P.R.T.C., Inc., In re

• Citation: 177 F.3d 774
• Decision Date: 19 May 1999
• Docket Number: No. 97-56772,97-56772
• Parties: , 99 Cal. Daily Op. Serv. 3665, 1999 Daily Journal D.A.R. 4734, 3 Cal. Bankr. Ct. Rep. 45 In re P.R.T.C., INC., Debtor. Duckor Spradling & Metzger, Appellant, v. Baum Trust, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 774

177 F.3d 774

34 Bankr.Ct.Dec. 480, 99 Cal. Daily Op. Serv. 3665,

1999 Daily Journal D.A.R. 4734,

3 Cal. Bankr. Ct. Rep. 45

In re P.R.T.C., INC., Debtor Duckor Spradling & Metzger, Appellant, v. Baum Trust, Appellee.

No. 97-56772.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 3, 1999.

Filed May 19, 1999.

Pamela LaBruyere and Gregory P. Olson, Duckor Spradling & Metzger, San Diego, California, for the appellant.

Kevin J. Hoyt, Estes & Hoyt, San Diego, California, for the appellee.

Appeal from the United States District Court for the Southern District of California; Jeffrey T. Miller, District Judge, Presiding. D.C. No. CV 97-00180-JTM.

Before: BROWNING, WIGGINS, and GRABER, Circuit Judges.

GRABER, Circuit Judge:

In January 1995, P.R.T.C., Inc. (PRTC), and Braunstein Int'l Corp. (BIC) filed Chapter 7 bankruptcy petitions, which the bankruptcy court later consolidated. Gregory A. Akers was appointed as the trustee of PRTC, and Harold S. Taxel was appointed as the trustee of BIC.

The trustees determined that the only significant assets were the right to avoid various transactions and the right to sue various individuals, including Baum Trust (Baum) and the lawyers for the debtors, Duckor Spradling & Metzger (Duckor). The estates, however, had outstanding creditor claims totaling over $2 million. The estates owed Baum about $1 million of that total.

The trustees concluded that the estates lacked sufficient funds to pursue those claims or rights, even though they believed that the claims and rights had "significant value." Thus, they agreed to assign the claims and rights to Baum, the estates' largest creditor. ¹

Under the assignment, Baum "shall have the right at its sole discretion to pursue, not pursue, settle, compromise or collect upon such Collective Claims or Rights." If Baum does collect or receive any money from the claims, the estates are entitled to 50 percent of the net proceeds (that is, gross proceeds minus Baum's attorney fees and costs).

Duckor objected to the assignment, arguing that the trustees cannot transfer to a creditor their rights to sue various defendants and to avoid various transactions. The bankruptcy court disagreed and approved the assignment.

Duckor appealed that decision to the district court. Baum argued that the district court lacked jurisdiction over the appeal, because (1) Duckor did not have standing to challenge the bankruptcy court's order, and (2) the bankruptcy court's order was not an appealable, final judgment. The district court held that it had jurisdiction and upheld the bankruptcy court's decision on the merits. This timely appeal ensued. For the reasons that follow, we affirm.

STANDING

A. Standard of Review

The district court held that Duckor has standing to appeal. This court reviews that decision for clear error. See McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668, 670 (9th Cir.) ("Whether an appellant is a person aggrieved is a question of fact, which this court reviews for clear error."), cert. denied, --- U.S. ----, 119 S.Ct. 592, 142 L.Ed.2d 535 (1998).

B. Applicable Principles

To prove an injury in fact under Article III (constitutional standing), the appellant need only allege an injury "fairly traceable" to the wrongful conduct; that injury need not be financial. See Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 843 F.2d 636, 642 n. 2 (2d Cir.1988). Bankruptcy cases, however, generally affect the rights of many. See Tilley v. Vucurevich (In re Pecan Groves of Ariz.), 951 F.2d 242, 245 (9th Cir.1991) ("[B]ankruptcy litigation[ ] ... almost always implicates the interests of persons who are not formally parties to the litigation."). To prevent unreasonable delay, courts have created an additional prudential standing requirement in bankruptcy cases: The appellant must be a "person aggrieved" by the bankruptcy court's order. See Brady v. Andrew (In re Commercial W. Fin. Corp.), 761 F.2d 1329, 1334 (9th Cir.1985) ("[W]e have adopted the 'person aggrieved' test as the appropriate standard for determining standing to appeal under the Code."); In the Matter of Andreuccetti, 975 F.2d 413, 416-17 (7th Cir.1992) ("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.") (citation and internal quotation marks omitted). An appellant is aggrieved if "directly and adversely affected pecuniarily by an order of the bankruptcy court"; in other words, the order must diminish the appellant's property, increase its burdens, or detrimentally affect its rights. Fondiller v. Robertson (In Matter of Fondiller), 707 F.2d 441, 442 (9th Cir.1983).

C. Analysis of Duckor's Standing

Baum first argues that Fondiller requires us to reverse the district court's decision. In Fondiller, the wife of a debtor appealed an order appointing a law firm as special counsel to the bankruptcy trustee. See id. at 441. This court held that the wife was not "aggrieved," because her "only demonstrable interest in the order is as a potential party defendant in an adversary proceeding." Id. at 443.

As is evident, the only interest of the wife in Fondiller was her desire to prevent future litigation. Here, Duckor has a similar interest--the bankruptcy court's order, in fact, led Baum to sue Duckor. But Duckor also has alleged that it is a creditor of the estates and, thus, that it has the type of direct pecuniary interest that was lacking in Fondiller. See Johns-Manville, 843 F.2d at 642 n. 3 (distinguishing Fondiller, because "the creditor opposing a plan of reorganization is distinguishable from marginal parties in the bankruptcy proceedings who face potential harm incident to the bankruptcy court's orders").

Courts have been reluctant to afford broad standing to creditors:

It might be said that all creditors and the debtor are parties to every order entered in a bankruptcy proceeding. However, that does not help in determining which parties have standing to take an appeal. If such reasoning were employed, the result would be a rule that any party who is involved either directly, indirectly or tangentially in the bankruptcy proceeding has the power to appeal from almost any order entered by the bankruptcy judge.

10 Collier on Bankruptcy § 8001.05, p. 8001-11 (Lawrence P. King ed., 15th ed. 998). Thus, for example, "a creditor has no independent standing to appeal an adverse decision regarding a violation of the automatic stay." Pecan Groves, 951 F.2d at 245.

A creditor does, however, have a direct pecuniary interest in a bankruptcy court's order transferring assets of the estate. See Salomon v. Logan (In re International Envtl. Dynamics, Inc.), 718 F.2d 322, 326 (9th Cir.1983) ("[I]n a case involving competing claims to a limited fund, a claimant has standing to appeal an order disposing of assets from which the claimant seeks to be paid."). See also Commercial W. Fin., 761 F.2d at 1335 (holding that the creditors had standing, because "[t]he plan eliminated their interests in the borrower notes and deeds of trust and disposed of the assets in the estate from which they seek to be paid"); Johns-Manville, 843 F.2d at 642 ("As a general rule, creditors have standing to appeal orders of the bankruptcy court disposing of property of the estate because such orders directly affect the creditors' ability to receive payment of their claims."). The bankruptcy court's order transferred to Baum the right to sue various defendants, including Duckor and Baum, and the right to avoid various transactions (thereby returning property to the estates). The transfer of those rights and claims left the estates without any other significant asset. Moreover, the transfer led the bankruptcy court to authorize the abandonment of the claims against Baum--obviously, Baum cannot sue itself and will not avoid any transactions involving itself. In the circumstances, Duckor appears to have standing.

Baum nevertheless suggests three reasons why the principles from the foregoing cases do not apply here. First, this case involves the transfer of intangible assets rather than money or other tangible property. However, the reasoning of the cited cases applies equally to intangible assets. Cf. Andreuccetti, 975 F.2d at 417 (holding that the debtors had standing to challenge the settlement of the estate's right to sue various entities, because "[t]he outcome of this litigation could potentially have a huge effect on the liabilities of the [debtors] and could give them a substantial surplus upon emerging from bankruptcy"). ²

Second, Baum suggests that, unlike the money in International Envtl. Dynamics and Commercial W. Fin., the assets here have no value. Baum is correct that the assets have no value if left in the estates, because the estates do not have sufficient funds to pursue the claims. Baum incorrectly concludes from this fact that the assets themselves are worthless.

As Baum acknowledged in the assignment agreement, the assets have "significant value" if assigned to a third party. ³ In particular, the assignment agreement gives the estates 50 percent of any recovery. Moreover, David J. Braunstein (Braunstein) offered the estates $50,000 for the same assets. The trustees rejected the proposal, because the right to sue various defendants and the right to avoid various transactions are rights that would be asserted primarily against Braunstein and his affiliates. Nevertheless, the offer demonstrates that the assets have value.

Third, Baum argues that Duckor is not actually a creditor of the estates. The record, however, shows that Duckor has claims against the estates of at least $9,859.38, and Duckor appeared before the bankruptcy court, in part, as a creditor.

Baum contends that the trustees later rejected Duckor's claims against the estates, but it provides no support in the record for...