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ABI Exclusive

‘Person Aggrieved’ for Appellate Standing Test May Have Died, but May Be Resurrected

Sixth Circuit judges wrote 17 pages of dicta to muse on whether the ‘person aggrieved’ test for appellate standing died with the adoption of the Bankruptcy Code but remains good law under the ‘zone-of-interests’ test.

Analysis: 

Writing dicta in a nonprecedential opinion, Sixth Circuit Judge Amul R. Thapar cited Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014), to conclude that the “person aggrieved” test for standing to appeal was abrogated by the adoption of the Bankruptcy Code in 1978. Judge Thapar would seemingly evaluate standing to appeal under the less rigorous constitutional or Article III standard.

Concurring in the judgment, Circuit Judge Karen Nelson Moore would have reached the same result by a different route. Judge Moore sees the “person aggrieved” test as largely subsumed by the “zone of interest” test that the Supreme Court acknowledged in Lexmark.

The bottom line is this: If you’re the appellee, be prepared to show that the appellant doesn’t fall within the “zone of interest” if the appellant contends that “person aggrieved” died with the adoption of the Bankruptcy Code.

Claims Against the Lender

Unbeknownst to a couple, they had potential claims against their mortgage lender alleging that late fees were improperly imposed on them before they filed their chapter 13 petition and during the course of their chapter 13 case.

Discovering the claims 10 years later when facing foreclosure, the couple sued in state court. Answering, the lender argued that the claims belonged to the chapter 13 estate because they were not disclosed. To remedy the defect, the couple reopened their chapter 13 case and filed a motion to compel abandonment of the claims.

The bankruptcy court granted the abandonment motion. The district court affirmed. On the second appeal by the lender, the Sixth Circuit panel addressed the question of whether the lender had standing to appeal.

The “Person Aggrieved” Test

The debtors moved to dismiss the appeal, contending that the lender had no standing to appeal. The lender claimed to have standing as an “aggrieved” person because abandonment meant it would be forced to defend the debtors’ suit in state court.

An appellant typically must satisfy two tests for standing to appeal. First, the appellant must show constitutional or Article III standing. Citing the Supreme Court, Judge Thapar said that constitutional standing “exists so long as a party suffered an injury in fact fairly traceable to the defendant’s conduct and likely redressable by a favorable decision.”

In his nonprecedential opinion on March 28, Judge Thapar said that the lender “clear[ed] this bar” because the threat of litigation “can satisfy the injury requirement,” and the appeal could give the lender “redress.”

The second test is a prudential, judge-made test: Is the lender a “person aggrieved”? It’s a higher standard than constitutional standing. Judge Thapar said that the test “bars parties from appealing a bankruptcy-court order absent a direct financial stake in the appeal’s outcome, and our precedent characterizes that test as jurisdictional.” In other words, an appellant can appeal “only if the appeal’s result would put money in the party’s pocket or compel it to write a check.”

However, Judge Thapar found “good reason to believe [the “person-aggrieved”] test is no longer good law.” He explained that Section 24(b) of the former Bankruptcy Act granted appellate jurisdiction for appeals filed by “any aggrieved party.” Adopted in 1978, the Bankruptcy Code contains no “aggrieved party” language in 28 U.S.C. § 158, suggesting that being “aggrieved” is no longer required to appeal.

Although the Sixth Circuit has continued to impose the “person aggrieved” test, Judge Thapar cited In re Capital Contracting Co., 924 F.3d 890, 894–97 (6th Cir. 2019), where he characterized the panel as saying [in dicta] that “there is good reason to believe this test is no longer good law.”

“Thus,” Judge Thapar said, the adoption of the Bankruptcy Code “almost certainly eliminated the person-aggrieved test as a jurisdictional limit on bankruptcy appeals.” He cited the Ninth and Eleventh Circuits for having “reached the same conclusion.” However, he went on to say, “Some courts have suggested that the substance of the person-aggrieved test might live on as a zone-of-interest test.”

In the case on appeal, the lender believed it was aggrieved and did not ask the appeals court to abrogate the “person aggrieved” test. Therefore, Judge Thapar did not reach the issue. Instead, he applied “person aggrieved” and decided that the lender failed the test.

In the Sixth Circuit, facing litigation does not make someone “aggrieved.” Since that was the only basis for the lender’s standing and it didn’t hold water, Judge Thapar dismissed the appeal for lack of appellate standing.

The Concurrence

Judge Moore agreed in the judgment dismissing the appeal. She also agreed that the appeal was foreclosed by the “person aggrieved” test, but for a different reason.

Judge Moore understood the practical problems that would ensue were “person aggrieved” to be abolished altogether. She quoted then-Judge Neil Gorsuch, who said, while sitting on the Tenth Circuit, that bankruptcy litigation could easily “become mired in endless appeals brought by a myriad of parties who are indirectly affected by every bankruptcy court order.” United States v. Krause (In re Krause), 637 F.3d 1160, 1168 (10th Cir. 2011).

“I believe that the person-aggrieved standard is consistent with Lexmark and thus that we lack a basis to overrule our precedent applying the standard,” Judge Moore said.

Lexmark was the case where the Supreme Court said there is a “virtually unflagging” duty to exercise jurisdiction granted by Congress. Lexmark, id. at 126. Judge Moore said that “Lexmark also identifies the zone-of-interests test as the doctrinal test that the courts must use to sort between doctrines that appropriately reflect Congress’s judgment about who is entitled to sue and those that inappropriately abdicate jurisdiction.”

Judge Moore cited decisions from the Ninth, Tenth and Eleventh Circuits for lending “further support to the conclusion that the person-aggrieved standard embodies a zone-of-interests analysis.” She said that the zone-of-interests test “is not difficult to satisfy.” She cited the Supreme Court for saying that an appellant fails the test only when the appellant’s interest is only marginally related to or inconsistent with the purpose in the statute.

Applying the standard to the case on appeal, Judge Moore reflected on Section 544(b), which gives the power to abandon property. She said that the “purpose and policy” of Section 544(b) requires dismissal of the appeal.

The lender’s only interest in the appeal was to stave off litigation, Judge Moore said. The lender, she said, does “not argue that [the] appeal has the potential to benefit the estate or that [the lender’s] interests align with the interests of the estate.”

Judge Moore said she would have dismissed the appeal by holding “that the [lender’s] interests do not fall within the zone of interests Congress sought to protect in § 554(b) and would decline to reach the merits of their challenge to the abandonment order.”

Opinion Link

Case Details

Case Citation

Litton Loan Servicing LP v. Schubert (In re Schubert), 21-3969 (6th Cir. March 28, 2023)

Case Name

Litton Loan Servicing LP v. Schubert (In re Schubert)

Case Type

Business
Court