Andreuccetti, Matter of
| Decision Date | 18 September 1992 |
| Docket Number | No. 91-1947,91-1947 |
| Parties | 27 Collier Bankr.Cas.2d 1157, Bankr. L. Rep. P 74,903 In the Matter of Joseph ANDREUCCETTI and Noemi Andreuccetti, Debtors-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Marc A. Primack, Rooks, Pitts & Poust, Chicago, Ill., Martin A. Diestler, Rooks, Pitts & Poust, Wheaton, Ill., for Household Bank F.S.B.
William T. McGrath, Frank Pawlak, argued, Wilson & McIlvaine, Chicago, Ill., for First Nat. Bank of Cicero.
Abraham Brustein, argued, Burke, Smith & Williams, John B. Kalish, John E. Gierum, Kalish & Colleagues, Chicago, Ill., for Joseph and Noemi Andreuccetti.
Before POSNER, EASTERBROOK, and RIPPLE, Circuit Judges.
Joseph and Noemi Andreuccetti (collectively "the Andreuccettis") appeal from an order dismissing their appeal from the confirmation of the reorganization plan in their Chapter 11 bankruptcy. The district court dismissed their appeal on alternative grounds, concluding, first, that the Andreuccettis' bankruptcy estate was so insolvent that they were without standing to bring the appeal, and second, that the appeal was moot. While we agree with the Andreuccettis that the district court erred in its application of the standing and mootness doctrines, we nonetheless find meritless their challenges to the reorganization plan. Accordingly, we reverse the judgment of the district court but nevertheless
direct it to enter judgment affirming the bankruptcy court.
In 1982, Mr. Andreuccetti formed a partnership with two other persons to develop a condominium project in Illinois. To finance the project, he borrowed several million dollars from American Heritage Savings and Loan (American Heritage) and appellee First National Bank of Cicero (Cicero). The condominium project was not completed, and in late 1983 and early 1984 the banks filed actions in Illinois state court to foreclose and to enforce the loans against Mr. Andreuccetti. Mr. Andreuccetti counterclaimed against the banks, alleging fraud, conspiracy, and misdirection of loan funds. He sought more than $1.2 million in compensatory damages and more than $3 million in punitive damages. Subsequently, American Heritage became insolvent, and appellee Household Bank, fsb (Household), purchased certain assets and liabilities of American Heritage, including Mr. Andreuccetti's notes and the state court foreclosure action. Household succeeded American Heritage as a party in the state court litigation.
In August 1984, a few months after the foreclosure suits were filed, Cicero filed an involuntary Chapter 7 bankruptcy petition against the Andreuccettis. In 1989, this case was converted into a Chapter 11 reorganization, but the trustee still remained in place. The Consolidated Disclosure Statement filed by the Andreuccettis and the banks indicates that, in the spring of 1990, the Andreuccettis' total liabilities were estimated at around $3.5 million, approximately $3.25 million of which was owed to Cicero and Household. The statement also indicates that the Andreuccettis had nonexempt real and personal property worth approximately $114,000. Additional assets listed in the statement were the counterclaims pending against the banks. During the course of the bankruptcy proceedings, the trustee sold the condominium property for $1.125 million, and these proceeds were held in an escrow account, subject to further court order. In 1990, the Andreuccettis filed a plan for reorganization, and Household and Cicero jointly filed a competing plan. The Andreuccettis' plan provided for payment of unsecured creditor claims through the recovery, if any, from the state court litigation against the banks. Under the plan, the creditors could receive up to 200 percent of their allowed claims, depending on the results obtained in the litigation. However, they would receive nothing if the lawsuit were unsuccessful. The reorganization plan of the banks was more complex. The most salient features were: (1) the trustee would dismiss all claims against Cicero in the state court litigation, and he would release the punitive damages claim against Household, but the trustee would continue to be able to pursue a claim for compensatory damages against Household; (2) Household would receive the remaining proceeds from the sale of the condominium property; (3) Household would pay, or disburse from the proceeds of the sale, additional administrative claims for compensation to the trustee and his counsel, up to approximately $41,000; and (4) Cicero would contribute assets to the bankruptcy estate, including cash, worth approximately $230,000.
The bankruptcy court ultimately confirmed the banks' plan, and the record indicates that a portion of it has been implemented. Household has received the remaining proceeds of the sale and, under the plan, the trustee and his counsel have been paid around $41,000 as compensation. The trustee and Household have entered into a covenant not to sue on the punitive damages claim, although the trustee has the right to rescind the agreement if the reorganization plan is reversed on appeal. Likewise, the trustee and Cicero have agreed to dismiss the entire counterclaim against Cicero, although that agreement also allows the trustee to reinstate the claim if the reorganization plan is overturned.
The Andreuccettis appealed to the district court, raising several challenges to the confirmation of the plan. In particular they alleged: (1) that the plan did not provide for their exemption rights; (2) that the plan inadequately treated administrative claims, particularly those of their attorneys, in violation of 11 U.S.C. §§ 1123 and 1129(a)(9); (3) that the banks did not propose the plan in good faith, in violation of 11 U.S.C. § 1129(a)(3); (4) that the plan impaired their rights in the state court lawsuits without giving them an opportunity to approve it, in violation of 11 U.S.C. § 1129(a)(8); and (5) that the bankruptcy court did not adequately evaluate the propriety of settling the state court law suits. In response, Household filed a motion to dismiss, arguing that the Andreuccettis had no interest in the appeal that would provide them standing to pursue it and, alternatively, that the appeal was moot.
The district court agreed with Household and dismissed the appeal in a short opinion. In re Andreuccetti, 127 B.R. 185 (N.D.Ill.1991). The court declined to reach the merits of the Andreuccettis' arguments, concluding instead that the Andreuccettis were "not sufficiently affected by the confirmation of the reorganization plan to bring this appeal," because the amount of debt was so great that they stood no realistic chance of emerging from bankruptcy with surplus assets. Id. at 186. In addition, the court determined that the Andreuccettis lacked standing to pursue arguments related to the administrative claims of their attorneys. Id. As an alternative ground for dismissal, the court held that "several factors suggest that the appeal should be considered moot." Id. The factors that the court cited in support of mootness were that "[s]ignificant steps have been taken since entry of the confirmation order to implement the reorganization plan," id., and that approximately seven years had passed since the time of filing and the confirmation of the reorganization plan, id. at 186-87.
On appeal before this court, the Andreuccettis contend that the district court improperly determined both that they lacked standing to bring this appeal and that the appeal was moot. Household argues that if the district court misapplied the standing and mootness doctrines in this case, the Andreuccettis' appeal is nevertheless meritless and we should affirm the confirmation order of the bankruptcy court. We shall deal with each of these issues in turn.
As we have recently noted:
In order to appeal a bankruptcy court's order, a litigant must qualify as a "person aggrieved" by the order. In re El San Juan Hotel, 809 F.2d 151, 154 (1st Cir.1987). A "person aggrieved" by a bankruptcy order must demonstrate that the order diminishes the person's property, increases the person's burdens, or impairs the person's rights. See In re Fondiller, 707 F.2d 441, 442 (9th Cir.1983).
Matter of DuPage Boiler Works, Inc., 965 F.2d 296, 297 (7th Cir.1992). Generally speaking, "[o]nly those persons who are directly and adversely affected pecuniarily by an order of the bankruptcy court have been held to have standing to appeal that order." Matter of Fondiller, 707 F.2d at 442; see also In re Thompson, 965 F.2d 1136, 1142 n. 9 (1st Cir.1992); Holmes v. Silver Wings Aviation, Inc., 881 F.2d 939, 940 (10th Cir.1989); Kane v. Johns-Manville Corp., 843 F.2d 636, 641 (2d Cir.1988); In re Cosmopolitan Aviation Corp., 763 F.2d 507, 513 (2d Cir.), cert. denied, 474 U.S. 1032, 106 S.Ct. 593, 88 L.Ed.2d 573 (1985); 1 Lawrence P. King et al., Collier on Bankruptcy p 3.03 (15th ed. 1992). This "person aggrieved" requirement is more exacting than the requirements for general Article III standing. Kane, 843 F.2d at 642 n. 2; Matter of Carbide Cutoff, Inc., 703 F.2d 259, 264 (7th Cir.1983). Its purpose is to insure "that bankruptcy proceedings are not unreasonably delayed by protracted litigation by allowing only those persons whose interests are directly affected by a bankruptcy order to appeal." DuPage Boiler Works, Inc., 965 F.2d at 297.
The banks assert that the Andreuccettis lack standing. First, emphasizing the requirement that the interest at stake be "directly" affected, see Fondiller, 707 F.2d at 442, Cicero claims that a direct injury to the Andreuccettis is not present here because there is no guarantee that pursuing the state court litigation would provide them a surplus after emerging from bankruptcy. Cicero Br. at 18. As an alternative argument, both banks cite the rule...
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