In re LTV STEEL COMPANY, INC., Debtor.
Glenn J. Moran, Appellant,
v.
LTV Steel Company, Inc. and Official Committee of Administrative Claimants, Appellees.
William Jeffrey Bricker, Executor of the Estate of William H. Bricker, Appellant,
v.
Official Committee of Administrative Claimants, Appellee.
Dennis Babcock, James Baske, Eric Evans, and George Henning, Appellants,
v.
Official Committee of Administrative Claimants and United States Trustee, Appellees.
United States Court of Appeals, Sixth Circuit.
*450 ARGUED: Thomas S. Kilbane, Squire, Sanders & Dempsey, Cleveland, Ohio, Gregory R. Farkas, Frantz Ward, Cleveland, Ohio, for Appellants. Michael Andrew VanNiel, Baker & Ho Stetler, Cleveland, Ohio, Amy L. Good, Office of The U.S. Trustee, Cleveland, Ohio, for Appellees. ON BRIEF: Thomas S. Kilbane, Squire, Sanders & Dempsey, Cleveland, Ohio, Gregory R. Farkas, James B. Niehaus, Frantz Ward, Cleveland, Ohio, Robert R. Kracht, McCarthy, Lebit, Crystal & Liffman Co., Cleveland, Ohio, for Appellants. Michael Andrew VanNiel, Matthew Goldman, Baker & Hostetler, Cleveland, Ohio, Amy L. Good, Office of the U.S. Trustee, Cleveland, Ohio, P. Matthew Sutko, United States Department of Justice, Washington, D.C., for Appellees.
Before: KENNEDY, COLE, and GILMAN, Circuit Judges.
GILMAN, J., delivered the opinion of the court, in which COLE, J., joined. KENNEDY, J. (pp. 457-60), delivered a separate opinion concurring in part and dissenting in part.
OPINION
RONALD LEE GILMAN, Circuit Judge.
LTV Steel Company, Inc. filed for Chapter 11 bankruptcy protection in 2000. The United States Trustee for the Northern District of Ohio appointed the Official Committee of Administrative Claimants (ACC) to represent the interests of those creditors holding administrative claims. A Standing Order was entered by the bankruptcy court granting the ACC authority to bring a lawsuit against certain officers and directors of LTV Steel, including the appellants in this case. In response, all of the appellants other than Moran filed a motion in the bankruptcy court seeking dissolution of the ACC. The bankruptcy court denied their motion. Moran pursued a more direct approach by appealing the Standing Order to the district court. The district court ruled against Moran. It also ruled against the other appellants who had appealed the denial of their motion to dissolve the ACC. Following the district court's dismissal of their respective appeals, the appellants now seek review in this court. For the reasons set forth below, *451 we AFFIRM the judgment of the district court.
I. BACKGROUND
When the LTV Steel bankruptcy estate became administratively insolvent, the United States Trustee appointed the ACC, which investigated the conduct of LTV Steel's officers and directors to determine whether there were any causes of action that should be pursued against them. The ACC concluded, among other things, that colorable claims existed against certain officers and directors for failing to halt the operations of LTV Steel sooner than they did. Because the estate declined to bring claims against the officers and directors, the ACC sought authority from the bankruptcy court to bring the lawsuits derivatively.
A. The Standing Order
In September 2005, the bankruptcy court issued a Standing Order authorizing the ACC to pursue litigation against various officers and directors of LTV Steel, including the six appellants in this case: Glenn J. Moran, William H. Bricker, Dennis Babcock, James Baske, Eric Evans, and George Henning. The Standing Order analyzed the ACC's proposed complaint and concluded that it contained colorable claims that, if successful, would benefit the estate. In re LTV Steel Co., Inc.,
Moran, a former CEO of LTV Steel, appealed the Standing Order to the district court. There, the ACC moved to dismiss Moran's appeal for lack of jurisdiction. The district court dismissed the appeal on two independent groundslack of finality and lack of standing. It first analyzed the appealability of the Standing Order under the finality rule of 28 U.S.C. § 158(a), which grants jurisdiction to the district courts "from final judgments, orders and decrees" of the bankruptcy courts and, "with leave of the court, from other interlocutory orders and decrees." The district court concluded that the Standing Order was not an appealable final order because "no discrete dispute has been decided" and the Order "only authorizes the ACC to pursue claims on behalf of LTV." Moran v. Official Comm. of Admin. Claimants, No. 1:05CV2285,
Finally, the district court held that Moran lacked standing because he is not a "person aggrieved" by the Standing Order. Moran,
B. The motion to dissolve the ACC
The remaining five appellants were among a group of defendants named in the ACC's lawsuit who filed a motion in February 2006 to dissolve the ACC, arguing that it was formed without statutory authority. Their motion was denied by the bankruptcy court in a ruling from the bench that was memorialized in a written order issued in May 2006. Bricker, Babcock, Baske, Evans, and Henning appealed the denial of their motion to the district court. That court refused to hear Bricker's appeal because it held that Bricker had appealed only the oral ruling of the bankruptcy court, and that the oral ruling was not an appealable final order. Bricker v. Official Comm. of Admin. Claimants, No. 1:06CV 1082,
II. ANALYSIS
A. Standard of review
In cases heard originally in the district court, we will not set aside its factual findings unless they are clearly erroneous. United States v. Green,
This court has previously stated that "[w]hether an appellant is a person aggrieved is a question of fact...." Fid. Bank, Nat'l Ass'n v. M.M. Group, Inc.,
B. Moran's appeal of the Standing Order
We begin with Moran's argument that the district court erred in its determination that he lacks standing to appeal the bankruptcy court's Standing Order. Under the "person aggrieved" doctrine, a party does not have standing to appeal a bankruptcy court order unless that party is "directly and adversely affected pecuniarily by the order." Marlow,
We are not persuaded that Moran is a "person aggrieved" by the Standing Order. Although that order paved the way for the ACC to sue him, we are aware of no court that has held that the burden of defending a lawsuit, however onerous or unpleasant, is the sort of direct and immediate harm that makes a party "aggrieved" so as to confer standing in a bankruptcy appeal. See Fid. Bank,
This key point is clarified by the dissenting opinion in Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. (In re Trailer Source, Inc.),
Judge Rogers dissented on this point, opining that the rationale behind the "person aggrieved" doctrine"prevent[ing] indirectly affected parties from stalling bankruptcy proceedings"is "implicated in the context of an appeal from a district court to a court of appeals as much as in an appeal from a bankruptcy court to a district court." Id. at 247 (Rogers, J., dissenting). He accordingly proceeded to analyze whether the JT & T parties were "persons aggrieved" "in their capacity as defendants to future litigation" and concluded that they were not. Id.
Because the ACC's right to sue the defendants in the present case was granted by the bankruptcy court in the first instance, the Trailer Source majority's holding regarding the inapplicability of the "person aggrieved" doctrine to the "second layer of appeal" is not relevant here. This *454 caused the majority to state that it had no need to address Judge Rogers's "detailed arguments as to why ... the JT & T parties lack[ed] appellate standing," id. at 238 n. 4 (majority opinion), but we find his thoughtful analysis of the standing issue persuasive in regard to the case before us.
We agree with Judge Rogers's observation that "parties are not aggrieved by an order granting a creditor derivative standing when their interest in the order is as party defendants in the resulting adversary proceeding ... because the interest that [such parties] assert as defendants to an adversary proceeding is not protected by the Bankruptcy Code." Id. at 247 (Rogers, J., dissenting) (citations omitted). Moran, like the JT & T parties in Trailer Source, is interested in "avoiding liability to the estate." Id. at 248. This interest "is diametrically opposed to the primary goal of ... the Bankruptcy Code in general, which `is to minimize the injury to creditors.'" Id. (citing In re Harwald Co.,
Moran argues in the alternative that even if one could reasonably conclude that the bare threat of litigation is insufficient to confer standing, the fact that here a lawsuit has already been filed should be enough to give him "person aggrieved" standing. He contends that any lawsuit against the appellants in Fidelity Bank, Nat'l Ass'n v. M.M. Group, Inc.,
Moran next argues that his status as an administrative claimant makes him a "person aggrieved" by the Standing Order. But Moran's only claim on estate funds results from the fact that, pursuant to a bylaws indemnity provision, his expenses in defending against the ACC's lawsuit are being paid by the estate. He insists that this administrative claim creates in him an interest equal to that of the other creditorsthe members of the ACCin seeing that the estate's assets are distributed appropriately and without waste. See Kane v. Johns-Manville Corp.,
*455 The argument that Moran "ha[s] an interest in ensuring the maximization of estate assets is clearly disingenuous as asserted here." See Trailer Source,
The only burden that Moran bears under the Standing Orderthe possibility that he may not receive a full recovery of his administrative claim for litigation expensesflows directly from his status as a defendant. This is nothing more than an indirect way of arguing that his status as a defendant in a lawsuit is sufficient to confer "person aggrieved" standing. But as we have explained, being sued is not sufficient to make him a "person aggrieved" for bankruptcy purposes. See Fid. Bank,
The rationale for this result becomes even clearer upon consideration of the plight of a hypothetical group of defendants similarly situated to Moran in all but one respectthe absence of any indemnification for defense costs and damage awards against them. Such defendants would not be considered "persons aggrieved" by a bankruptcy court order allowing them to be sued. See, e.g., id. We decline to accept the perverse logic that Moran should be allowed to appeal the Standing Order while defendants without any indemnificationwho would clearly be burdened to a greater extent than Moran because they would have to pay all defense costs and any awards against them from their own pocketscould not.
Moran's final argument is that if he does not have standing to appeal the Standing Order, then there is no one left to challenge the soundness of the bankruptcy court's decision. He focuses on the fact that, in order to authorize the ACC to derivatively pursue the estate's claims against him, the bankruptcy court was required to weigh the costs of pursuing the case against the potential benefits to the estate if the ACC succeeds. See Canadian Pac. Forest Prods. Ltd. v. J.D. Irving, Ltd. (In re Gibson Group, Inc.),
Moran is mistaken, however, in arguing that only he can challenge the Standing Order on appeal. If the bankruptcy court's Gibson Group analysis was faulty, the appropriate parties to seek review of that analysis are those creditors of LTV Steel whose recoveries would be diminished should the ACC's lawsuit fail, ultimately decreasing the estate's value. Moran, whose only claim against the estate results from his status as a defendant in the lawsuit authorized by the Standing Order, is not among this group. The other creditors' interests align with those of the estate, because the size of their recovery depends on the potential value of the ACC's lawsuit. But all of the remaining *456 creditors in this case are part of the ACC and have chosen to vigorously pursue the lawsuit against the officers and directors. Presumably they would not have done so if they did not believe that their actions will increase the net value of the estate. In a case where the creditors disagree about the prudence of pursuing a particular claim, those among them who object to the bankruptcy court's Gibson Group analysis would have standing to appeal the resulting order. Because no creditor in this case has objected to the Standing Order, however, that issue is not before us here.
C. Appeal from denial of the motion to dissolve the ACC
We now turn to the arguments of the remaining appellants, all of whom appeal the denial of their motion to dissolve the ACC. The district court disposed of Bricker's appeal based on a perceived technical problem and declared that the remaining appellants did not have standing to appeal from the denial of their motion.
1. Babcock, Baske, Evans, and Henning
These appellants argue that the district court erred in dismissing their appeal for lack of standing. For the same reasons set forth above in relation to Moran's appeal of the Standing Order, however, they are not "persons aggrieved" and do not have standing to appeal the order dismissing their motion to dissolve the ACC. This result is even more obvious here than in Moran's case because, even if these appellants' status as defendants in the ACC's lawsuit were sufficient to confer standing upon them, that status did not flow "directly" from the order denying their motion to dissolve the ACC. See Marlow,
2. Bricker
This leaves us with the separate appeal by Bricker. According to the district court, Bricker's appeal was premature because he filed his notice after the date of the bankruptcy court's oral ruling but before the corresponding written order was entered. Bricker now asserts that his notice of appeal was saved by the operation of Rule 8002(a) of the Federal Rules of Bankruptcy Procedure, which states that "[a] notice of appeal filed after the announcement of a decision or order but before entry of the judgment, order, or decree shall be treated as filed after such entry and on the day thereof." We note that even the United States Trustee concedes that Rule 8002(a) controls and that Bricker's appeal to the district court was therefore timely filed. Both the Trustee and the ACC, however, argue that Bricker's appeal should suffer the same fate as that of the other appellants because, like them, he is not a "person aggrieved" and does not have standing to pursue the appeal.
The district court did not consider whether Bricker is a "person aggrieved." Despite that, we may appropriately consider this issue because all of the relevant facts and evidence are before us. See Fid. Bank,
*457 III. CONCLUSION
For all of the reasons set forth above, we AFFIRM the judgment of the district court.
KENNEDY, Circuit Judge, concurring in part and dissenting in part.
I concur in the judgment with respect to Babcock, Baske, Bricker, Evans, and Henning. I would hold that Moran does have standing to appeal the Standing Order of the bankruptcy court, and for that reason, I respectfully dissent.
To be clear, I agree with the majority that an order that makes a party a defendant in a lawsuit cannot be appealed by that defendant whether it merely provides for the bare threat of litigation or whether it allows a lawsuit that has already been filed. I also agree that not all creditors necessarily have appellate standing to challenge an order of the bankruptcy court. I agree with the majority's reliance on Judge Rogers's dissent in Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. (In re Trailer Source, Inc.),
I.
Three critical factual distinctions must be drawn between this appeal and Trailer Source. In this appeal, LTV Steel, Co. ("LTV Steel"), is in administrative insolvency so that all remaining creditors are equivalent administrative creditors. In Trailer Source, Judge Rogers emphasized that JT & T had "not provided this court with any description of their claim or the assets out of which that claim could potentially be paid."
The second important factual distinction is that Hyundai, the plaintiff in the authorized suit, "could not recover any administrative expenses if it [were] not successful." Id. at 251 (Rogers, J., dissenting). On the contrary, the derivative suit brought by the ACC against Moran and the other defendants will draw down on *458 the funds of the estate an estimated $3 million to $5 million. So while "a failed adversary proceeding would not drain the estate of assets and thereby indirectly affect the JT & T parties' claims [as creditors]" in Trailer Source, id., that is not the case here. In this appeal, the bankruptcy court authorized the ACC, a committee of administrative creditors, to bring a derivative suit expending the funds of the administratively insolvent estate-most clearly understood as the administrative creditors' own fundsto sue Moran and the assorted other defendants on behalf of all of the administrative creditors. The expended funds will not be recovered in the case of an adverse or inadequate judgment.
The last relevant factual distinction is that LTV Steel is obligated to indemnify Moran for his attorneys' fees and certain judgments against him. His administrative claim is for such expenses. The consequence of this fact is that his "status as a defendant in a lawsuit," Maj. Op. at 455, transforms into status as an administrative creditor because burdens imposed on Moran the defendant become burdens imposed on Moran the administrative creditor where indemnification makes any cost to Moran alone a cost to Moran from which he has a claim for reimbursement through the assets of the estate. To illustrate: the Standing Order makes it possible for the estate to recover punitive damages against Moran, but this merely implicates Moran's status as a defendant in a lawsuit because Moran cannot claim indemnification from the estate for a punitive damages judgment. Otherwise, Moran's status as an administrative creditor is implicated when he expends funds in his defense that he is entitled to have indemnified.
These three distinguishing aspects of this appeal lead me down a divergent path from that traveled by Judge Rogers in his dissent in Trailer Source. The three factual distinctions detailed above stand for, respectively, the propositions that: (1) a burden to the estate burdens all creditors; (2) litigation burdens the estate because that is from where the plaintiff in the authorized lawsuit will draw its funds; and (3) Moran's interest in the Standing Order is largely as a creditor. Therefore, Moran has an interest in the Standing Order that the Bankruptcy Code respects. Indeed, the further upshot of these three factual distinctions is that Moran does have interests aligned with that of the estate and the other administrative creditors. In Trailer Source, "[t]he best outcome for the estate" was "the worst outcome for the JT & T parties," and "the best outcome for the JT & T parties" was "the worst outcome for the estate."
II.
Two other points in the majority's opinion require responses. First, the majority argues:
Moran's status as an administrative claimant is solely dependant on the existence of the Standing Order that he now seeks to challenge. Were the Standing Order to be reversed, the lawsuit against him would be dismissed and his claim against the estate would disappear.
Maj. Op. at 455. At this point, it is important to stress that the Standing Order authorizes suit of Moran as well as a number of other defendants, such as Bricker. Suppose, for purposes of illustration, that the bankruptcy court authorized suit of each defendant using separate orders for each. The majority's logic suggests that Moran would not have appellate standing to challenge the order authorizing suit against him, but he would have appellate standing to challenge the separate orders authorizing suit against the other defendants, because, even were those standing orders to be reversed, the lawsuit against him and his administrative claim against the estate would both remain. In other words, Moran would simply be an administrative claimant who had a say in how the estate used its assets to pursue a judgment against other defendants, because he may not agree that the potential awards were in satisfactory proportion with the expected funds to be expended. Surely, the majority does not mean to allow form to reign over substance by allowing, for instance, Moran to challenge the authorization of a lawsuit against Bricker only if the bankruptcy court authorized that suit as part of an order separate from that authorizing suit against Moran himself. Here, the bankruptcy court authorized suit against all defendants in one order, so to allow Moran standing to appeal the order authorizing suit against Bricker, we must grant him standing to appeal the order authorizing suit against himself.
As a general matter, the defendants in the authorized lawsuit that deserve indemnification are differently situated from each other and from the other administrative creditors in terms of the precise course of action that will maximize their respective recoveries (or eliminate the need for a recovery completely). This represents a problem with creditor derivative standing, Scott v. Nat'l Century Fin. Enters., Inc. (In re Baltimore Emergency Servs. II, Corp.),
Second, the majority argues:
We decline to accept the perverse logic that Moran should be allowed to appeal the Standing Order while defendants without any indemnificationwho would clearly be burdened to a greater extent than Moran because they would have to pay all defense costs and any awards against them from their own pockets could not.
Maj. Op. at 455. But as the majority points out, bare injury does not suffice for person aggrieved status; on the contrary, the injured interest must be an injury "protected by the Bankruptcy Code." Maj. Op. at 454 (citing Trailer Source,
III.
Preliminary to the discussion above is the question of whether Moran has an administrative claim at all. The ACC argues that Moran has a contingent, unliquidated administrative claim which we should not respect as an administrative claim for the purpose of person aggrieved appellate standing. First, nobody in the bankruptcy proceeding objected to Moran's administrative claim. No one disputes that his claim is legitimate and it arises from a pre-existing interest in indemnification through the assets of the company as a former CEO of LTV Steel. Second, I cannot agree that the circumstances which would convert Moran's administrative claim into an uncontingent, liquidated claim are too remote. True, a number of funds have been established to advance monies for Moran's defense. But the Standing Order authorizes suit of Moran, Bricker, Henning Turner, Garrett, Baske, Babcock, Evans, Brown, and Does 1-100, many of whom have drawn and intend to draw on the trusts and insurance to fund their attorneys' fees and any judgment against them. The $4 million trust has been and will be drawn upon by, in the least, Moran, Babcock, and Baske. This trust is only for defense costs. Moran has drawn and will draw upon the $1 million trust initially authorized to indemnify ten people. The estimated prosecution costs for the Administrative Claimants Committee is between $3-5 million. The total defense cost for multiple defendants, Moran, Babcock, and Baske, which also includes the costs of appeal here, will likely exceed the upper end of the $5 million estimate for the ACC standing alone which would mean the exhaustion of the trusts and the ripening of Moran's administrative claim.
IV.
For the forgoing reasons, I would grant appellate standing to Moran to challenge the Standing Order of the bankruptcy court. Respectfully, I dissent from the majority opinion as it pertains to Moran. Otherwise, I concur.
NOTES
Notes
[1] Canadian Pacific Forest Prods. Ltd. v. J.D. Irving, Ltd. (In re Gibson Group),