce the
estimates, and he professed that he “can’t speak to” how The
BERO Group determined the value of the purported claims
against third parties. Helmstetter’s abstract notion of a “sur-
plus” is insufficient to establish standing and confer jurisdic-
tion upon this court. See GT Automation, 828 F.3d at 605 (hold-
ing that appellant failed to demonstrate Article III standing to
appeal a bankruptcy court’s decision where it was only “the-
oretically possible” for appellant to receive any benefit from
the estate).
  At most, Helmstetter’s assets total $15 million. This
amount generously includes $8 million in recovery from the
No. 21-2486                                                         7

state court litigation (after paying a 50 percent contingency
                          2
fee to a new attorney). The amount does not include any of
the $20 million in purported claims against third parties that
                                      3
Helmstetter fails to substantiate. Because Helmstetter’s as-
sets do not exceed his conceded liabilities of $20 million,
Helmstetter cannot explain how it is “likely” that any distri-
butions from the estate will ultimately flow to him. See GT
Automation, 828 F.3d at 604. Because Helmstetter fails to
demonstrate that he would be able “to realize any economic
benefit from a potential reversal,” id. (quotation omitted), he
lacks standing. Therefore, we affirm the district court’s judg-
ment dismissing the bankruptcy appeal, and we do not reach
the merits of Helmstetter’s claim or Trustee Herzog’s argu-
ments that the matter is moot.
                                                        AFFIRMED

2
 We say “generously” because the state court litigation was dismissed
with prejudice in September 2021, which means Helmstetter cannot re-
cover anything from the litigation.
3
  Indeed, at oral argument, Trustee Herzog’s attorney highlighted that
those claims have been monetized for less than $40,000 and some claims
sold for as little $1.