Court Opinion

ID: 3004184
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:37:45.050703+00
Date Added: 2024-06-11T15:03:19.976294
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit

Nos. 09-2984, 09-2985

IN RE:

     M ARK R AY and B ERWICK B LACK C ATTLE C O .,
                                                          Debtors.
A PPEAL OF:

     B ECKER & P OLIAKOFF, P.A.

              Appeals from the United States District Court
                    for the Central District of Illinois.
         Nos. 09 CV 1120, 09 CV 1121—Michael M. Mihm, Judge.

      A RGUED JANUARY 22, 2010—D ECIDED M ARCH 8, 2010

 Before R IPPLE and R OVNER, Circuit Judges, and ST . E VE ,
District Judge.1
  S T. E VE, District Judge. Appellant Becker & Poliakoff,
P.A. (“Becker”) seeks to appeal from an order of the
district court affirming the bankruptcy court’s dismissal
of two Chapter 11 bankruptcy cases. Becker, however,

1
  The Honorable Amy J. St. Eve, District Judge for the United
States District Court, Northern District of Illinois, sitting
by designation.
2                                    Nos. 09-2984, 09-2985

lacks standing to appeal the bankruptcy court’s order.
Accordingly, the judgment of the district court that
Becker had standing to appeal the bankruptcy court’s
order is vacated.

I.   FACTUAL BACKGROUND
  This appeal arises from the dismissal of the Chapter 11
bankruptcy proceedings of debtors Mark Ray and Berwick
Black Cattle Company (collectively, “Debtors”). Appellees
Ward Feed Yard, Inc., ILS Financing, Inc. (collectively,
“Ward”), and High Plains Credit PCA (“High Plains”)
(collectively with Ward, “Appellees”) are creditors of
Debtors. Debtors were in the business of buying, selling
and raising cattle. Involuntary Chapter 11 petitions
were filed against the Debtors on December 26, 2006. On
February 15, 2007, the United States Trustee (“Trustee”)
appointed an Unofficial and Official Committee of Credi-
tors Holding Unsecured Claims (the “Committee”) to
represent Debtors’ creditors. The Committee retained
Becker, a Florida-based law firm, as litigation counsel.
  At the outset of the bankruptcy cases, substantially all
of Debtors’ assets were liquidated in the ordinary course
of business. The sale of assets and operations failed to
produce sufficient cash proceeds as projected by Debtors,
and creditors were left with undersecured or unsecured
claims. As permitted by a series of financing orders
entered by the bankruptcy court, the Committee filed a
series of adversary complaints against High Plains and
Ward, which sought recovery of, inter alia, alleged prefer-
ential and fraudulent transfers. In June 2008, Debtors, the
Nos. 09-2984, 09-2985                                    3

Committee, Ward and High Plains negotiated an agreed
plan for reorganization. On September 23, 2008, the
bankruptcy court entered an order denying confirmation
of the plan after finding that the general releases
provided to High Plains and Ward were overbroad.
  Also in September 2008, Becker filed fee applications
with the bankruptcy court for the fees, costs and adminis-
trative expenses it incurred as counsel to the Committee.
Shortly after filing its final fee application, the Becker
shareholder who had the primary responsibility for
the representation of the Committee, Ivan J. Reich, left
Becker and joined the law firm of Gray Robinson, P.A.
(“Gray Robinson”). By order dated October 22, 2008, Gray
Robinson substituted for Becker as litigation counsel to
the Committee.
  After denial of the parties’ proposed reorganization plan
and further failed negotiations, on December 9, 2008,
Debtors filed a motion to dismiss the bankruptcy cases
for cause pursuant to Section 1112(b) of the Bankruptcy
Code due to the continuing diminution of the estate. High
Plains and Ward supported the motion to dismiss. On
December 11, 2008, the Trustee filed a motion to
convert the Debtors’ cases to Chapter 7 cases or, in the
alternative, to appoint a Chapter 11 trustee. On Decem-
ber 12, 2008, the Committee filed a motion to convert
or, alternatively, for appointment of a Chapter 11
trustee. Becker did not file any motions objecting to
these submissions to dismiss or to convert the bank-
ruptcy cases.
 On December 23, 2008, the bankruptcy court held an
omnibus hearing on all pending motions, including the
4                                   Nos. 09-2984, 09-2985

Debtors’ motion to dismiss and the Committee’s and
Trustee’s motions to convert or appoint a Chapter 11
trustee. No attorney from the Becker firm appeared at
the hearing. Mr. Reich, counsel to the Committee,
appeared for the Committee. During the hearing, the
bankruptcy court heard argument from counsel for Debt-
ors, the Committee, the Trustee, Ward, High Plains, and
additional creditors. Mr. Reich represented during the
hearing that no evidence was necessary to resolve the
questions presented to the bankruptcy court regarding
dismissal or conversion of the bankruptcy proceedings.
No parties objected to this representation.
  On January 15, 2009, the bankruptcy court entered an
opinion and order dismissing the Debtors’ Chapter 11
cases due to the utter insolvency of the estates. On
January 26, 2009, Becker filed two emergency motions
requesting reconsideration of the bankruptcy court’s
January 15, 2009 dismissal order. The bankruptcy court
denied Becker’s motions on January 28, 2009.
  On February 5, 2009, Becker filed an appeal with the
district court. No other party filed an appeal. Ward and
High Plains objected to the appeal and argued that
Becker lacked standing to appeal the bankruptcy court’s
dismissal order. Although Ward and High Plains con-
tended that Becker failed to appear at the hearing or
otherwise object to the motion to dismiss filed by
Debtors, without addressing the issues of Becker’s ap-
pearance or objection, the district court concluded that
Becker had a pecuniary interest in the bankruptcy court’s
dismissal order and therefore qualified as a person ag-
Nos. 09-2984, 09-2985                                        5

grieved with standing to appeal. After finding that Becker
had standing to appeal, the district court affirmed the
order of the bankruptcy court dismissing the Chapter 11
proceedings. Becker now appeals the dismissal of the
Chapter 11 proceedings.

II. ANALYSIS
  Becker contends that the district court erred in
affirming the bankruptcy court’s dismissal of the
Chapter 11 proceedings. Ward and High Plains
contend that the district court improperly determined
that Becker had standing to appeal the bankruptcy
court’s dismissal order. Because it is dispositive, we
only address the issue of Becker’s standing to appeal.

  A. Bankruptcy Standing
  Bankruptcy standing is narrower than Article III stand-
ing. In re Stinnett, 465 F.3d 309, 315 (7th Cir. 2006) (citing
In re Cult Awareness Network, Inc., 151 F.3d 605, 607-08
(7th Cir. 1998)); In re Carbide Cutoff, Inc., 703 F.2d 259,
264 (7th Cir. 1983). “Only a ‘person aggrieved’ has
standing to appeal an order of the bankruptcy court.” In
re Schultz Mfg. & Fabricating Co., 956 F.2d 686, 690 (7th Cir.
1992) (citing In re UNR Indus., Inc., 725 F.2d 1111, 1120
(7th Cir. 1984)); see also In re Carbide Cutoff, Inc., 703 F.2d
at 264. “Prerequisites for being a ‘person aggrieved’
are attendance and objection at a bankruptcy court pro-
ceeding.” Id. (citing In re Commercial W. Fin. Corp., 761 F.2d
1329, 1334-35 (9th Cir. 1985)); see also In re Weston, 18 F.3d
6                                       Nos. 09-2984, 09-2985

860, 864 (10th Cir. 1994). These requirements reflect
the need for economy and efficiency in the bankruptcy
system. In re Commercial W. Fin. Corp., 761 F.2d at 1335. If
a party fails to appear at a hearing or object to a motion
or proceeding, it cannot expect or implore the bank-
ruptcy court to address the issues raised by the motion
or proceeding for a second time. Because “the require-
ments of due process outweigh those of judicial effi-
ciency,” however, these prerequisites are excused “if the
objecting party did not receive proper notice of the pro-
ceedings below and of his opportunity to object to
the action proposed to be taken.” Id. (internal citations
omitted).
   In addition to the appearance and objection
prerequisites, “[o]nly those persons affected pecuniarily
by a bankruptcy order have standing to appeal that
order.” In re Stinnett, 465 F.3d 309, 315 (7th Cir. 2006)
(citing In re Cult Awareness Network, Inc., 151 F.3d at 607-
08). “[A] person has standing to object to an order if that
person can ‘demonstrate that the order diminishes the
person’s property, increases the person’s burdens, or
impairs the person’s rights.’ ” In re Cult Awareness
Network, 151 F.3d at 608 (citing In re DuPage Boiler
Workers, Inc., 965 F.2d 296, 297 (7th Cir. 1992) and In re
Andreuccetti, 975 F.2d 413, 416 (7th Cir. 1992)). The
purpose of this standard is to insure “ ‘that bankruptcy
proceedings are not unreasonably delayed by protracted
litigation by allowing only those persons whose
interests are directly affected by a bankruptcy order to
appeal.’ ” Id. (citing In re Andreuccetti, 975 F.2d at 416-17).
Indeed, “[c]ourts consistently have noted a public policy
Nos. 09-2984, 09-2985                                        7

interest in reducing the number of ancillary suits that
can be brought in the bankruptcy context so as to
advance the swift and efficient administration of the
bankrupt’s estate. This goal is achieved primarily by
narrowly defining who has standing in a bankruptcy
proceeding.” Id. (citing In re Richman, 104 F.3d 654,
656-57 (4th Cir. 1997)).

  B. Application to Becker
   High Plains and Ward contend that Becker does not
have standing to appeal from the final judgment entered
by the bankruptcy court because Becker failed to appear
or object to the requested dismissal and has not estab-
lished that the dismissal order affected its pecuniary
rights. Whether an appellant is a “person aggrieved” is
a question of fact, and a district court’s ruling is
reviewed for clear error. Depoister v. Mary M. Holloway
Found., 36 F.3d 582, 585 (7th Cir. 1994).
  As an initial matter, Becker contends that, as a result
of their failure to file a cross-appeal, High Plains and
Ward have not preserved the issue of Becker’s standing
to appeal. It is well settled that the issue of Article III
appellate standing “is not subject to waiver or forfei-
ture.” See, e.g., Freedom from Religion Found., Inc. v. Nichol-
son, 536 F.3d 730, 737 (7th Cir. 2008) (citing FW/PBS, Inc. v.
City of Dallas, 493 U.S. 215, 230-31, 110 S.Ct. 596, 107
L.Ed.2d 603 (1990)). This appeal, however, presents the
question of whether Becker had bankruptcy standing, a
form of prudential standing which is more confined
than Article III standing, to appeal the bankruptcy
8                                      Nos. 09-2984, 09-2985

court’s order. In Mainstreet Org. of Realtors v. Calumet City,
505 F.3d 742, 747-49 (7th Cir. 2007), we held that
nonconstitutional or prudential lack of standing may
be waived by a party that fails to timely raise the issue,
but that a court may also raise and address a question
of prudential standing of its own accord. While we
have discretion to deem that Becker and High Plains
waived the issue of standing by failing to raise it in
the lower court, here we choose to address the issue, a
prerequisite to the Court reaching the merits of Becker’s
appeal.
  Becker concedes that appearance and objection are
required for bankruptcy standing. Becker submits that
it met this requirement through the appearance of
attorney Reich, counsel to the Committee, at the
omnibus hearing in the bankruptcy court. Mr. Reich,
however, never submitted an appearance on behalf of the
Becker firm in the bankruptcy court. Moreover, at the
omnibus hearing, Mr. Reich introduced himself as “here
for the Committee” and never identified himself as repre-
senting the Becker firm or any administrative claimant.
In fact, the transcript of the omnibus hearing is devoid
of any mention of the Becker firm by Mr. Reich or any
other party. Furthermore, there is no evidence that
Mr. Reich ever informed the bankruptcy court that he
was appearing on behalf of Becker.
  To support its claim that Mr. Reich represented Becker
at the hearing, Becker alleges that it and subsequent
counsel to the Committee, Mr. Reich, recognized their
unified interest in opposing dismissal. Becker relies on an
Nos. 09-2984, 09-2985                                          9

affidavit submitted to the district court in which
Mr. Reich details his agreement to represent the interests
of Becker in the bankruptcy court. Becker also relies on
Mr. Reich’s affidavit to establish that Mr. Reich repre-
sented Becker with respect to a fee application that was
noticed for, but not addressed at, the December 23, 2008
hearing. Notwithstanding an undisclosed agreement
between Mr. Reich and Becker subsequent to Mr. Reich’s
departure from the Becker firm, however, the critical
issue remains whether there is any evidence in the bank-
ruptcy court record that Mr. Reich filed an appearance
on behalf of Becker or informed the bankruptcy court or
the parties that Gray Robinson represented Becker with
respect to the dismissal order, fee application or other-
wise. The record is devoid of any such indication.2
  Becker’s reliance on In re Record Club of America, Inc., 28
B.R. 996, 999 (M.D. Pa. 1983) and Osborn v. Bank of
the United States, 22 U.S. 738, 6 L.Ed. 204 (1824) for the
proposition that there is a presumption that an attorney

2
  At oral argument, the Court offered Becker an additional
attempt to clarify and identify in the record “when counsel
appeared and objected in the bankruptcy court.” In addition to
responding to this inquiry, in its submission to the Court
Becker also presented a novel argument that it did not
receive notice of the December 23, 2008 hearing and that
therefore the appearance and objection requirements are
waived as to Becker. “[A]rguments raised for the first time
in oral argument or in supplemental filings are waived,”
however, and the Court will not consider this untimely argu-
ment. United States v. Bell, 585 F.3d 1045, 1055 (7th Cir. 2009).
10                                  Nos. 09-2984, 09-2985

represents the parties he purports to represent is
inapposite. The case law cited by Becker, while revealing
that evidence beyond an appearance is not necessarily
required to demonstrate that an attorney represents a
party, does nothing to save Becker’s claim. Nothing in
the record reveals an appearance on behalf of Becker in
the bankruptcy court.
   Becker further maintains that an independent ap-
pearance was not required for Becker because the Com-
mittee’s constituency included Becker, a creditor and
administrative claimant under the Bankruptcy Code, and
the tenor of Mr. Reich’s argument at the omnibus hearing
reflected that he was advocating on Becker’s behalf. The
hearing transcript belies this contention. During the
omnibus hearing, Mr. Reich never refers to the Becker
firm, and while he makes reference to the administrative
claimants, Mr. Reich never asserts that he is there to
represent those entities. Becker’s reasoning is prob-
lematic for another reason as well. The Bankruptcy Code
prohibits counsel for the Committee from representing
“any other entity having an adverse interest in connec-
tion with the case.” 11 U.S.C. § 1103(b). As Becker itself
has recognized, as an administrative claimant its claims
are entitled to priority over the claims of the unsecured
creditors represented by the Committee. 11 U.S.C.
§ 507(a)(2). Indeed, Gray Robinson ultimately withdrew
as counsel to the Committee when it recognized that
its status as an administrative claimant, combined with
the fees it incurred while representing the Committee,
led to a conflict of interest with the Committee.
Nos. 09-2984, 09-2985                                      11

  We also reject Becker’s argument that it directly ap-
peared and objected to the dismissal order by filing two
emergency motions for reconsideration in the bank-
ruptcy court. Becker identifies no legal authority to
support its contention that the filing of a motion for
reconsideration cures a failure to appear or object at an
earlier stage in the proceedings. Moreover, given that
“[a]rguments raised or developed for the first time in a
motion to reconsider are generally deemed forfeited,”
Becker’s motions do not remedy its initial failure to
appear and present its objections to the bankruptcy
court. See Pole v. Randolph, 570 F.3d 922, 938 (7th Cir. 2009)
(citing Mungo v. Taylor, 355 F.3d 969, 978 (7th Cir. 2004)).
  The appearance and notice requirements serve an
important purpose to ensure that the parties present the
court with all evidence and legal authorities that may
aid the court in its decisions. In re Schwinn Co., 209 B.R.
887, 892 (N.D. Ill. 1997). Becker should not be permitted
to circumvent this requirement by raising its arguments
for the first time only after the bankruptcy court con-
sidered and ruled on the motion to dismiss. To permit
such a motion to cure the standing problem would under-
mine the economy and efficiency promoted by the
standing requirements in the first place.
  Becker’s failure to enter an appearance or present its
objections to the bankruptcy court precluded it from
appealing the dismissal order to the district court. See
In re Schultz, 956 F.2d at 691 (parties lacked standing to
appeal where they failed to enter an appearance in
the bankruptcy case or present their objections to a
12                                   Nos. 09-2984, 09-2985

sale order to the bankruptcy court). The district court ac-
cordingly erred in concluding that Becker satisfied the
prerequisites for being a “person aggrieved” and had
standing to appeal the dismissal order.

III. CONCLUSION
  Because we find that Becker lacks standing, the Court
vacates the district court’s judgment and remands with
instruction to dismiss the appeal for lack of standing.

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