Arlington Capital, LLC v. Bainton McCarthy LLC (In Re GT Automation Group, Inc.)
828 F.3d 602
7th Cir.2016Background
- GT Automation filed bankruptcy; Comerica held a $7.8 million secured claim and agreed its lien would be extinguished by a bankruptcy sale.
- Arlington won the asset auction with a $2.7 million credit bid.
- The trustee suspected collusion to depress the sale and hired two law firms to pursue an 11 U.S.C. § 363(n) claim against Arlington and GT insiders.
- Trustee claimed asset value was $5 million; insiders settled, Arlington prevailed at trial and was awarded litigation costs, becoming a $~5,000 general unsecured creditor.
- The Law Firms petitioned for fee approval; Arlington objected, arguing their work could not have benefited the estate because any recovery would have gone to Comerica. Bankruptcy and district courts approved the fees; Arlington appealed.
- The panel concluded Arlington failed to demonstrate Article III standing and remanded with instructions to dismiss for lack of jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Arlington has Article III standing to appeal approval of law‑firm fees | Arlington: denial of fees would protect the estate and benefit Arlington’s unsecured claim | Law Firms: Arlington cannot show any plausible economic benefit from reversal given senior and administrative claims and estate cash | Held: Arlington failed to meet its burden to show likely redressability; no Article III standing |
| Whether the Law Firms’ services were reasonably likely to benefit the estate (§ 330(a)(4)(A)(ii)(I)) | Arlington: even a successful § 363(n) suit would have benefited Comerica, not the estate | Law Firms: Comerica agreed lien would be extinguished on sale, so any § 363(n) recovery would belong to the estate | Court did not reach merits because of lack of jurisdiction |
| Whether appellate court may issue an advisory ruling to aid Arlington’s prospective litigation against the Law Firms | Arlington sought a ruling to use offensively in separate suit | Law Firms: federal courts cannot issue advisory opinions; Arlington must show standing | Held: Court refused to provide an advisory opinion; dismissed for lack of jurisdiction |
| Whether failure to brief standing waives the argument | Law Firms raised standing; Arlington failed to respond in briefs or at oral argument | Arlington attempted speculative, theoretical assertions at oral argument | Held: Arlington’s nonresponse and speculative replies show it did not carry its burden of proving standing |
Key Cases Cited
- United States v. Windsor, 133 S. Ct. 2675 (2013) (standing requires injury in fact, traceability, and redressability)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (classic statement of Article III standing requirements)
- In re Stinnett, 465 F.3d 309 (7th Cir. 2006) (appellant lacks standing if unable to realize economic benefit from reversal)
- In re Cult Awareness Network, 151 F.3d 605 (7th Cir. 1998) (debtors often lack standing because assets won’t revert after distributions)
- Lewert v. P.F. Chang’s China Bistro, Inc., 819 F.3d 963 (7th Cir. 2016) (party invoking jurisdiction bears burden of proving standing)
- Dawson v. Newman, 419 F.3d 656 (7th Cir. 2005) (failure to respond to an argument is ordinarily waiver)
- Lexmark Int’l, Inc. v. Static Control Components, 134 S. Ct. 1377 (2014) (Supreme Court discussion clarifying prudential standing principles)