In re: Five Lots, LLC
AZ-16-1263-SKuF
| 9th Cir. BAP | Nov 14, 2017Background
- Five Lots, LLC filed a Chapter 11 petition; its only assets were four parcels of real property and minimal unsecured tax debt.
- Judith V. Brown, sole member, paid Five Lots’ counsel (Allegrucci) a $10,000 postpetition retainer on July 8, 2016.
- The U.S. Trustee objected to employment, arguing the postpetition third‑party retainer was estate property and that counsel must comply with §§ 327, 329, 331 oversight.
- The bankruptcy court approved Allegrucci’s employment but ruled the $10,000 (and any third‑party payments for the debtor’s counsel) were property of the bankruptcy estate and subject to fee oversight; Brown was ordered to return the retainer.
- Five Lots appealed solely the bankruptcy court’s ruling that the retainer (and any third‑party payments for debtor’s counsel) are estate property.
- The BAP considered whether Five Lots had standing to appeal that limited ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Five Lots has standing to appeal the bankruptcy court’s ruling that postpetition third‑party payments to cover the debtor’s counsel are property of the bankruptcy estate | Five Lots appealed the property‑of‑the‑estate ruling and seeks review of the court’s classification of the $10,000 retainer as estate property | U.S. Trustee argued the retainer is estate property and the employment and fee oversight rulings are proper; standing contested by BAP | Dismissed for lack of prudential standing: Five Lots failed to show it was a “person aggrieved” with a direct, adverse pecuniary effect from the property‑of‑the‑estate ruling |
Key Cases Cited
- Republic of Marshall Islands v. United States, 865 F.3d 1187 (9th Cir. 2017) (standing requires injury in fact, causation, redressability)
- Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (U.S. 2014) (constitutional standing elements)
- Sprint Commc’ns Co. v. APCC Servs., Inc., 554 U.S. 269 (U.S. 2008) (prudential standing limits described)
- Fondiller v. Robertson (In re Fondiller), 707 F.2d 441 (9th Cir. 1983) (person‑aggrieved standard for appellate standing in bankruptcy)