Court Opinion

ID: 9390831
Source: CourtListenerOpinion
Date Created: 2023-04-28 18:00:38.355066+00
Date Added: 2024-06-11T17:18:37.423767
License: Public Domain

Case: 22-50453   Document: 00516730671      Page: 1   Date Filed: 04/28/2023

          United States Court of Appeals
               for the Fifth Circuit                          United States Court of Appeals
                                                                       Fifth Circuit

                                                                     FILED
                                                                 April 28, 2023
                             No. 22-50453
                                                                Lyle W. Cayce
                                                                     Clerk

   In the Matter of Salubrio, L.L.C.

                                                                   Debtor,

   Douglas K. Smith, MD,

                                                              Appellant,

                                versus

   Eric Terry, Chapter 7 Trustee,

                                                                 Appellee,
   ______________________________

   In the Matter of Salubrio, L.L.C.

                                                                   Debtor,

   Douglas K. Smith

                                                              Appellant,

                                versus

   Eric Terry, Trustee

                                                                 Appellee,
   ______________________________
Case: 22-50453        Document: 00516730671            Page: 2      Date Filed: 04/28/2023

                                        No. 22-50453

   In the Matter of Salubrio, L.L.C.

                                                                                     Debtor,

   Douglas K. Smith, MD, Creditor

                                                                               Appellant,

                                            versus

   Eric Terry, Trustee

                                                                                 Appellee.

                 Appeal from the United States District Court
                       for the Western District of Texas
              USDC Nos. 5:20-CV-1194; 5:20-CV-1435; 5:20-CV-1450

   Before Clement, Oldham, and Wilson, Circuit Judges.
   Per Curiam:*
         This is a bankruptcy appeal. Appellant Dr. Douglas Smith challenges
   three orders of the bankruptcy court: (1) an order to compel, (2) the denial
   of Smith’s motion to strike, and (3) the denial of Smith’s motion for
   reconsideration. We affirm.
                                              I.
         Smith is an interested party in the Chapter 7 bankruptcy of Salubrio,
   LLC. Smith is the sole member of Salubrio and controls other related
   entities, including Musculoskeletal Imaging Consultants, LLC (“MSKIC”).
   Salubrio operates under the trade name Brio San Antonio MRI. Together

         *
             This opinion is not designated for publication. See 5th Cir. R. 47.5.

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   with MSKIC and the other entities, Salubrio provides MRI services. Smith’s
   entities use several data platforms (the “IT platforms”) to manage their
   business activities, including a “common web-based accounting platform”
   called “Intacct,” which is licensed through MSKIC. The Intacct platform
   contains data, including patient medical records and accounts receivable,
   pertinent to Salubrio’s bankruptcy.
         In March 2020, Salubrio filed a voluntary petition for relief under
   Chapter 11, Subchapter V, of the Bankruptcy Code. The bankruptcy court
   appointed Eric Terry as Trustee, and Salubrio operated its business as
   debtor-in-possession until June 2020. That June, the bankruptcy court
   ordered the removal of Salubrio as debtor-in-possession on the motion of a
   creditor who alleged that Smith had defrauded the creditor through Salubrio
   and grossly mismanaged Salubrio. In July 2020, the bankruptcy court held a
   hearing on three pending motions (“the July Hearing”); the outcome of that
   hearing is irrelevant, but the Trustee’s statements during the July Hearing
   are relevant to Smith’s estoppel argument, discussed below. In September
   2020, a different creditor moved to convert the case to a Chapter 7
   bankruptcy. The bankruptcy court granted the motion.
         On September 25, 2020, the Trustee filed a “Motion to (I) Compel
   and (II) Authorize Third Parties to Provide Trustee With Administrator
   Level Access to Data Platforms” (the “Motion to Compel”). The Trustee
   sought to compel Smith to provide the Trustee with access and control of the
   IT platforms, including Intacct, that contained data relevant to Salubrio’s
   bankruptcy. After a hearing, the bankruptcy court entered an order granting
   the motion (“the Order to Compel”). Smith appealed the Order to Compel
   to the district court, arguing, for the first time, that the court’s ruling
   deprived him of his personal property rights in medical records and, by
   extension, the accounts receivable.

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                                    No. 22-50453

          Pursuant to Fed. R. Bankr. P. 8009(a)(1), Smith filed a
   designation of items to be included in the record on appeal. Smith included
   the transcript from the July Hearing, asserting that the Trustee stated at that
   hearing that any medical records were Smith’s property. The Trustee moved
   to strike the transcript, Smith failed to oppose, and the bankruptcy court
   granted the motion. Smith then filed a motion for reconsideration, which was
   denied. Smith appealed both of those orders to the district court; those
   appeals were consolidated with Smith’s appeal of the Order to Compel.
          The district court affirmed across the board. Smith characterized the
   primary issue before the district court as “whether the bankruptcy court had
   the authority to assign title to property that belongs to the non-debtor
   healthcare provider.” He asserted that the Order to Compel divested him of
   his personal property rights in the accounts receivable and medical records,
   which in turn violated medical privacy laws and nondisclosure obligations.
   The district court found that Smith had failed to raise that argument before
   the bankruptcy court and considered it forfeited as a result. Additionally, the
   court credited Smith’s representation during the hearing on the Motion to
   Compel that MSKIC was the owner of the IT platforms. And the court found
   that the Order to Compel did not transfer any property as it only required
   Smith, through MSKIC, to provide access and control of the IT platforms to
   the Trustee. Therefore, the court concluded that Smith lacked standing to
   appeal the Order to Compel.
          The district court also affirmed the bankruptcy court’s order granting
   the Trustee’s motion to strike. Smith argued that the Trustee admitted
   during the July Hearing that generally, the physician is the owner of patient
   records under Texas law. Therefore, urged Smith, the transcript of the July
   Hearing was relevant to the issue that he had appealed. The district court
   rejected Smith’s interpretation of the transcript, finding that the Trustee did

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                                       No. 22-50453

   not concede that Smith owned the records. In effect, then, the district court
   determined that the July Hearing transcript was irrelevant.
          Finally, the district court affirmed the bankruptcy court’s denial of
   Smith’s motion for reconsideration. The court held that Smith did not
   explain his failure to oppose the motion to strike and did not show a manifest
   error of law or fact in the bankruptcy court’s order granting that motion.
          Smith timely appealed to this court.
                                           II.
          We apply the same standard of review as did the district court. In re
   Age Refin., Inc., 801 F.3d 530, 538 (5th Cir. 2015) (citation omitted). “Our
   review is properly focused on the actions of the bankruptcy court.” Id.
   (citation omitted). We review that court’s findings of fact for clear error and
   its conclusions of law de novo. Id. (citation omitted).
          We begin—and end—by addressing Smith’s standing to appeal the
   Order to Compel. See In re United Operating, LLC, 540 F.3d 351, 354 (5th
   Cir. 2008) (“Standing is a jurisdictional requirement, and we are obliged to
   ensure it is satisfied[.]”). We conclude he lacks it. Standing is particularly
   important in bankruptcy cases because of the numerous interested parties.
   See Matter of Technicool Sys., Inc., 896 F.3d 382, 385 (5th Cir. 2018). “The
   narrow inquiry for bankruptcy standing—known as the person aggrieved
   test—is more exacting than the test for Article III standing.” Id. (citation
   and quotation marks omitted). To satisfy this test, an appellant must “show
   that he was ‘directly and adversely affected pecuniarily by the order of the
   bankruptcy court.’” Id. (quoting Fortune Nat. Res. Corp. v. U.S. Dep’t of
   Interior, 806 F.3d 363, 366 (5th Cir. 2015). “This restriction narrows the
   playing field, ensuring that only those with a direct, financial stake in a given
   order can appeal it.” Id. at 386.

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                                    No. 22-50453

          Smith lacks standing to appeal the Order to Compel because that
   order did not transfer any ownership interest in Smith’s personal property,
   i.e., Smith was not “directly and adversely affected pecuniarily” by the
   order. Id. at 385. And because his appeals of the order granting the Trustee’s
   motion to strike and the order denying Smith’s motion for reconsideration
   are derivative of his appeal of the Order to Compel, those challenges are
   mooted by his lack of standing. See Louisiana v. Wells, 628 F. App’x 260, 261
   (5th Cir. 2015) (denying as moot a motion to strike portions of the record on
   appeal).
          Smith contends that the Order to Compel required him to transfer
   ownership of medical records and accounts receivable to the Trustee. But
   assuming arguendo that Smith has a property interest in the medical records
   and accounts receivable, the Order to Compel did not transfer ownership of
   that property.
          The Order to Compel consists in substance of two clauses separated
   by a semicolon:
          Dr. Smith, in his individual capacity and/or his capacity as the
          principal of MSKIC and [another related entity] is hereby
          compelled to either assign the Intacct account from MSKIC to
          Salubrio, or provide his consent . . . for the Trustee . . . to be
          the licensed user upon renewal with [administrative level
          access and control] over the Intacct account; and . . . to either
          assign additional accounts as designated by the Trustee, or
          provide his consent to the third parties maintaining such
          accounts to provide [administrative level access and control] to
          the Trustee for such accounts.
   The first clause is limited in scope to the Intacct account. Smith, both during
   the hearing on the Motion to Compel and in briefing before this court, stated
   that the Intacct account was the property of MSKIC. As Smith appeals in his

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                                    No. 22-50453

   personal capacity, he does not have standing to contest an order directed to
   MSKIC.
          The second clause of the Order to Compel does not define the
   “additional accounts” that are referenced. Smith seizes on this purported
   ambiguity, arguing that the Order to Compel required him to transfer
   ownership of “accounts,” including accounts receivable, IT platform
   accounts, and medical records. But that interpretation strains the language
   of the order and makes little sense in context. First, the Motion to Compel
   only sought access and control of the IT platforms. Second, at no point
   during the hearing on the Motion to Compel did Smith, or anyone else,
   suggest that the motion sought to transfer actual accounts receivable to the
   Trustee. Rather, the point of contention during the hearing was how to give
   the Trustee administrative access to the IT platforms so that the Trustee
   could retrieve data pertinent to Salubrio’s bankruptcy. Third, Smith has
   continued to press his claim to the accounts receivable in the bankruptcy
   court, see In re Smith, No. 21-CV-1135-XR, 2022 WL 16825195 (W.D. Tex.
   Nov. 2, 2022), indicating that he has not treated the Order to Compel as
   dispositive on the issue of who owns the accounts receivable.
          Given the language of the Order to Compel and its context, it is clear
   that the order did not transfer ownership of the medical records or accounts
   receivable (whoever owns them). Rather, the order compelled Smith, both
   individually and as principal of MSKIC and the other entities, to grant the
   Trustee access and control of the IT platforms to enable the Trustee to access
   information, including medical records and accounts receivable, related to
   Salubrio’s assets and liabilities. Smith has not shown that compelling him to
   grant such access caused him a “direct, adverse, pecuniary hit.” Matter of
   Technicool Sys., Inc., 896 F.3d at 386 (“The order must burden his pocket

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                                         No. 22-50453

   before he burdens a docket.”). As a result, he lacks standing to challenge the
   Order to Compel, and we affirm the district court’s conclusion to that effect. †
           And as noted above, Smith’s appeals of the district court’s denials of
   his motion to strike and motion for reconsideration are moot because they
   spring from the same record on appeal related to the Order to Compel. See
   Wells, 628 F. App’x at 261.            The orders of the bankruptcy court are
   accordingly
                                                                          AFFIRMED.

           †
             Smith also argues that granting the Trustee access and control of the medical
   records violates numerous state and federal confidentiality requirements. But as noted, he
   fails to show how giving the Trustee access to patient medical records affects him
   pecuniarily. In any event, Smith also represented at the hearing on the Motion to Compel
   that he “want[ed] . . . the Trustee to have access to all the data.”

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                                     No. 22-50453

   Andrew S. Oldham, Circuit Judge, dubitante:
          My esteemed colleagues dismiss this appeal after applying the
   “person aggrieved test.” Ante, at 5. That test requires an appellant to “show
   that he was directly and adversely affected pecuniarily by the order of the
   bankruptcy court.” Fortune Nat. Res. Corp. v. U.S. Dep’t of Interior, 806 F.3d
   363, 366 (5th Cir. 2015). The “person aggrieved” requirement originated in
   a since-repealed statute and persists today as judge-made, prudential
   standing doctrine. See In re Coho Energy, Inc., 395 F.3d 198, 202–03 (5th Cir.
   2004) (describing the history of the test and adopting it in this circuit).
          I have no dispute with my respected colleagues’ reasoning, at least as
   a matter of circuit precedent. But I do wonder if our reliance on prudential
   standing doctrines nears obsolescence.
          “[T]he standing doctrine, at least as presently conceived” does not
   “run deep in our history.” Richard H. Fallon, Jr., John F.
   Manning, Daniel J. Meltzer & David L. Shapiro, Hart &
   Wechsler’s The Federal Courts and the Federal System
   101 (7th ed. 2015); accord TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2219
   (2021) (Thomas, J., dissenting). And whatever the provenance of
   constitutional standing doctrines, prudential standing’s (ahem) standing is far
   shakier.
          As their nameplate suggests, prudential doctrines implicate judicial
   discretion to avoid cases over which we have jurisdiction. Such discretion is
   tough to square with the general rule that federal courts “have no more right
   to decline the exercise of jurisdiction which is given, than to usurp that which
   is not given.” Cohens v. State of Virginia, 19 U.S. (6 Wheat.) 264, 404 (1821).

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   That’s true even if we’d rather not touch a case. Ibid. (“We cannot pass it by
   because it is doubtful.”). *
           And the Supreme Court has suggested that prudential standing could
   be on its last leg. In Lexmark International, Inc. v. Static Control Components,
   Inc., 572 U.S. 118 (2014), the Court noted “tension” between “prudential”
   doctrines and federal courts’ “virtually unflagging” “obligation to hear and
   decide cases.” Id. at 125–26 (quoting Sprint Commc’ns, Inc. v. Jacobs, 571
   U.S. 69, 77 (2013)). The unanimous Court then narrowly construed the
   “zone of interests” test as a test of statutory interpretation, not judicial
   prudence. Id. at 129. It also described, at least on the facts of that case,
   prudential standing as a “misnomer.” Id. at 127. Shortly thereafter, the Court
   in Susan B. Anthony List v. Driehaus, 573 U.S. 149 (2014), suggested without
   firmly deciding that a court of appeals’ reliance on prudential ripeness
   concerns was misplaced. See id. at 167 (“[W]e need not resolve the
   continuing vitality of the prudential ripeness doctrine in this case.”). And in
   Bank of America Corp. v. City of Miami, 581 U.S. 189 (2017), the Court
   appeared to equate “prudential” and “statutory” standing, as if the former
   adds nothing to the latter. Id. at 196.
           After Lexmark, I harbor doubt as to the validity of prudential standing
   doctrines like the person aggrieved test. That doubt is particularly acute
   where, as here, the doctrine originated in a statutory requirement that
   Congress has since repealed and that exists today only because judges
   revivified it as a matter of federal common law. See Coho, 395 F.3d at 202
   (describing the removal of the person aggrieved test by the Bankruptcy
   Reform Act of 1978).

           *
           As with all general rules, of course, this one has exceptions. See, e.g., Railroad
   Comm’n v. Pullman Co., 312 U.S. 496, 501–02 (1941).

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          Several of our sister circuits have either questioned the continuing
   viability of this doctrine, or narrowed it, in the wake of Lexmark. See In re
   Schubert, No. 21-3969, 2023 WL 2663257, at *3 & n.2 (6th Cir. 2023)
   (Thapar, J.) (suggesting the “person aggrieved” test may no longer be good
   law); Matter of Petrone, 754 F. App’x 590, 591 (9th Cir. 2019) (mem.)
   (recasting the “person aggrieved” test as a flavor of Lexmark’s zone-of-
   interest test); In re Ernie Haire Ford, Inc., 764 F.3d 1321, 1325 n.3 (11th Cir.
   2014) (deciding that after Lexmark, the person-aggrieved test does not speak
   to subject-matter jurisdiction). Other circuits have noted possible
   reverberations from Lexmark but declined to measure them. See In re GT
   Automation Group, Inc., 828 F.3d 602, 605 n.1 (7th Cir. 2016) (raising, but
   sidestepping, the question of whether prudential bankruptcy rules survive
   Lexmark); In re Kaiser Gypsum Company, Inc., 60 F.4th 73, 83–84 (4th Cir.
   2023) (resolving a party’s Lexmark-based challenge to the person-aggrieved
   test on different grounds).
          All that said, our precedent is what it is. And I do not question my
   esteemed colleagues’ application of it.

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