Memorandum-Decision and Order
Mellon Bank, Appellant and Trustee for First Plaza Group Trust (“First Plaza”), filed a motion in Bankruptcy Court for an Order pursuant to 11 U.S.C. § 105(a) directing Ap-pellee, the Office of the United States Trustee (the “UST”), to appoint First Plaza as a member of the Official Committee of Unsecured Creditors in the captioned case. After a hearing on the motion, Judge Gerling issued a Memorandum-Decision and Order denying Appellant’s motion on the ground that the Bankruptcy Court lacked the authority to add creditors to a committee appointed by the UST. Appellant filed this appeal.
I. Background
A. Facts
On September 20, 1995, Victory Markets Inc. (“Victory Markets”) and five of its wholly-owned subsidiaries (collectively, “Debtor”) filed for relief under Chapter 11 of the Bankruptcy Code. Since the commencement of the case, Debtor has continued to operate its business as debtor-in-possession pursuant to Code §§ 1107 and 1108. Debtor operates approximately fifty grocery stores throughout the northern and central New York State
First Plaza and the UST agree that Debt- or’s unsecured creditors generally fall into three categories: (1) trade creditors, (2) holders of subordinated bonds, and (3) First Plaza. The UST alleges that the trade debt is roughly $20,000,000, the subordinated bond debt amounts to approximately $60,000,000, and First Plaza’s debt is approximately $20,-000,000. First Plaza contends that although it is the second largest unsecured claimant in Debtor’s case, surpassed only by the subordinated bond holders, a contractual subordination agreement entitles First Plaza to full payment prior to any distribution to the subordinated bond claims. As evidence of its unsecured claim, First Plaza supplied the Bankruptcy Court with certain Loan Agreements, dated August 14, 1992, and January 28,1994, and certain 12.5% and 14.5% Senior Subordinated Notes due in 2002. Contemporaneous with its extension of loans to Debtor, First Plaza acquired warrants and shares of common and preferred stock in Victory Holdings Corp. (‘VHC”). VHC is Victory Market’s parent corporation and holds all of Victory Markets’ equity security. Assuming conversion of First Plaza’s preferred stock to common stock and the exercise of its warrants, First Plaza owns 37% of VHC’s common stock. According to First Plaza, of VHC’s remaining common stock, Centre Capital Investors, L.P. owns 47.43% and management owns 15.83%. VHC has not filed for relief under the Code.
On or about October 6, 1995, the UST appointed a nine-member Official Committee of Unsecured Creditors (the “Committee”). According to the UST, bondholders comprise 55.5% of the Committee members and non-bond creditors comprise 44.4% of the Committee members. For present purposes, the most significant fact about the UST’s appointment of the Committee is that the UST did not appoint First Plaza to it. Nor has the UST, to date, formed any additional committees.
Immediately following the UST’s appointment of the Committee, First Plaza brought an application pursuant to Fed.R.Bankr.P. § 9006(c)(1) to hasten an expedited hearing on its motion for an Order directing the UST to appoint it to the Committee. By Order dated October 6,1995, the Bankruptcy Court granted First Plaza’s application; four days later, it heard oral argument on the substantive motion. At oral argument, the Bankruptcy Court, pursuant to Code § 1109(b), afforded Debtor an opportunity to be heard in support of First Plaza, and Harter, Sec-rest & Emory, Esqs., co-counsel to the Committee, to be heard in support of the UST.
B. The Bankruptcy Court’s Memorandum-Decision and Order
After reviewing the relevant statutes and legislative history, Judge Gerling concluded that “the specific and important statutory constraints of Code § 1102 preclude [the Bankruptcy Court] from adding First Plaza to the Committee.” (Bankruptcy Court Order at 6.) Accordingly, he denied First Plaza’s request for an Order directing the UST to appoint it to the Committee. Judge Ger-ling focused his analysis on Congress’ 1986 amendment of Code sections 1102(a)(1) and (2) and repeal of section 1102(e). Prior to the 1986 Amendments to the Bankruptcy Code, sections 1102(a) and (c) provided that:
(a)(1) As soon as practicable after the order for relief under this chapter, the court shall appoint a committee of creditors holding unsecured claims.
(2) On request of a party in interest, the court may order the appointment of additional committees of creditors or of equity security holders if necessary to assure adequate representation of creditors or of equity security holders. The court shall appoint any such committee.
(c) On request of a party in interest and after notice and a hearing, the court may change the membership or the size of a committee appointed under subsection (a) of this section if the membership of such committee is not representative of the different kinds of claims or interests to be represented.
11 U.S.C. §§ 1102(a)(l-2), amended by 11 U.S.C. §§ 1102(a)(l-2) (1986); 11 U.S.C. § 1102(e), repealed by 11 U.S.C. § 302 (1986). The current version of §§ 1102(a) reads:
(a)(1) As soon as practicable alter the order for relief under chapter 11 of this title, the United States Trustee shall appoint a committee of creditors holding unsecured claims and may appoint additional committees of creditors or of equity security holders as the United States Trustee deems appropriate.
(2) On request of a party in interest, the court may order the appointment of additional committees of creditors or of equity security holders if necessary to assure adequate representation of creditors or of equity security holders. The United States Trustee shall appoint any such committee.
Judge Gerling reasoned that Congress’ alterations of § 1102 reflect an intent to cancel the Bankruptcy Courts’ “authority to add creditors to a committee appointed by the U.S. Trustee.” (Order at 10.). If Appellant dislikes the composition of the Committee, he added, § 1102(a)(2) affords “the only substantive remedy”: to request the Bankruptcy Court to order the UST to appoint additional committees. (Id.)
Judge Gerling also rejected the alternative bases Appellant proposed for Bankruptcy Courts to alter the composition of UST-appointed committees. The Bankruptcy Court cannot use its § 105(a) general equity powers to circumvent the clear language and meaning of § 1102, Judge Gerling concluded. (Id. at 10-11.) Nor does Fed.R.Bankr.P. 2020 provide a means for doing so, since it prescribes procedures for challenging the UST’s actions without conferring any substantive rights. (Id. at 11.)
II. Discussion
Before the Court can address the merits of Appellant’s arguments on appeal, it must resolve two preliminary issues. Appellee argues first, that Appellant seeks to appeal the Bankruptcy Court’s non-appealable interlocutory Order without having obtained the requisite leave of court, and second, that Appellant lacks standing to bring this appeal. The Court will consider these arguments in turn.
A. Appealability
Title 28 U.S.C. § 158(a) grants the district courts “jurisdiction to hear appeals from final judgments, orders, and decrees, and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.” Appellee argues that the Bankruptcy Court’s Order is non-appealable because it only disposes of an incidental procedural issue,
In re American Cabinets & Woodcrafting Corp.,
Appellant wins this opening volley. For bankruptcy appeals, courts in this Circuit apply a less rigid finality rule than they apply to appeals in other kinds of civil litigation.
See, e.g., In re Johns-Manville Corp.,
In
Johns-Manville,
the Bankruptcy Court for the Southern District of New York denied a motion for the appointment of an official committee to represent common shareholders of a Chapter 11 debtor. The District Court affirmed. When the shareholders appealed, the Second Circuit addressed the finality requirement for bankruptcy appeals and concluded that “a bankruptcy court’s denial of a request to appoint an official committee for shareholders is [non-] final even under the more flexible standard of finality applied in bankruptcy cases.”
If the Southern District Bankruptcy Court’s denial of the shareholders’ motion for the appointment of an official committee to represent them in the bankruptcy proceeding was non-final, then Judge Gerling’s denial of Appellant’s motion for an order directing the UST to appoint First Plaza to the Committee is, so to speak, even more non-final. Rather than affect the number of committees who will consider disputes arising in the course of the bankruptcy proceeding, granting Appellant’s motion would have altered only the composition of a single committee. Rather than leave First Plaza without a committee representing interests aligned with its own or deprive it finally of the advantages of official committee status, denying Appellant’s motion leaves First Plaza free to seek an order, pursuant to § 1102(a)(2), directing the UST to appoint an additional committee. Whether or not First Plaza were to receive a committee appointment in that manner, the denial its motion for appointment to the Committee certainly did not prevent it from participating in the bankruptcy proceeding. In short, if Johns-Manville draws the line between final and non-final Bankruptcy Court orders, an issue on which this Court does not now express an opinion, Judge Ger-ling’s Order falls resoundingly on the non-final side of that line.
This conclusion is itself somewhat non-final. Section 158(a) of Title 28 grants the Court jurisdiction to hear appeals of a bankruptcy judge’s interlocutory orders, provided the Court grants leave to appeal such orders.
See In re CIS Corp.,
Title 28 U.S.C. § 1292(b) provides three factors for the Court to consider when determining whether to grant a party leave to appeal a bankruptcy judge’s interlocutory order.
Ionosphere,
Appellee’s point is well-taken, but Appellant’s counter-argument diminishes its force. As Appellant argues, if the UST-appointed Committee is legally invalid without First Plaza’s membership, then postponing the resolution of the key legal issue presented to the Court until after the Committee negotiates a plan of reorganization could generate a substantial waste of the Committee’s time and the debtor’s assets. If an improperly-constituted Committee negoti
B. Standing
The second preliminary issue is whether Appellant has standing to bring this appeal. Appellee argues that Appellant lacks standing, but leaves unclear whether it contests Appellant’s standing to challenge the UST’s appointment of the Committee, its standing to appeal the Bankruptcy Court’s Order, or both. Appellee argues that Appellant lacks standing because it cannot articulate a “concrete and particularized injury” to First Plaza resulting from the UST’s Committee appointments. Appellee’s argument has three prongs. First, Appellee contends that whether the UST appoints First Plaza to a committee affects neither First Plaza’s standing in the bankruptcy case nor its priority under the Bankruptcy Code. (Appellee Brief at 4.) Appellee next asserts that under the Code, neither First Plaza nor any other creditor has. a right to membership on a creditors’ committee; the Code merely guarantees creditors that a committee will represent their interests as a class. (Id. at 5.) Third, although its exclusion from the Committee prevents First Plaza from using committee membership to further its own interests at the expense of other creditors’ interests, Ap-pellee claims that the use of committee membership for that purpose subjects a creditor to removal from the committee and perhaps to liability for breach of fiduciary duty. (Id.) Appellee thus concludes that the only injury flowing to First Plaza from non-membership is “conjectural and hypothetical,” which is insufficient to confer standing.
Appellant responds somewhat obliquely to Appellee’s standing argument. In its first cut at the standing issue, Appellant takes up Appellee’s argument, which the Court has not addressed, that Appellant lacks standing under the Administrative Procedure Act (the “APA”) to seek review of the UST’s actions. (Appellant’s Reply Brief at 14-16.) Then, and only in a footnote, Appellant offers responses to both readings of Appellee’s more general standing argument. (Id. at 16-17 n. 8.) In the event that Appellee challenges Appellant’s standing to appeal the Bankruptcy Court’s Order, Appellant asserts that as a party in interest under § 1109(b) of the Code, it has “the right to be heard on any issue.” (Id. at 17 n. 8.) In addition, Appellant claims that it has standing to challenge the UST’s committee appointment decisions because “it and the other unsecured creditors in this case have been harmed by the [UST]’s failure to constitute a committee that adequately represents them.” (Id.)
Whether or not Appellant has standing to challenge the UST’s committee appointments, an issue on which this Court currently declines to render an opinion, Appellant lacks standing to appeal the Bankruptcy Court’s Order. For the limited purpose of deciding the standing issue, the Court accepts as true the following uncontested assertions: (1) that Debtor’s debt is comprised of Trade/Union debt in the amount of approximately $20 million, bond debt in the amount of approximately $60 million, and First Plaza debt in the amount of approximately $20 million (UST Mem. in Opp. at 19); (2) that First Plaza is Debtor’s
As a general Second Circuit rule, “in order to have standing to appeal from a bankruptcy court ruling, an appellant must be a ‘person aggrieved’ — a person ‘directly and adversely affected pecuniarily by the challenged order of the bankruptcy court.”
International Trade Admin. v. Rensselaer Polytechnic Inst.,
1. § 1109(b)
Appellant claims that it has appellate standing pursuant to Code § 1109(b), which provides that “A party in interest, including ... a creditor ... may raise and appear and be heard on any issue in a case under this chapter.” Contrary to Appellant’s interpretation, § 1109(b) does not confer appellate standing.
See, e.g., In re American Ready Mix, Inc.,
2. Direct Effect on Pecuniary Interests
Nowhere in Appellant’s original Motion, Appellate Brief, or Reply Brief does Appellant explicitly contend that the challenged Order directly and adversely affected its pecuniary interests. Instead, Appellant argues that the Committee does not adequately represent First Plaza’s interests (First Plaza Mtn. ¶¶ 19, 27, 28,) or the interests of the unsecured creditors (Reply Brief at 15 n. 6, 16, 17 n. 8).
1
Appellant thus implies that when the Bankruptcy Court declared itself without legal authority to direct the UST to appoint First Plaza as a Committee member, it preserved the Committee’s inadequate representation of First Plaza’s interests. Then, Appellant attempts to link inadequate Committee representation with potential pecuniary loss: “The bondholders [whose representatives control the Committee] ... have no real stake in the estate unless and until the assets available for distribution to unsecured
3. Adverse Effect on Pecuniary Interests
The link between the composition of the Committee and harm to First Plaza’s pecuniary interests appears even more tenuous in light of Appellant’s failure to persuade the Court that the Committee inadequately represents First Plaza’s interests. Courts in this Circuit have often emphasized that an unsecured creditors’ committee has a fiduciary obligation to represent the interests of all unsecured creditors.
See, e.g., Matter of Bohack Corp.,
The Committee members’ economic self-interest removes the second plank. Although Appellant assumes that without First Plaza on the Committee, its members will accept greater risks in order to realize some value from the estate, in derogation of First Plaza’s interests, the Court finds it equally if not more plausible that the Committee members will actively and fairly represent First Plaza’s interests. Since none of the other creditors can perfect their claims until First Plaza recovers its $20 million, the Committee-members’ pecuniary interests are rather closely aligned with First Plaza’s. Thus, the Committee has a strong financial incentive to work diligently to ensure that First Plaza perfects its $20 million claim against the Debtor’s estate. Absent evidence that the interests of the Committee members substantially conflict with First Plaza’s interests, the Court is hesitant to declare that the Bankruptcy Court Order, which in effect secured First Plaza’s exclusion from the Committee, directly and adversely affected First Plaza’s pecuniary interests.
See, e.g., In re Hills Stores Co.,
4. The Value of Membership
The Court now turns to the fourth reason supporting its conclusion that First Plaza lacks standing to appeal the Bankruptcy Court Order. By failing to secure Committee membership, First Plaza failed to obtain statutory authority to work with the Committee members in performing tasks that the Code permits bankruptcy committees to perform, namely:
(1) consult with the trustee or debtor in possession concerning administration of the case;
(2) investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor’s business and the desirability of the continuance of such business, and any other matter relevant to the case or to the formulation of a plan;
(3) participate in the formulation of a plan, advise those represented by [the Committee] of [the Committee’s] determinations as to any plan formulated, and collect and file with the court acceptances or rejections of a plan;
(4) request the appointment of a trustee or examiner under section 1104 of this title;
and
(5) perform such other services as are in the interest of those represented.
11 U.S.C. § 1103(c). Appellant remains free to attempt to secure such powers for First Plaza by filing a motion with the Bankruptcy Court pursuant to Code § 1102(a)(2) for an Order directing the UST to appoint an additional committee of creditors. As an unsecured creditor, however, even if First Plaza remains excluded from a committee, it can protect its pecuniary interests in a variety of other ways. For instance, the Code provision that Appellant misinterpreted as conferring appellate standing, § 1109(b), affords First Plaza the right to “raise and ... appear and be heard on any issue in a case under [Chapter 11].” In addition, Code § 1121(c) affords creditors’ committees and individual creditors identical rights to file a reorganization plan. Section 1128(b) gives all parties in interest the right to object to the bankruptcy court’s confirmation of a plan. As a final example, § 503(b)(3) permits creditors to recover the actual and necessary expenses they incur by making a “substantial contribution” to the case.
See, e.g., In re Hills Stores,
5. Distinguishing Rensselaer
Finally, the Court finds this ease distinguishable from
International Trade Admin. v. Rensselaer Polytechnic Inst.,
Applying the Second Circuit rule “that in order to have standing to appeal from a bankruptcy court ruling, an appellant must be ... ‘directly and adversely affected pecu-niarily by the challenged order of the bankruptcy court”,
Appellant has failed to show that any similarly direct and adverse effect on its pecuniary interests would flow from this Court’s affirmance of the Bankruptcy Court’s Order. Assuming
arguendo
that committee membership carries with it an economic value of the kind that the Second Circuit’s standing rule contemplates as a pecuniary interest, First Plaza retains the opportunity to attain that status by filing a motion with the Bankruptcy Court pursuant to Code § 1102(a)(2). Compare the Bank’s position in
Rensselaer
— if the Second Circuit had affirmed the Bankruptcy Court Order, the Bank would have been unable to prevent the immediate loss of a two million dollar secured interest. The Court does not hold that the effect of a bankruptcy court order on an appellant’s pecuniary interests must reach
“Rensselaeri-
III. Conclusion
Although Judge Gerling resolved Appellant’s earlier motion by issuing a non-final order, the order is appealable pursuant to 28 U.S.C. § 158(a). However, because Appellant failed to demonstrate that the Bankruptcy Court’s denial of its motion for an order directing the UST to appoint First Plaza to the creditors’ Committee had a direct and adverse impact on First Plaza’s pecuniary interests, Appellant lacks standing to pursue this appeal. Because Appellant lacks standing, the Court is without subject matter jurisdiction to entertain the. appeal and it is therefore DISMISSED.
SO ORDERED.
Notes
. For purposes of resolving the issue of Appellant’s standing to appeal the Bankruptcy Court's Order, the Court is unconcerned with Appellant’s claims that the Committee inadequately represents the interests of the "unsecured creditor pool.” (Reply Brief at 15 n". 6.) At present, the Court is concerned solely with the effect of the Order on First Plaza's pecuniary interests.