Dean v. Seidel ( 2021 )

Case: 21-10468 Document: 00516119902 Page: 1 Date Filed: 12/07/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
December 7, 2021
No. 21-10468 Lyle W. Cayce
Clerk
In the Matter of: William Berry Dean, III
Debtor,
William Berry Dean, III,
Appellant,
versus
Scott M. Seidel, Chapter 7 Trustee,
Appellee.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:20-CV-1834
Before Wiener, Graves, and Ho, Circuit Judges.
Jacques L. Wiener, Jr., Circuit Judge:
In this appeal of a bankruptcy court order, the debtor objects to a
litigation funding arrangement entered into by the trustee and a creditor. We
do not reach the merits of the debtor’s objection because he does not have
bankruptcy standing.
Case: 21-10468 Document: 00516119902 Page: 2 Date Filed: 12/07/2021
No. 21-10468
I. Background
Debtor-Appellant William Berry Dean, III filed a Chapter 7 voluntary
petition in 2019. Appellee Scott M. Seidel was appointed trustee for the
estate. Reticulum Management, LLC (“Reticulum”) is one of the creditors.
(Reticulum has objected to the discharge of its claims against Dean in a
related proceeding).
Seidel did not have sufficient unencumbered funds to retain counsel
to pursue claims for the estate and potentially reclaim money for creditors.
Consequently, Seidel and Reticulum entered into a Litigation Funding
Agreement (“the Agreement”) in which Reticulum “agreed to provid[e]
funding to the Trustee and the Debtor’s bankruptcy estate to fund the
Trustee’s litigation against the [f]uture [d]efendants in exchange for a share
of any of the [l]itigation [p]roceeds.”
In June 2020, the bankruptcy court held a hearing in which it granted
Seidel’s motion to approve the Agreement. The district court affirmed that
decision of the bankruptcy court, holding that it had not committed clear
error. Dean appealed, contending that such an agreement undermines the
statutory ranking system for distribution of the estate’s property by allowing
Reticulum to move ahead of other creditors in the order of payment.
II. Standard of Review
“We review the decision of a district court, sitting in its appellate
capacity, by applying the same standards of review to the bankruptcy court’s
finding of fact and conclusions of law as applied by the district court.” 1 We
review conclusions of law and mixed questions of law and fact de novo and
1
In re ASARCO, L.L.C., 650 F.3d 593, 600 (5th Cir. 2011).
2
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No. 21-10468
review findings of fact for clear error. 2 “Standing is a question of law that we
review de novo.” 3 Bankruptcy standing is a prudential standing
requirement. 4 As such, we may address the issue even when it was not raised
below. 5
III. Analysis
“[S]tanding to appeal a bankruptcy court order is, of necessity, quite
limited.” 6 “To determine whether a party has standing to appeal a
bankruptcy court order, this court uses the ‘person aggrieved’ test.” 7 This
test “is an even more exacting standard than traditional constitutional
standing.” 8 The appellant must show that he is “directly, adversely, and
financially impacted by a bankruptcy order.” 9 Such standing must be
connected to the exact order being appealed as opposed to the proceedings
more generally. We have explained “that the order of the bankruptcy court
must directly and adversely affect the appellant pecuniarily.” 10
2
Id. at 601.
3
In re Technicool Sys., Inc., 896 F.3d 382, 385 (5th Cir. 2018).
4
See In re Coho Energy Inc., 395 F.3d 198, 202 (5th Cir. 2004).
5
See, e.g., Nat’l Waste Mgmt. Ass’n v. Pine Belt Reg’l Solid Waste Mgmt. Auth., 389
F.3d 491, 498-99 (5th Cir. 2004) (addressing prudential standing sua sponte).
6
In re Technicool, 896 F.3d at 385.
7
In re Mandel, 641 F. App’x 400, 402 (5th Cir. 2016) (unpublished) (quoting
Fortune Nat. Res. Corp. v. U.S. Dep’t of Interior, 806 F.3d 363, 366 (5th Cir. 2015)).
8
Fortune Nat. Res., 806 F.3d at 366 (quoting In re Coho Energy Inc., 395 F.3d at
202).
9
In re Technicool, 896 F.3d at 384.
10
Fortune Nat. Res., 806 F.3d at 367 (emphasis in original).
3
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In a Chapter 7 bankruptcy, “the debtor-out-of-possession typically
has no concrete interest in how the bankruptcy court divides up the estate.” 11
Once a trustee is appointed, “the trustee, not the debtor or the debtor’s
principal, has the capacity to represent the estate and to sue and be sued.” 12
However, a debtor may retain bankruptcy standing by showing “that defeat
of the order on appeal . . . would affect his bankruptcy discharge.” 13
Appellants cannot demonstrate bankruptcy standing when the court
order to which they are objecting does not directly affect their wallets. For
instance, we have held that the owner of a debtor company in a Chapter 7
bankruptcy could not object to an order approving the hiring of special
counsel because such an order would not affect the debtor company’s
discharge. 14 We have also held that a creditor did not have bankruptcy
standing to object to an order approving the sale of assets because the creditor
would be in the same position financially, whether or not the bankruptcy
court approved the sale. 15
Dean contends that the pending related action in which Reticulum
objects to the discharge of its claim shows he can still be affected by this order.
He points to our decision in In re Mandel in which the debtor retained
bankruptcy standing because his claim had not yet been discharged. In that
case, the debtor had standing to object to an order that allowed claims for
11
In re Mandel, 641 F. App’x at 402-03.
12
Id. at 402 (quoting Vega v. Gasper, 36 F.3d 417, 422 (5th Cir. 1994)).
13
Id. at 403 (alteration in original; quoting In re Beaulac, 294 B.R. 815, 821 (1st Cir.
BAP 2003) (per curiam)).
14
In re Technicool, 896 F.3d at 384.
15
Fortune Nat. Res., 806 F.3d at 367.
4
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No. 21-10468
compensation for legal services against his bankruptcy estate. 16 But Mandel
does not stand for the general proposition that the simple existence of a
pending debt creates bankruptcy standing for the debtor. The order at issue
in Mandel specifically related to whether a debt would be discharged. We
ultimately held that “a debtor in a Chapter 7 bankruptcy proceeding . . . has
standing to appeal an order by the bankruptcy court allowing claims against
his bankruptcy estate by the Appellees.” 17
Here, the order on appeal — approval of a litigation funding
agreement — does not affect whether Dean’s debts will be discharged.
Neither does it affect Reticulum’s related pending case in which it “objected
to Dean’s bankruptcy discharge and to discharge of its claims against Dean.”
Dean thus does not have bankruptcy standing because he cannot show how
the order approving the litigation funding agreement would directly,
adversely, and financially impact him.
IV. Conclusion
We DISMISS this appeal for Dean’s lack of bankruptcy standing.
16
In re Mandel, 641 F. App’x at 405.
17
Id. at 401.
5