By: Keith L. Abrams
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
The threshold issue of standing is “an essential and unchanging part of the case-or-controversy requirement of Article III.”[1] In In re Moran,[2] the Sixth Circuit held that a third party appeal of a bankruptcy court order that allowed for abandonment of estate property lacked standing when the only basis for the third party’s appeal was one of an alleged loss of profit.[3] Shortly after declaring bankruptcy, Robert Moran, debtor and a co-shareholder of Airpack, Inc., proposed an agreement with the bankruptcy trustee where the trustee would abandon Moran’s Airpack stock retroactively to the date of the filing of the bankruptcy petition provided Moran paid off all of his creditors’ claims and the bankruptcy trustee’s fees.[4] The stock, once abandoned, pursuant to the Bankruptcy Code would return to the debtor.[5] Thomas Stark, Moran’s co-shareholder in Airpack, Inc., who offered to purchase Moran’s stock from the bankruptcy trustee, filed objections to the abandonment on the grounds that it adversely affected his financial interests.[6] The bankruptcy court approved the arrangement between Moran and the trustee, including the nunc pro tunc abandonment; subsequently, the decision was affirmed by the Bankruptcy Appellate Panel.[7]
The Sixth Circuit affirmed the decision of the Bankruptcy Appellate Panel, which held that the arrangement between Moran and the bankruptcy trustee served a main purpose of the Bankruptcy Code by minimizing injury to creditors. Furthermore, the circuit court found that the arrangement did not adversely affect Stark monetarily. As the BAP had similarly determined, Stark did not suffer injury because of the decision of the bankruptcy court, thus he lacked standing to appeal the order.[8]
The Sixth Circuit stated that in order to have standing to challenge a bankruptcy court order, “a party must be directly and adversely affected pecuniarily by the order.”[9] Stark argued that his bid for Moran’s shares of the Airpack stock was rejected by the bankruptcy court even though it was higher than the amount offered by Moran, which qualified him as a “frustrated bidder” and, thus, gave him sufficient standing to challenge the order.[10] The Sixth Circuit rejected this view, noting that a party deemed to be a “frustrated bidder” must show that the challenged arrangement involved fraud, mistake, or unfairness. The Court also found that, as a general rule, even parties properly considered “frustrated bidders” typically do not have standing to object to arrangements made by the bankruptcy trustee, even those involving the sale of property.[11]
Generally, courts tend to defer to an arrangement created by the trustee, including the abandonment of property, “provided that it was made in good faith, upon a reasonable basis, and within the scope of his authority under Code.”[12] Also, courts will look to see if the bankruptcy court order coincides with the purposes of the Bankruptcy Code, which include minimizing injury to creditors.[13] In In re Moran, the Sixth Circuit found that Stark lacked standing to oppose the abandonment because the agreement between the trustee and Moran was made in good faith, made upon a reasonable basis, made within the scope of the trustee’s authority, and resulted in Moran’s payment of all debts to creditors.
The Sixth Circuit’s opinion in In re Moran provides guidance for those seeking to challenge a bankruptcy court order that allows for the abandonment of property. To have standing to challenge this type of bankruptcy court order, an aggrieved party must show that it was “directly and adversely affected pecuniarily by the order.”[14] The challenger needs to show that the abandonment agreement was not made in good faith, nor upon a reasonable basis, nor within the scope of the trustee’s authority under Code. The challenger also must show that a reversal of the bankruptcy court order will further the interests of the Bankruptcy Code by minimizing injury to creditors to a greater degree than the abandonment agreement itself.[15] Without such a showing, the challenger will find it very difficult to demonstrate proper standing to challenge a bankruptcy order related to the abandonment of property.
[1] See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).
[2] Stark v. Moran (In re Moran), 566 F.3d 676 (6th Cir. 2009) (stating appellant does not have standing and therefore court will not determine if appellant had “party in interest” status or if bankruptcy court ordered improper abandonment).
[3] Id. at 680.
[4] Id. at 679–80.
[5] Id.at 679 (referencing 11 U.S.C. § 554(c)).
[6] Id. at 680; see Fid. Bank, Nat’l Ass’n v. M.M. Group, Inc., 77 F.3d 880, 882 (6th Cir. 1996) (“Only when the order directly diminishes a person’s property, increases his burdens, or impairs his rights will he have standing to appeal.”).
[7] See In re Moran, 566 F.3d. at 678.
[8] Id. at 681–82.
[9] Id.at 681; see Moran v. LTV Steel Co. (In re LTV Steel Co.), 560 F.3d 449, 452 (6th Cir. 2009).
[10] In re Moran, 566 F.3d at 680.
[11] See Squire v. Scher (In re Squire), 282 Fed. Appx. 413, 416 (6th Cir. 2008).
[12] 4 William L. Norton, Jr., Norton Bankruptcy Law and Practice § 74:4 (3d ed. 2008).
[13] See In re Moran, 566 F.3d at 680.
[14] See In re LTV Steel Co., 560 F.3d at 452.
[15] See In re Squire, 282 Fed. Appx. at 416.
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