Barbara Wigley v. Michael Wigley

United States Court of Appeals
For the Eighth Circuit
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No. 16-4075
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In re: Michael Robert Wigley,
lllllllllllllllllllllDebtor.
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Barbara Wigley,
lllllllllllllllllllllInterested Party - Appellant,
v.
Michael Robert Wigley,
lllllllllllllllllllllDebtor - Appellee,
Lariat Companies, Inc.,
lllllllllllllllllllllCreditor - Appellee.
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Appeal from the United States Bankruptcy
Appellate Panel for the Eighth Circuit
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Submitted: October 16, 2017
Filed: March 29, 2018
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Before SMITH, Chief Judge, MURPHY and COLLOTON, Circuit Judges.
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COLLOTON, Circuit Judge.
Barbara Wigley is the wife of Michael Wigley, a debtor in Chapter 11
bankruptcy proceedings. Barbara, who was not a party to the bankruptcy
proceedings, seeks to appeal several orders of the bankruptcy court: (1) an order
denying confirmation of Michael’s plan of reorganization, (2) an order confirming
Michael’s subsequent plan of reorganization, and (3) an order granting stay relief to
Lariat, one of Michael’s creditors. The Eighth Circuit Bankruptcy Appellate Panel
dismissed Barbara Wigley’s appeal, holding that she was not a “person aggrieved”
by the orders and therefore lacked standing. We agree and dismiss the appeal.
I.
On or about October 8, 2008, Baja Sol Cantina EP, LLC—a limited liability
company that operated a Mexican restaurant in Eden Prairie, Minnesota—entered into
a lease agreement with Lariat Companies, Inc. Michael Wigley, as the ninety percent
member and chief manager of Baja Sol, personally guaranteed the company’s
obligations under the Lariat lease.
The Mexican restaurant was not profitable, and Baja Sol developed financial
problems. On October 28, 2010, Lariat sued Baja Sol and Michael Wigley as
guarantor in Minnesota state court. Lariat sought recovery of $245,975 in allegedly
past-due rent plus approximately $2 million for future accruing rent. In July 2011,
the state court entered summary judgment for Lariat against Baja Sol and Michael in
the amount of $2.238 million.
While Lariat’s action was underway but before the court had granted summary
judgment, Michael transferred some of his assets to his wife, Barbara Wigley. After
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Lariat had obtained the $2.238 million judgment in its lease action, Lariat and several
other creditors sued Barbara Wigley in state court for fraudulent transfer of funds
under the Minnesota Uniform Fraudulent Transfer Act, Minn. Stat. § 513.41 et seq.
The creditors added Michael as a defendant in the fraudulent transfer action. The
state court found the Wigleys jointly and severally liable for $795,098 of fraudulently
transferred funds, plus interest, costs, and disbursements. Shortly thereafter, the
Wigleys moved for amended findings in the state court action; the motion was
pending when this appeal was filed.
In February 2014, Michael filed for Chapter 11 bankruptcy. Because Lariat’s
claim against Michael arises from a real property lease termination, the Bankruptcy
Code, 11 U.S.C. § 502(b)(6), caps Lariat’s recovery in these bankruptcy proceedings.
Lariat may recover only a limited amount of future rent losses in bankruptcy. See In
re Wigley, 533 B.R. 267 (B.A.P. 8th Cir. 2015).
Michael filed a Plan of Reorganization with the bankruptcy court. Under this
plan, Michael proposed to pay unsecured creditors their allowed claims in full. The
plan also contained a section entitled “Settlement and Release of Claims Against
Barbara Wigley.” This section provided:
Confirmation of the Plan shall constitute approval of a settlement
agreement under which all claims that the Debtor or any other
representative of the estate could have asserted against Barbara Wigley
as of the Confirmation Date, including but not limited to Avoidance
Actions, shall be released in exchange for payment of the Barbara
Wigley Settlement Payment, which shall be due no later than the
Effective Date. The settlement and release provided for herein shall be
binding on all creditors and other parties interest, whether or not entitled
to receive payments or other distributions under the Plan.
The Plan defined “Barbara Wigley Settlement Payment” as a sum of $350,000. The
plan, then, would settle the fraudulent transfer action in which the state court had
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entered a judgment of $795,098 against the Wigleys for a $350,000 payment from
Barbara.
Lariat objected, and the bankruptcy court denied confirmation of the Plan. The
court concluded that although 11 U.S.C. § 1123(b)(3)(A) allows for settlements in a
plan, the proposed settlement must be “fair and equitable.” See Protective Comm. for
Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424
(1968). Drawing on factors identified by this court in evaluating a settlement under
Federal Rule of Civil Procedure 23(e), see In re Flight Transp. Corp. Sec. Litig., 730
F.2d 1128, 1135 (8th Cir. 1984), the bankruptcy court concluded that the Barbara
Wigley settlement was not fair. The court reasoned:
This settlement would eliminate the Fraudulent Transfer Judgment by
releasing [Barbara Wigley] for a discounted payment to the debtor and
harm Lariat, the only entity other than Barbara Wigley affected by this
proposed Plan provision. No other entities are affected as the Barbara
Wigley Settlement Payment is unnecessary to fund the Plan.
The bankruptcy court eventually confirmed Michael’s Fourth Modified Plan
of Reorganization, which did not settle the fraudulent transfer action. The court also
granted Lariat’s motion for relief from the automatic stay imposed by 11 U.S.C.
§ 362(a), so that Lariat could “exercise its rights and remedies under applicable
nonbankruptcy law with respect to continuing the pending fraudulent conveyance
action . . . against Barbara Wigley based on prepetition events.”
Barbara Wigley filed a notice of appeal, challenging (1) the bankruptcy court’s
order denying confirmation of the prior plan of reorganization that would have settled
the claim against Barbara, (2) the court’s order confirming the fourth modified plan
of reorganization, and (3) the court’s order granting Lariat relief from the stay to
pursue the fraudulent transfer action against Barbara in state court. The Bankruptcy
Appellate Panel held that Barbara Wigley lacked standing and dismissed her appeal.
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We review this determination de novo. See In re O & S Trucking, Inc., 811 F.3d
1020, 1023 (8th Cir. 2016).
II.
“Standing in a bankruptcy appeal is narrower than Article III standing.”
Opportunity Fin., LLC. v. Kelley, 822 F.3d 451, 458 (8th Cir. 2016). This circuit and
others have adopted an “essentially prudential” limitation on standing in the
bankruptcy context given that bankruptcy litigation almost always involves the
interests of numerous persons who are not formally parties to the litigation. Travelers
Ins. Co. v. H.K. Porter Co., 45 F.3d 737, 741 (3d Cir. 1995). The interest in
“[e]fficient judicial administration requires that appellate review be limited to those
persons whose interests are directly affected.” Id. (quoting In re Fondiller, 707 F.2d
441, 443 (9th Cir. 1983)).
Accordingly, only a “person aggrieved” has standing to bring a bankruptcy
appeal. See Opportunity Fin., LLC, 822 F.3d at 458. “‘Person aggrieved’ is, of
course, a term of art: almost by definition, all appellants may claim in some way to
be ‘aggrieved,’ else they would not bother to prosecute their appeals.” Id. (quoting
Travelers Ins. Co., 45 F.3d at 741). One is a “person aggrieved” with standing to
bring a bankruptcy appeal only if she has been “directly and adversely affected
pecuniarily” by an order of a bankruptcy court. Id. (quoting In re Peoples, 764 F.3d
817, 820 (8th Cir. 2014)). A person has standing under this doctrine if a “bankruptcy
court order diminishes the person’s property, increases the person’s burdens, or
impairs the person’s rights.” Id. (quoting In re Marlar, 267 F.3d 749, 753 n.1 (8th
Cir. 2001)).
Barbara argues that she is a person aggrieved by the bankruptcy court’s order
denying confirmation of Michael’s proposed plan. She contends that if the court had
confirmed the plan and thereby approved the settlement agreement, then once she
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paid $350,000 to the bankruptcy estate, she would retain her interest in the assets that
Michael had transferred to her and would avoid further litigation with her husband’s
creditors. Similarly, Barbara argues that the bankruptcy court’s order confirming the
fourth modified Plan, and the order granting Lariat relief from the stay, allow for
“further prosecution” against her in state court.
Barbara’s alleged harm based on potential litigation is the sort that we declared
too indirect for bankruptcy standing in Opportunity Finance. There, the bankruptcy
court ordered the consolidation of several Chapter 11 bankruptcy estates because the
bankrupt entities were interrelated and had disregarded corporate boundaries. 822
F.3d at 455. Several lenders objected to the consolidation order, arguing that the
order “impaired their rights by precluding potential affirmative defenses” in state
court avoidance actions. Id. at 458. This court concluded that the lenders were not
“persons aggrieved” for purposes of bankruptcy standing, even though the order
arguably stripped them of an affirmative defense in the avoidance actions. Id. at 459-
60. We emphasized that in general, “a bankruptcy court order allowing litigation to
proceed against an adversary defendant does not make that defendant a party
aggrieved.” Id. at 458; see also In re LTV Steel Co., 560 F.3d 449, 453 (6th Cir.
2009) (“[W]e are aware of no court that has held that the burden of defending a
lawsuit, however onerous or unpleasant, is the sort of direct and immediate harm that
makes a party ‘aggrieved’ so as to confer standing in a bankruptcy appeal.”).
Here, the bankruptcy court declined to approve a settlement agreement that
would have eliminated Barbara’s pecuniary risk in the fraudulent transfer action and
relieved her of the burdens of ongoing litigation. The court’s order granting relief
from the automatic stay allows Lariat to proceed with its fraudulent transfer action
against Barbara. The orders, however, merely maintain the status quo ante as to
Barbara. Barbara argues that her case is better than the appellants’ in Opportunity
Finance, because the order there caused only a “potential indirect impact of altering
adversary defendants’ affirmative defenses,” whereas the orders here “directly denied
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settlement relief or repose to [Barbara] on the merits.” Barbara has it backwards. The
orders in Opportunity Finance eliminated defenses provided by the Bankruptcy Code
and at least arguably diminished the pre-existing rights of the persons who sought to
appeal, see 822 F.3d at 461 (Bye, J., dissenting); the orders in this case simply
disapproved a proposed settlement that arose only in the bankruptcy proceedings and
maintained the previously existing state of affairs for Barbara. Whatever risk of
liability and burden of litigation that Barbara might face in the fraudulent transfer
action pre-existed Michael’s bankruptcy proceeding. The bankruptcy court’s orders
do not increase Barbara’s burdens or diminish her rights. Id. at 458 (majority
opinion).
Aside from Barbara’s inability to achieve a settlement, she complains that the
bankruptcy court’s orders “effectively foreclose” her from arguing in state court that
the bankruptcy case eliminated Lariat’s rights to pursue the fraudulent transfer action.
She cites the bankruptcy court’s order that the automatic stay is terminated, such that
Lariat “may exercise its rights and remedies under applicable nonbankruptcy law with
respect to continuing the pending fraudulent conveyance action.” We express no
view on the status of Lariat’s rights, but we disagree with Barbara’s premise.
Nothing in the bankruptcy court’s order prevents Barbara from arguing in state court
that Lariat’s rights have been altered in some way by the bankruptcy proceedings.
The order establishes only that the automatic stay is lifted so that Lariat may pursue
whatever rights and remedies are available to it.
* * *
For the foregoing reasons, Barbara Wigley is not a person aggrieved by the
orders of the bankruptcy court, and she does not have standing to appeal those orders.
The appeal is therefore dismissed.
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