Knowing When to Walk Away
While I thought that only a Kentucky senator would object to his own legislation, Chapter 11 debtors in the Eighth Circuit must object to their own plan to have person-aggrieved standing for an appeal. In O&S Trucking, Inc. v. Mercedes Benz Financial Services USA (In re O&S Trucking, Inc.), the court affirmed the BAP's dismissal of the appeal for lack of jurisdiction based on standing. Early in the case, the debtor and creditor entered into an agreed adequate protection order. On the debtor's motion under Â§ 506, the bankruptcy court determined the value of the secured claim. In addition to setting the value of the equipment, it included the value of post-petition income from the use of the equipment. The debtor appealed the "secured-status order" which was dismissed for lack of finality.
While the first appeal was pending, the debtor proposed a plan using the court-determined valuation but included language that the amount was "subject to adjustment" if the pending (or subsequent) appeal were successful. The debtor had surrendered all equipment so only the post-petition income portion of the creditor's secured claim remained. The bankruptcy court confirmed the plan and the debtor appealed. While the Bankruptcy Code lacks a standard for appellate standing, the Eighth Circuit applies a "person aggrieved" standard. This heightened standard requires a debtor to show that the challenged order directly and adversely affects its pecuniary interests. To appeal from a favorable plan-confirmation judgment, the debtor must follow a specific procedure to overcome the policy favoring finality. In O&S Trucking, the debtor included the alleged erroneous interlocutory decision on valuation as a term of the plan. An objection, however, is necessary to highlight the offending provision and become an aggrieved party. Without objection, the debtor who proposes a plan term is presumed to accept that term. The "subject to adjustment" clause did not provide notice that the debtor intended to appeal its proposed plan, just that if its pending appeal of the interlocutory order succeeded, the amount of the secured claim would be adjusted. By not following the proper procedure, the Eighth Circuit would not permit an appeal.
This decision highlights the importance of making your record to preserve the issue for appeal. With the multitude of interlocutory orders which are entered during a Chapter 11 bankruptcy, it is important to keep track. Bankruptcy appellate panelsâwithout promptingâexamine their jurisdiction. This often leads to swift justice but not necessarily justice on the merits. At least person-aggrieved standing just requires objecting to yourself, as opposed to knowing that you must be abecedarian in your approach. And for that piece of jargon, we can thank the BAP's opinion.