Dan J. Harkey v. Howard Grobstein
890 F.3d 1188
| 9th Cir. | 2018Background
- Point Center Financial, Inc. (PCF) foreclosed on property and formed Dillon Avenue 44, LLC (Dillon); investors received membership interests and PCF was designated manager; appellants hold Dillon membership interests.
- PCF filed Chapter 11 (later converted to Chapter 7); trustee Howard Grobstein had until Feb 28, 2014 to assume or reject PCF’s executory contracts, including Dillon’s 2011 operating agreement.
- Grobstein did not assume the operating agreement by the deadline; in May 2016 he moved to assume the agreement (backdated), exercise management authority over Dillon, and obtain company records, alleging excusable neglect due to misrepresentations by Dillon’s president.
- Appellants received notice of the motion but did not file opposition or attend the June 21, 2016 hearing; the bankruptcy court orally granted the unopposed motion and later entered a written Assumption Order.
- Appellants moved for reconsideration immediately after learning of the oral ruling; the bankruptcy court denied expedited relief but addressed the merits and then entered the order. Appellants appealed; the district court dismissed for lack of standing because they failed to appear or object.
- The Ninth Circuit reversed, holding that failure to attend or object does not deprive a party of bankruptcy appellate standing where the party is directly and pecuniarily affected; remanded for merits consideration and possible forfeiture/plain-error analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to attend/hear and object at the bankruptcy hearing defeats "person aggrieved" standing to appeal | Appellants: their pecuniary interests were directly and adversely affected; attendance/objection are not prerequisites to standing | Grobstein: appellants received adequate notice and their failure to appear or object means they lack standing to appeal | Held: Attendance/objection are not jurisdictional prerequisites to bankruptcy appellate standing; standing depends on being directly and pecuniarily affected, so appellants have standing |
| Whether failure to appear/oppose amounts to waiver preventing appellate review | Appellants: they timely filed a motion for reconsideration before the written order and preserved arguments | Grobstein: nonappearance and non-opposition should be treated as consent/waiver | Held: Court found appellants did not waive the challenge; forfeiture remains open on remand and may be reviewed for plain error if applicable |
| Whether procedural efficiency justifies treating attendance/objection as standing prerequisites | Grobstein: courts endorse such requirements to promote judicial economy and limit ancillary appeals | Appellants: procedural rules (waiver/forfeiture) are distinct from standing; efficiency concerns do not override the "person aggrieved" test | Held: Efficiency concerns support procedural rules but do not alter the standing inquiry; failure to comply may trigger forfeiture/waiver analysis, not lack of standing |
| Proper remedy for district court dismissal of appeal for lack of standing | Appellants: dismissal was improper because they are aggrieved and thus have standing | Grobstein: dismissal appropriate because appellants failed to preserve rights at the bankruptcy hearing | Held: Reversed district court dismissal and remanded for merits review and consideration of forfeiture/plain-error on any forfeited arguments |
Key Cases Cited
- Fondiller v. Robertson, 707 F.2d 441 (9th Cir. 1983) (establishes the "person aggrieved" prudential standing limitation in bankruptcy appeals)
- Brady v. Andrew (In re Commercial Western Finance Corp.), 761 F.2d 1329 (9th Cir. 1985) (discusses attendance and objection as considerations though dicta and not binding as a prerequisite)
- White v. Univision of Va., Inc. (In re Urban Broadcasting Corp.), 401 F.3d 236 (4th Cir. 2005) (rejects attendance/objection as standing prerequisites and distinguishes standing from waiver/forfeiture)
- Hughes v. Tower Park Props. (In re Tower Park Props., LLC), 803 F.3d 450 (9th Cir. 2015) (standard of review for bankruptcy appeals)
- Mastro v. Rigby, 764 F.3d 1090 (9th Cir. 2014) (remand guidance where appeal was improperly dismissed without reaching merits)