Court Opinion

ID: 56118
Source: CourtListenerOpinion
Date Created: 2010-04-26 01:53:29+00
Date Added: 2024-06-11T17:19:33.077235
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT United States Court of Appeals
                                                  Fifth Circuit

                                                                     FILED
                                                                 December 7, 2007

                                         No. 06-11367          Charles R. Fulbruge III
                                                                       Clerk

In The Matter Of: THE WATCH LTD; DFW RADIO LICENSE, LLC

                                                 Debtors
--------------------------------------

DAVID A SCHUM

                                                 Appellant

v.

ZWIRN SPECIAL OPPORTUNITIES FUND LP; THE WATCH LTD;
DFW RADIO INC; RENAISSANCE RADIO, INC; RADIO CAFÉ LLC;
UNSECURED CREDITORS COMMITTEE; NORTH DALLAS BANK &
TRUST CO

                                                 Appellees

                      Appeal from the United States District Court
                           for the Northern District of Texas
                                 USDC No. 3:06-CV-391
                                       No. 06-11367

Before KING, BARKSDALE, and DENNIS, Circuit Judges.
PER CURIAM:*
       David Schum appeals, pro se, the district court’s dismissing, for lack of
standing, his appeal from the bankruptcy court’s final sale-approval order.
DISMISSED.
                                              I.
       In a prior, but related, bankruptcy proceeding, Renaissance Radio, Inc.
(RRI) was placed in involuntary Chapter 7 bankruptcy, later converted to a
Chapter 11 proceeding. The bankruptcy court’s plan of reorganization called for
the creation of, and the transfer of RRI’s assets to, The Watch, Ltd. (The Watch).
Pursuant to a loan agreement, The Watch created a wholly owned subsidiary,
DFW Radio License, LLC (DRL), for the purpose of holding FCC licenses used
to operate radio stations now owned by The Watch.
       The Watch and DRL (debtors) soon initiated a jointly administered
bankruptcy proceeding of their own. A bankruptcy trustee was appointed, and
the debtors requested authority to auction off their assets. At auction, the $9
million bid by D.B. Zwirn Special Opportunities Fund, L.P. (Zwirn) was the
highest. The bankruptcy court conducted a sale hearing and entered an order
approving the sale of all the assets of the debtors to Zwirn. Schum, whose claims
are discussed infra, made no objection at the proceedings leading up to, or at the
hearing approving, the sale.
       Schum appealed that order to district court. In its district court response
brief, Zwirn maintained: Schum is not a “party aggrieved” and lacks standing;
and Schum’s failure to obtain a stay pending appeal rendered the appeal moot.
In his reply brief in that court, Schum asserted, for the first time, that Zwirn

       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.

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was not a good-faith purchaser. The district court, addressing only standing,
recognized Schum’s alleged status as equity holder, but did not address his
assertion that he was also an unsecured creditor, such status assertions being
described infra. The court held: Schum was not a “person aggrieved” because
he “was not directly and adversely affected by the order of the bankruptcy court”.
                                       II.
      Schum maintains he is the manager of DRL, and asserts, without support
in the record, he is the majority owner of the two limited partners of The Watch
and sole owner of its general partner. Schum also maintains, and the record
reflects, he is an unsecured creditor in the amount of $1,829.61. Schum’s briefs
do not address Zwirn’s contention both in district court and here that this appeal
is moot.
                                       A.
      The Bankruptcy Act of 1898 originally limited standing to appeal a
bankruptcy case to “persons aggrieved” by an order of the referee. See 11 U.S.C.
§ 67(c) (1976). Although the 1978 amendments to the Bankruptcy Code repealed
this language, this and other circuits have continued to apply this test for
bankruptcy standing. See, e.g., In re Coho Energy Inc., 395 F.3d 198, 202 (5th
Cir. 2004); Rohm & Hass Tex., Inc. v. Ortiz Bros. Insulation, Inc., 32 F.3d 205,
210 n.18 (5th Cir. 1994) (“Although the applicable statute has since been
repealed, bankruptcy courts still limit appellate standing to those ‘aggrieved.’”)
(citations omitted).
      “The ‘person aggrieved’ test is an even more exacting standard than
traditional constitutional standing.” Coho, 395 F.3d at 202 (citation omitted).
It requires an appellant show he was “directly and adversely affected pecuniarily
by the order of the bankruptcy court”. Id. at 203 (citation and internal quotation
marks omitted). An “indirect financial stake” in another’s claims is insufficient
for standing; rather, the “injury or threat of injury must be both real and

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immediate”. Rohm, 32 F.3d at 208 (citation and internal quotation marks
omitted). Conjectural or hypothetical injuries do not support standing. Id.
(citations omitted). Because each decision by a bankruptcy court might affect,
indirectly, a number of parties, the “person aggrieved” standard prevents any
party with some interest in the proceedings from tying up the bankruptcy estate
in prolonged litigation.
      Toward this end, other circuits require attendance and objection at
bankruptcy court proceedings as prerequisites to appellate standing under the
“person aggrieved” test. See, e.g., In re Weston, 18 F.3d 860, 864 (10th Cir. 1994);
In re Schultz Mfg. Fabricating Co., 956 F.2d 686, 690 (7th Cir. 1992); In re
Commercial W. Fin. Corp., 761 F.2d 1329, 1334-35 (9th Cir. 1985). But see In re
Urban Broad. Corp., 401 F.3d 236, 243-44 (4th Cir. 2005). This requirement
recognizes the need for economy and efficiency and limits the class of persons
having standing to appeal bankruptcy decisions. Richard B. Levin, Bankruptcy
Appeals, 58 N.C. L. REV. 967, 978 (1980).
      As noted, Schum made no objections in bankruptcy court to the
proceedings leading up to, or at the hearing approving, the sale of debtors’
assets. Moreover, it is not clear Schum attended the sale-approval hearing.
Although an attorney representing two companies owned by Schum appeared,
no objection was made. Indeed, the record is devoid of any party objecting to the
sale of debtors’ assets to Zwirn. The first filing indicating objection to the order
is Schum’s notice of appeal filed with the bankruptcy court.
      Even were we to adopt the cogent reasoning employed by the majority of
circuits addressing this issue–that Schum must have attended and objected at
the bankruptcy proceeding in order to have standing to appeal–he would still be
required to establish he is a “person aggrieved”; that is, he was directly and
adversely affected, and his injury is more than merely speculative. See Coho,
395 F.3d at 203. This is unlikely based on this record because whether Schum

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                                   No. 06-11367

will recover on his $1,829.61 unsecured claim is highly speculative, to say the
least. In any event, we need not decide this standing issue because, as discussed
infra, this appeal is moot.
                                         B.
      The Bankruptcy Code, 11 U.S.C. § 363(m), protects authorized sales
“where the purchaser acted in good faith and the sale was not stayed pending
appeal”. In re Gilchrist, 891 F.2d 559, 560 (5th Cir. 1990) (emphasis added).
Failure to obtain a stay renders a subsequent appeal of that order moot. Id.
(citations omitted); see also In re Bleaufontaine, Inc., 634 F.2d 1383, 1389-90 (5th
Cir. Unit B Jan. 1981). Although this court has indicated a challenge to whether
the purchaser was a “good-faith” purchaser is not made moot by a subsequent
sale, it is well established such a challenge may not be raised for the first time
on appeal to the district court. See, e.g., In re The Ginther Trusts, 238 F.3d 686,
688-89 (5th Cir. 2001); Gilchrist, 891 F.2d at 651. This court does “not consider
arguments or claims not presented to the bankruptcy court”. Gilchrist, 891 F.2d
at 561 (citing In re Moody, 849 F.2d 902, 905 (5th Cir. 1988)).
      As noted, in district court, Zwirn maintained Schum’s failure to obtain a
stay pending appeal rendered the appeal moot; and, in response, Schum, for the
first time, challenged Zwirn’s status as a good-faith purchaser. Again, we may
not consider arguments not raised in bankruptcy court. See id. (Consistent with
his failure to do so in that court, Schum does not raise good-faith-purchaser
status in his opening brief here. Moreover, although Zwirn asserts mootness in
its response brief, Schum does not even respond regarding mootness in his reply
brief, much less assert the not-good-faith-purchaser defense to mootness.
Obviously, that defense involves both fact and law. Although this court liberally
construes pro se litigants’ briefs, as well as decides jurisdiction sua sponte if not
raised by the parties, it does not raise defenses of the type involved here, most
especially fact-bound defenses, on behalf of a party, and certainly cannot do so

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                                  No. 06-11367

when that party failed to raise that defense in bankruptcy court. See Grant v.
Cuellar, 59 F.3d 523, 524 (5th Cir. 1995); Gilchrist, 891 F.2d at 561.)
      Therefore, because Schum raised good faith for the first time in his appeal
to district court (not to mention abandoning it here), we will not consider it. This
appeal is moot.
                                       III.
      For the foregoing reasons, this appeal is DISMISSED.

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