Slovak Republic v. Loveridge (In re Eurogas, Inc.)
Slovak Republic v. Loveridge (In re Eurogas, Inc.)
Opinion of the Court
Chapter 7
OPINION
Appellant, the Slovak Republic, appeals the bankruptcy court’s order approving a settlement agreement proposed by the Chapter 7 trustee, which provides for the bankruptcy estate’s abandonment of litigation claims in exchange for consideration and waiver of claims. Because we find Appellant lacks standing, we dismiss this appeal.
I. BACKGROUND
a. The 2004 Bankruptcy
In June 2004, the Southern District of Texas bankruptcy court entered a judgment against Eurogas, Inc. (the “Debtor”), the Debtor’s principals, and five other corporate entities in the amount of $113,733,315 plus interest. The judgment creditors, consisting of several bankrupt entities and their principals, were represented by a Chapter 7 trustee (the “Texas Trustee”). The Texas Trustee initiated the Debtor’s involuntary Chapter 7 proceeding in the District of Utah bankruptcy court in May 2004. In November 2004, the Texas Trustee filed a proof of claim in the Debt- or’s bankruptcy case in the amount of $113,371,837 (the “$113 Million Judgment”). Texas Euro Gas Corp. (“Texas Euro Gas”) purchased the $113 Million Judgment claim from the Texas Trustee in September 2007.
Neither the Debtor nor its officers or representatives filed schedules or statements in the bankruptcy case, despite a court order to do so.
b. The 2015 Reopening
In September 2015, Texas Euro Gas sent a letter to the United States Trustee for the District of Utah (the “U.S. Trustee”), urging the U.S. Trustee to reopen the bankruptcy case to investigate additional property of the estate, which Texas Euro Gas suggested had not been administered during the bankruptcy case. The assets related to the Debtor’s interest in a foreign entity. As of the date of the involuntary petition, the Debtor was the sole stockholder of an Austrian company. The Austrian company owned a thirty-three percent interest in a Slovakian corporation, Rozmin, s.r.o. (“Rozmin”).
The U.S. Trustee filed a motion to reopen the bankruptcy case, explaining the Chapter 7 trustee may not have administered the Talc Mining Rights Claims. The U.S. Trustee requested the bankruptcy court reopen the case to allow a trustee to investigate and potentially administer the Talc Mining Rights Claims.
c. Motion to Approve Settlement Agreement and Notice of Abandonment
After her appointment, Trustee Lover-idge investigated ownership of the Talc Mining Rights Claims. Trustee Loveridge determined she “would be required to bring an adversary proceeding against Eu-roGas,” to establish the estate’s interest in the Talc Mining Rights Claims, “which would require substantial time and resources.”
Trustee Loveridge filed the Motion to Approve Agreement and Notice of Intent to Abandon Property of the Estate (the “Settlement Pleadings”) in August 2016.
After conducting a three-day hearing, the bankruptcy court approved the Agreement, finding its terms, including withdrawal of Texas Euro Gas’ claim, resulted in a fifteen to twenty percent distribution on the claims of unsecured creditors.
Accordingly, the bankruptcy court reviewed the Agreement as a Federal Rule of Bankruptcy Procedure Rule 9019 settlement and applied the analysis set forth in Kopexa.
Trustee Loveridge requested the bankruptcy court approve the abandonment nunc pro tunc, but the bankruptcy court did not specifically order nunc pro tunc relief because “[w]hen property is abandoned, it ‘reverts to the debtor and stands as if no bankruptcy petition was filed.’ ”
II. JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction to hear timely filed appeals from “final judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit, unless one of the parties elects to have the district court hear the appeal.
While a determination as to the legal standard applied to an issue is typically reviewed de novo,
III. DISCUSSION
a. The Slovak Republic’s Standing to Appeal
In the Motion to Dismiss, EuroGas argues the Slovak Republic lacks standing to appeal the Decision. The Slovak Republic obtained standing as an unsecured creditor in the bankruptcy case by pm-chasing two unsecured claims.
We begin with a review of standing. Constitutional standing is a threshold issue that may be raised at any time.
“[A] party that has satisfied the requirements of constitutional standing may nonetheless be barred from invoking a federal court’s jurisdiction.”
The Tenth Circuit Court of Appeals places prudential standing limitations on bankruptcy appeals, recognizing that, “although the Bankruptcy Code ‘does not contain an explicit grant or limitation on appellate" standing,’ only a ‘person aggrieved’ by a bankruptcy court’s order may appeal.”
The Slovak Republic correctly points out prudential standing differs from constitutional standing in that the former is not jurisdictional and may be waived.
The Slovak Republic contends it is a person aggrieved based on its status as an unsecured creditor of the bankruptcy-estate. The Slovak Republic argues had the bankruptcy court required a § 363 sale of the Talc Mining Rights Claims, the estate would have realized more for distribution to unsecured creditors. The Slovak Republic also argues issues in the Arbitration diminish its property, increase its burdens, or otherwise impair its rights. However, the Slovak Republic abandoned this contention at oral argument.
EuroGas counters, asserting while being an unsecured creditor gave the Slovak Republic standing to participate in the hearing on the Settlement Pleadings, it is not a person aggrieved for purposes of appellate standing because it benefited from the Decision. EuroGas argues but for the Agreement, there is virtually no payout on the Slovak Republic’s unsecured claims because the $113 Million Judgment receives the majority of the distribution to the class. However, under the Agreement, the distribution to unsecured creditors significantly increases upon withdrawal of the $113 Million Judgment. Accordingly, the Slovak Republic is not harmed by the Agreement and has no standing as a person aggrieved. Even had the bankruptcy court required a sale of the Talc Mining Rights Claims, EuroGas urges, a sale to a third party would not have included the withdrawal of the $113 Million Judgment, leaving the Slovak Republic with virtually no recovery on its unsecured claims.
Although the Slovak Republic argues its objection to the claim for the $113 Million Judgment would result in the same increased distribution to unsecured creditors, this argument depends on a number of unknown outcomes. As this Court recognizes, where there are “multiple layers of intertwined contingencies that must occur in order for [an appellant] to arguably claim any pecuniary benefit from the appeal,” the party’s “interest in the appeal [is] too remote and indirect to confer standing.”
Accordingly, we agree the Slovak Republic lacks standing to appeal the Decision. As an unsecured creditor, the Slovak Republic offers no explanation to suggest how the Decision diminishes its property, increases its burdens, or impairs its rights. Because the Agreement results in a significant increase in the distribution to unsecured creditors, the only logical reason the Slovak Republic could have to appeal the Decision is to better its position in the Arbitration,
b. The Merits of the Appeal
Even if this Court determined the Slovak Republic had standing and considered the merits of the appeal, we cannot hold that the bankruptcy court abused its discretion in approving the Agreement and authorizing the Abandonment. First, the bankruptcy court considered whether the Agreement should be analyzed as a § 363 sale and determined, using its discretion, it would not benefit creditors to do so. Furthermore, the bankruptcy court stated, “[a] sale presupposes a property right that can be sold. If the Trustee were to undertake to sell the [Talc Mining Rights Claims], she would need to ascertain whether the bankruptcy estate owns” those claims.
Furthermore, the bankruptcy court properly applied the factors set forth in Kopexa,
The bankruptcy court found the probability of success of litigation, the complexity and expense of litigation, and the interest of creditors all weighed in favor of approving the Agreement. The bankruptcy court considered the difficulty of collection a negligible factor because should the bankruptcy estate be determined the owner of -the Talc Mining Rights Claims, Trustee Loveridge would likely liquidate the claims instead of enforcing a judgment. However, because no factor weighed against approving the Agreement and Trustee Loveridge “adequately explained the business reasons for entering into [the] Agreement,” the bankruptcy court approved the Agreement.
Finally, in considering the Abandonment, the bankruptcy court correctly found pursuing litigation to determine ownership of the Talc Mining Claims would place a burden on an estate with no assets to fund such litigation. Additionally, the bankruptcy court did not err in finding the Talc Mining Rights Claims were
very valuable to the parties m the Arbitration [ ], but because they are not liquid claims, or easily administered, the [Talc Mining Rights Claims] are of inconsequential value to the bankruptcy estate outside of an arrangement with one of those two parties. The Trustee is trying to maximize the value to the estate with the Agreement with [Euro-Gas].55
Accordingly, the bankruptcy court appropriately considered and relied on Trustee Loveridge’s business judgment in authorizing the Abandonment. As such, the bankruptcy court did not abuse its discretion.
IV. CONCLUSION
The Slovak Republic appeals an order that creates no demonstrable harm to its status, (but only increases dividends paid to unsecured creditors. Because the Slovak Republic does not establish it is a “person aggrieved,” other than by implicating the Arbitration, we must dismiss this appeal for appellant’s lack of standing. Accordingly, it is hereby ordered that this appeal is DISMISSED.
. Despite the name, it does not appear that Texas Euro Gas is affiliated with the Debtor or EuroGas, Inc.
. In re Eurogas, Inc., 560 B.R. 574, 577 (Bankr, D. Utah 2016).
. Id.
. The remaining claims totaled approximately $1.3 million. Exhibit A to Motion to Approve Agreement at 2, in Appellant's App. at 21.
. Id. at 3-4, in Appellant's App. at 22-23.
. Eurogas, 560 B.R. at 578.
. Objection to Motion to Reopen Under 11 U.S.C. § 350, for an Order to Appoint Chapter 7 Trustee under Fed. R. Bankr. P. 5010 and Delay Payment of the Filing Fee Pursuant to L.B.R. 510(b) at 4, in Appellee’s App. at 4.
. Memorandum Decision at 6, in Appellant's App. at 75. Rozmin immediately contested the revocation of the Talc Mining Rights, which led to three Slovakian Supreme Court decisions confirming the revocation violated the Slovak Republic’s laws. Despite these rulings, the Slovak Republic refused to reinstate the Talc Mining Rights. Exhibit A to Motion to Approve Agreement at 3, in Appellant’s App. at 22.
. Motion to Reopen Under 11 U.S.C. § 350, for an Order to Appoint Chapter 7 Trustee under Fed. R. Bankr. P. 5010 and Delay Payment of the Filing Fee Pursuant to L.B.R. 510(b). Bankr. ECF No. 148,
. Exhibit A to Motion to Approve Agreement at 4, in Appellant’s App. at 23. Trustee Lover-idge found the pervious Chapter T trustee "did not expressly abandon” the mining rights, "but may or may not have intended that the [mining rights] be abandoned upon closing of the Bankruptcy Case.” Id., in Appellant’s App. at 23.
. Appellant's App. at 8, 26.
. All future references to ''Code,” "Section,” and "§” are to the Bankruptcy Code, Title 11. of the United States Code, unless otherwise indicated.
. The Slovak Republic’s Combined Objection to the Chapter 7 Trustee's (A) Motion to Approve Agreement, and (B) Notice of Intent to ''Abandon' Property (the "Objection to Compromise”), in Appellant’s App. at 32.
. In re Eurogas, Inc., 560 B.R, 574, 581 (Bankr. D. Utah 2016).
. Id. at 580.
. Id. at 579.
. Id. at 581. The. bankruptcy court was also “aware that the matters in [the] bankruptcy case [were] important to the Slovak Republic and [EuroGas] not on their own account, but because the parties hope[d] to gain an advantage in the [Arbitration]." Id. at 579.
. Id. at 582 (citing Rich Dad Operating Co., LLC v. Zubrod (In re Rich Glob., LLC), 652 Fed.Appx. 625, 630 (10th Cir. 2016)).
. In re Kopexa Realty Venture Co., 213 B.R. 1020 (10th Cir. BAP 1997). All future references to “Rule” or “Rules” refer to the Federal Rules of Bankruptcy Procedure.
Eurogas, 560 B.R. at 586.
. Id. (quoting In re Dewsnup, 908 F.2d 588, 590 (10th Cir. 1990), aff'd sub nom. Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992)).
. BAP ECF No. 16.
. 28 U.S.C. § 158(a)(1), (b)(1), & (c)(1); Rule 8005; 10th Cir. BAP L.R. 8005-1.
. Loyd v. Foxglove, Inc. (In re S. Med. Arts Cos.), 343 B.R. 250, 254 (10th Cir. BAP 2006),
. Hadden v. Bowen, 851 F.2d 1266, 1268 (10th Cir. 1988) ("The issue of whether the [trial] court relied on the correct legal standard ... is a matter of law which we review de novo.").
. Rich Dad Operating Co., LLC v. Zubrod (In re Rich Glob., LLC), 652 Fed.Appx. 625, 630 (10th Cir. 2016) (quoting Goodwin v. Mickey Thompson Enter. Grp., Inc., 292 B.R. 415, 422 (9th Cir. BAP 2003)).
. S. Med. Arts Cos., 343 B.R. at 261 ("The approval of a compromise is within the sound discretion of the bankruptcy court and is reviewed for an abuse of discretion," (citing In re Kopexa Realty Venture Co., 213 B.R. 1020, 1022 (10th Cir. BAP 1997))).
. See In re Buerge, Nos. KS-12-074, KS-12-077, KS-12-078, KS-13-022, KS-13-023, KS-13-024, KS-13-025, 2014 WL 1309694, at *19 (10th Cir. BAP Apr, 2, 2014) (finding bankruptcy court abused discretion in compelling abandonment under § 554(b)); see also In re Schwarz Publ'g, Inc., 398 Fed.Appx. 321, 321-22 (9th Cir, 2010); In re Johnston, 49 F.3d 538, 540 (9th Cir. 1995) (citing In re K.C. Mach. & Tool, Co., 816 F.2d 238, 244 (6th Cir. 1987)).
. In re Land, 943 F.2d 1265, 1265 (10th Cir. 1991) (order denying nunc pro tunc relief reviewed for abuse of discretion); Malloy v. Wallace (In re Wallace), 298 B.R. 435, 439 (10th Cir. BAP 2003) (order granting nunc pro tunc relief reviewed for abuse of discretion), aff‘d 99 Fed.Appx. 870 (10th Cir. 2004).
. The Slovak Republic purchased claims three and four, each in the amount of $240,181 from the original claimant O & F Proinvest AG, a Swiss corporation, and filed a notice of transfer of claim for both on August 19, 2016.
. In re Blagg, No. NO-01-006, 2001 WL 725993, at *5 (10th Cir. BAP June 28, 2001) (citing Bd. of Cty. Comm'rs v. W.H.I., Inc., 992 F.2d 1061, 1063 (10th Cir. 1993)).
. Buchwald v. Univ. of N.M. Sch. of Med., 159 F.3d 487, 493 (10th Cir. 1998).
. Bd. of Cty. Comm’rs of Sweetwater Cty. v. Geringer, 297 F.3d 1108, 1112 (10th Cir. 2002) (quoting Warth v. Seldin, 422 U.S. 490, 499, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)).
. Susan B. Anthony List v. Driehaus, — U.S. -, 134 S.Ct. 2334, 2342, 189 L.Ed.2d 246 (2014) (quoting Clapper v. Amnesty Int’l USA, 568 U.S. 398, 411-12, 133 S.Ct. 1138, 185 L.Ed.2d 264(2013)).
. Geringer, 297 F.3d at 1112 (citing Bennett v. Spear, 520 U.S. 154, 163, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997)).
. Id. (internal quotations and citations omitted).
. In re Petroleum Prod. Mgmt., Inc., 282 B.R. 9, 13-14 (10th Cir. BAP 2002) (quoting In re Am. Ready Mix, Inc., 14 F.3d 1497, 1500 (10th Cir. 1994)); Holmes v. Silver Wings Aviation, Inc., 881 F.2d 939, 940 (10th Cir. 1989) (adopting the "person aggrieved” standard).
. In re Kreutzer, 249 Fed.Appx. 727, 729 (10th Cir. 2007) (quoting Am. Ready Mix. Inc., 14 F.3d at 1500) (internal citations omitted).
. Am. Ready Mix, Inc., 14 F.3d at 1500 (quoting Holmes; 881 F.2d at 940.
. Kreutzer, 249 Fed.Appx. at 729 (10th Cir. 2007) (quoting Am. Ready Mix, Inc., 14 F.3d at 1500); Am. Ready Mix, Inc., 14 F.3d at 1500 ("standard [] requires an appellant to show that he is a 'person aggrieved’ by the challenged bankruptcy court order.”).
. In re Miner, 229 B.R. 561, 565 (2d Cir. BAP 1999) (citing Sch. Dist. of Lancaster v. Lake Asbestos of Quebec, Ltd., 921 F.2d 1330, 1332 (3d Cir. 1990)); Spenlinhauer v. O'Donnell, 261 F.3d 113, 118 (1st Cir. 2001) (citing numerous cases) (concluding the party asserting appellate jurisdiction bears the burden of proving standing).
. Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1154 (10th Cir. 2013) (“Prudential standing doctrines are not jurisdictional; they may be forfeited or waived.”) (citing Finstuen v. Crutcher, 496 F.3d 1139, 1147 (10th Cir. 2007)); see also Niemi v. Lasshofer, 770 F.3d 1331, 1345 (10th Cir. 2014) (quoting Wilderness Soc. v. Kane Cty., 632 F.3d 1162, 1168 n.1 (10th Cir. 2011)).
. In re Am. Ready Mix, Inc., 14 F.3d 1497, 1500 (10th Cir. 1994) (emphasis added).
. Fed. R. Bankr. P. 2002(a)(3) requires all creditors receive twenty-one days notice of a hearing on approval of a compromise or settlement. Even if, as the Slovak Republic argues, the Agreement should have been reviewed as a sale under § 363, all creditors must receive twenty-one days notice. Fed. R. Bankr. P. 2002(a)(2).
. When questioned by the panel at oral argument as to the basis for standing, the Slovak Republic relied solely on its status as an unsecured creditor.
. In re Paige, No. UT-08-062, 2010 WL 3699747, at *11 (10th Cir. BAP Sept. 15, 2010) (stating that financial stake would be had if party sought to overturn a judgment and confirm a more favorable plan of reorganization was too remote to support standing).
. We note, on August 18, 2017, the Slovak Republic filed a copy of the Award, indicating the adjudicating body dismissed the Arbitration, BAP ECF No. 69.
. See In re Ernie Haire Ford, Inc., 764 F.3d 1321, 1325-26 (11th Cir. 2014) (“[A] party is not aggrieved, for the purposes of appealing from a bankruptcy court order, when the only interest allegedly harmed by that order is the interest in avoiding liability from an adversary proceeding.”); In re LTV Steel Co., 560 F.3d 449, 453 (6th Cir. 2009) (citing numerous cases) ("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.").
. In re Eurogas, Inc., 560 B.R. 574, 582 (Bankr. D. Utah 2016),
. Id.
. Id, (“[T]o the extent the Agreement is not a classic settlement, it is still within the purview of Rule 9019 as a compromise. The Trustee has compromised several issues that would require protracted litigation. Avoiding litigation may be the subject of a compromise or settlement.") (citing Rich Dad Operating Co., LLC v. Zubrod (In re Rich Glob., LLC), 652 Fed.Appx. 625, 629-30 (10th Cir. 2016)).
. In re Kopexa Realty Venture Co., 213 B.R. 1020 (10th Cir. BAP 1997).
. Loyd v. Foxglove, Inc. (In re S. Med. Arts Cos.), 343 B.R. 250, 256 (10th Cir. BAP 2006) (citing In re Kopexa Realty Venture Co., 213 B.R. 1020, 1022 (10th Cir. BAP 1997)),
. In re Eurogas, 560 B.R. 574, 585 (Bankr. D. Utah 2016).
. Id.
, Finding no Tenth Circuit authority, the Court notes other circuits and bankruptcy courts recognize when determining whether an asset is burdensome or of inconsequential value, the bankruptcy court must "find the trustee made: 1) a business judgment; 2) in good faith; 3) upon some reasonable basis; and 4) within the trustee’s scope of authority.” In re Slack, 290 B.R. 282, 284 (Bankr. D.N.J. 2003), aff'd, 112 Fed.Appx. 868 (3d Cir. 2004); Collier on Bankruptcy, 15th ed., rev. ¶ 554.02[4],
Reference
- Full Case Name
- IN RE EUROGAS, INC., Debtor. The Slovak Republic v. Elizabeth R. Loveridge, Chapter 7 Trustee, Eurogas, Inc., and Texas Euro Gas Corp.
- Status
- Published