Furlough v. Cage (In Re Technicool Sys., Inc.), 896 F.3d 382

Technicool Systems (debtor) sold ~300 heavy-duty air conditioners to National Oilwell Varco (NOV); NOV alleged defects and sued for fraud, breach, and negligent misrepresentation in state court, represented by Stacy & Baker, P.C. (SBPC).
Technicool filed Chapter 7 bankruptcy; NOV filed a ~$3 million proof of claim (about 93% of filed claims) and sought relief from the automatic stay to join owner Robert Furlough in the state suit; stay was modified to allow adding Furlough with limits on estate-related damages claims.
Trustee Lowell Cage moved to employ SBPC as special counsel to help consolidate related entities and pursue veil-piercing; SBPC’s engagement letter included an agreement that NOV would transfer recoveries to the estate up to the amount of filed claims.
Furlough objected to SBPC’s employment under 11 U.S.C. § 327(a), alleging SBPC had an interest adverse to the estate because it represented NOV and might not challenge NOV’s claim; bankruptcy court held Furlough lacked standing and approved the employment.
The district court affirmed on standing; Furlough appealed. The Fifth Circuit reviewed standing de novo and affirmed, holding Furlough lacked bankruptcy standing to appeal the employment order.

Issue	Furlough's Argument	Trustee/SBPC's Argument	Held
Whether Furlough has bankruptcy standing as a "person aggrieved" to object to trustee's employment of SBPC	Appointment of SBPC could allow non disclosure or insufficient challenge to NOV’s large claim, indirectly preventing estate surplus to which Furlough might be entitled	Furlough lacks a direct, pecuniary injury from the appointment; his alleged harm is speculative and not directly caused by the employment order	No standing; speculative, indirect pecuniary interest insufficient under the "person aggrieved" test
Whether Furlough has standing as a creditor under § 327(c) to object based on conflict of interest	He later purchased a proof of claim and thus can claim creditor status to object	Standing is assessed at commencement of the suit/hearing; Furlough was not a creditor when the application and hearing occurred	No standing; creditor status acquired after the hearing is untimely and cannot retroactively confer standing

Fortune Nat. Res. Corp. v. U.S. Dep’t of Interior, 806 F.3d 363 (5th Cir. 2015) (discusses standing principles and reviews standing de novo)
In Re Coho Energy, Inc., 395 F.3d 198 (5th Cir. 2004) (explains the "person aggrieved" test for bankruptcy standing)
In re Mercer, 246 F.3d 391 (5th Cir. 2001) (standard of review for bankruptcy appeals from district court)
Matter of Delta Produce, L.P., 845 F.3d 609 (5th Cir. 2016) (describes the exacting nature of bankruptcy standing)
Rohm & Hass Tex., Inc. v. Ortiz Bros. Insulation, 32 F.3d 205 (5th Cir. 1994) (notes Article III standing does not apply to bankruptcy courts)
Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (sets the constitutional standing elements referenced for comparison)
Kitty Hawk Aircargo, Inc. v. Chao, 418 F.3d 453 (5th Cir. 2005) (standing is determined as of commencement of the suit)