18 F.4th 842
5th Cir.2021Background
- William Berry Dean III filed a Chapter 7 petition in 2019; Scott M. Seidel was appointed Chapter 7 trustee.
- Reticulum Management, LLC — a creditor that had also objected to discharge in related proceedings — agreed to fund the trustee’s litigation in exchange for a share of any recovery (a litigation funding agreement).
- The bankruptcy court approved the funding agreement at a June 2020 hearing; the district court affirmed on appeal.
- Dean appealed the approval, arguing the agreement improperly alters the statutory priority scheme and could advantage Reticulum over other creditors.
- The Fifth Circuit considered whether Dean had bankruptcy (prudential) standing to pursue the appeal, given that a trustee — not the debtor — controls estate litigation in Chapter 7.
- The court dismissed the appeal for lack of bankruptcy standing because the approval of the funding agreement did not directly, adversely, and financially affect Dean or his discharge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Dean has bankruptcy standing to appeal approval of the trustee’s litigation-funding agreement | Dean: the agreement undermines creditor priority and, given Reticulum’s pending objection to discharge, could affect his discharge and financial interests | Trustee/Seidel: the agreement funds estate litigation for creditors’ benefit; the trustee — not the debtor — represents the estate; the approval does not directly affect Dean’s discharge or personal finances | Dismissed for lack of bankruptcy standing — the order does not directly, adversely, and pecuniarily affect Dean |
Key Cases Cited
- In re ASARCO, L.L.C., 650 F.3d 593 (5th Cir. 2011) (standards of appellate review for bankruptcy appeals)
- In re Technicool Sys., Inc., 896 F.3d 382 (5th Cir. 2018) (defines the ‘‘person aggrieved’’ test for bankruptcy standing)
- In re Coho Energy Inc., 395 F.3d 198 (5th Cir. 2004) (characterizes bankruptcy standing as a prudential requirement)
- Fortune Nat. Res. Corp. v. U.S. Dep’t of Interior, 806 F.3d 363 (5th Cir. 2015) (clarifies that an appellant must be directly and pecuniarily affected to have bankruptcy standing)
- Vega v. Gasper, 36 F.3d 417 (5th Cir. 1994) (trustee, not the debtor, represents the estate after appointment)
- In re Mandel, [citation="641 F. App'x 400"] (5th Cir. 2016) (debtor retained standing where the challenged order directly related to allowance of claims affecting discharge)