FILED NOV 14 2017 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. AZ-16-1263-SKuF ) 6 FIVE LOTS, LLC, ) Bk. No. 2:16-bk-06224-MCW ) 7 Debtor. ) ______________________________) 8 ) FIVE LOTS, LLC, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) UNITED STATES TRUSTEE, ) 12 ) Appellee. ) 13 ______________________________) 14 Argued and Submitted on October 26, 2017 at Phoenix, Arizona 15 Filed – November 14, 2017 16 Appeal from the United States Bankruptcy Court 17 for the District of Arizona 18 Honorable Madeleine Carmel Wanslee, Bankruptcy Judge, Presiding 19 Appearances: David Allegrucci argued for appellant; John Postulka argued for appellee. 20 21 Before: SPRAKER, KURTZ, and FARIS, Bankruptcy Judges. 22 23 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION 2 Chapter 71 debtor Five Lots, LLC appeals from the bankruptcy 3 court’s ruling that a postpetition retainer paid from a third 4 party to pay Five Lots’ attorney’s fees was property of Five 5 Lots’ bankruptcy estate. This ruling was set forth in the 6 court’s order authorizing Five Lots to employ bankruptcy counsel. 7 Five Lots has not challenged any other aspect of the employment 8 order apart from the determination that the retainer is property 9 of its bankruptcy estate. On appeal, Five Lots has not 10 established that the property of the estate ruling had a direct 11 and adverse pecuniary affect. Consequently, this appeal will be 12 DISMISSED for lack of standing. 13 FACTS 14 On June 1, 2016, Five Lots commenced its bankruptcy case by 15 filing a voluntary chapter 11 petition. At the time of its 16 bankruptcy filing, its only assets were four parcels of real 17 property located in Arizona. As of the petition date, Five Lots’ 18 only creditors were a secured creditor, owed roughly $700,000, 19 and the Maricopa County Treasurer, owed roughly $5,600 for real 20 property taxes. 21 At the first chapter 11 status conference held on July 5, 22 2016, Five Lots appeared through Judith V. Brown, its sole member 23 and manager. The bankruptcy court directed Five Lots to retain 24 counsel and indicated that the bankruptcy case would be dismissed 25 unless it did so. Several days later, Five Lots filed an 26 27 1 Unless specified otherwise, all chapter and section 28 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2 1 application for an order approving the retention of David 2 Allegrucci as its counsel. In the application, Five Lots 3 disclosed that, on July 8, 2016, Brown had paid Allegrucci 4 $10,000 as a retainer to cover some of Five Lots’ attorney’s 5 fees. 6 The United States Trustee objected to the employment 7 application. Among other things, the United States Trustee 8 argued that the $10,000 retainer was estate property that needed 9 to be turned over to the estate. The United States Trustee also 10 asserted that, as debtor’s counsel, Allegrucci should be required 11 to comply with all employment and fee oversight provisions set 12 forth in §§ 327, 329 and 331. 13 In response to the concerns raised by the United States 14 Trustee, Five Lots filed a supplemental memorandum of points and 15 authorities urging the bankruptcy court to approve Allegrucci’s 16 employment. It also disputed that the retainer was estate 17 property. In fact, it stated that Allegrucci was in the process 18 of returning the $10,000 to Brown. Five Lots further requested 19 that Allegrucci be permitted to bill and collect compensation 20 directly from Brown for his legal services without having to file 21 any fee applications. 22 At the hearing on the employment application, the bankruptcy 23 court approved Allegrucci’s employment. However, the court also 24 sustained many of the United States Trustee’s objections. The 25 court explained to Five Lots that it would require Allegrucci to 26 comply with all of the fee oversight provisions set forth in the 27 Code regardless of whether he was paid from estate property or 28 from Brown’s separate funds. In addition, the bankruptcy court
3 1 concluded that the $10,000 retainer was property of the estate 2 that needed to be returned by Brown to the estate or to 3 Allegrucci to hold in trust for the estate. 4 On August 12, 2016, the bankruptcy court entered an order 5 approving Five Lots’ application to employ Allegrucci as its 6 bankruptcy counsel. In the order, the court ruled not only that 7 the postpetition $10,000 retainer was estate property, but also 8 that “any payment by third parties, to pay for legal 9 representation of the Debtor-in-Possession, is property of this 10 bankruptcy estate.” Order (Aug. 12, 2016) at p. 2. The order 11 required Brown to return the $10,000 retainer to the estate. The 12 order further specified that any compensation to be paid to 13 Allegrucci was subject to the fee oversight provisions set forth 14 in §§ 329, 330 and 331. Five Lots timely filed a notice of 15 appeal. 16 JURISDICTION 17 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 18 §§ 1334 and 157(b)(2)(A), and we have jurisdiction under 19 28 U.S.C. § 158. 20 ISSUE 21 Does Five Lots have standing to appeal the bankruptcy 22 court’s ruling that the retainer (and any other third-party funds 23 paid to cover Five Lots’ attorney’s fees) are property of its 24 bankruptcy estate? 25 STANDARD OF REVIEW 26 We review de novo questions regarding the appellant’s 27 standing to appeal. Giesbrecht v. Fitzgerald (In re Giesbrecht), 28 429 B.R. 682, 687 (9th Cir. BAP 2010).
4 1 DISCUSSION 2 We must satisfy ourselves that we have jurisdiction over 3 this appeal and that we should exercise jurisdiction. See West 4 v. United States, 853 F.3d 520, 522 (9th Cir. 2017); Mastro v. 5 Rigby, 764 F.3d 1090, 1093 (9th Cir. 2014). Here, jurisdictional 6 concerns stem from the fact that Five Lots has consistently 7 emphasized that it appeals only the bankruptcy court’s ruling 8 that the $10,000 (and any other funds paid by third parties to 9 cover Five Lots’ legal expenses) are property of Five Lots’ 10 bankruptcy estate. The limited scope that Five Lots has imposed 11 on its own appeal raises questions regarding its standing to 12 appeal and whether this appeal has been rendered moot. In an 13 order issued on October 2, 2017, we directed the parties to 14 address the standing and mootness issues, and each party duly 15 responded to our order. 16 A. Standing Issue 17 There are two broad aspects of the standing doctrine. The 18 first, constitutional standing, is derived from the case and 19 controversy requirement of Article III of the Constitution and 20 requires a plaintiff to demonstrate “injury in fact, causation 21 and redressability.” Republic of Marshall Islands v. United 22 States, 865 F.3d 1187, 1199 (9th Cir. 2017) (citing Lexmark 23 Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 24 1386 (2014)).
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FILED NOV 14 2017 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. AZ-16-1263-SKuF ) 6 FIVE LOTS, LLC, ) Bk. No. 2:16-bk-06224-MCW ) 7 Debtor. ) ______________________________) 8 ) FIVE LOTS, LLC, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) UNITED STATES TRUSTEE, ) 12 ) Appellee. ) 13 ______________________________) 14 Argued and Submitted on October 26, 2017 at Phoenix, Arizona 15 Filed – November 14, 2017 16 Appeal from the United States Bankruptcy Court 17 for the District of Arizona 18 Honorable Madeleine Carmel Wanslee, Bankruptcy Judge, Presiding 19 Appearances: David Allegrucci argued for appellant; John Postulka argued for appellee. 20 21 Before: SPRAKER, KURTZ, and FARIS, Bankruptcy Judges. 22 23 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION 2 Chapter 71 debtor Five Lots, LLC appeals from the bankruptcy 3 court’s ruling that a postpetition retainer paid from a third 4 party to pay Five Lots’ attorney’s fees was property of Five 5 Lots’ bankruptcy estate. This ruling was set forth in the 6 court’s order authorizing Five Lots to employ bankruptcy counsel. 7 Five Lots has not challenged any other aspect of the employment 8 order apart from the determination that the retainer is property 9 of its bankruptcy estate. On appeal, Five Lots has not 10 established that the property of the estate ruling had a direct 11 and adverse pecuniary affect. Consequently, this appeal will be 12 DISMISSED for lack of standing. 13 FACTS 14 On June 1, 2016, Five Lots commenced its bankruptcy case by 15 filing a voluntary chapter 11 petition. At the time of its 16 bankruptcy filing, its only assets were four parcels of real 17 property located in Arizona. As of the petition date, Five Lots’ 18 only creditors were a secured creditor, owed roughly $700,000, 19 and the Maricopa County Treasurer, owed roughly $5,600 for real 20 property taxes. 21 At the first chapter 11 status conference held on July 5, 22 2016, Five Lots appeared through Judith V. Brown, its sole member 23 and manager. The bankruptcy court directed Five Lots to retain 24 counsel and indicated that the bankruptcy case would be dismissed 25 unless it did so. Several days later, Five Lots filed an 26 27 1 Unless specified otherwise, all chapter and section 28 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2 1 application for an order approving the retention of David 2 Allegrucci as its counsel. In the application, Five Lots 3 disclosed that, on July 8, 2016, Brown had paid Allegrucci 4 $10,000 as a retainer to cover some of Five Lots’ attorney’s 5 fees. 6 The United States Trustee objected to the employment 7 application. Among other things, the United States Trustee 8 argued that the $10,000 retainer was estate property that needed 9 to be turned over to the estate. The United States Trustee also 10 asserted that, as debtor’s counsel, Allegrucci should be required 11 to comply with all employment and fee oversight provisions set 12 forth in §§ 327, 329 and 331. 13 In response to the concerns raised by the United States 14 Trustee, Five Lots filed a supplemental memorandum of points and 15 authorities urging the bankruptcy court to approve Allegrucci’s 16 employment. It also disputed that the retainer was estate 17 property. In fact, it stated that Allegrucci was in the process 18 of returning the $10,000 to Brown. Five Lots further requested 19 that Allegrucci be permitted to bill and collect compensation 20 directly from Brown for his legal services without having to file 21 any fee applications. 22 At the hearing on the employment application, the bankruptcy 23 court approved Allegrucci’s employment. However, the court also 24 sustained many of the United States Trustee’s objections. The 25 court explained to Five Lots that it would require Allegrucci to 26 comply with all of the fee oversight provisions set forth in the 27 Code regardless of whether he was paid from estate property or 28 from Brown’s separate funds. In addition, the bankruptcy court
3 1 concluded that the $10,000 retainer was property of the estate 2 that needed to be returned by Brown to the estate or to 3 Allegrucci to hold in trust for the estate. 4 On August 12, 2016, the bankruptcy court entered an order 5 approving Five Lots’ application to employ Allegrucci as its 6 bankruptcy counsel. In the order, the court ruled not only that 7 the postpetition $10,000 retainer was estate property, but also 8 that “any payment by third parties, to pay for legal 9 representation of the Debtor-in-Possession, is property of this 10 bankruptcy estate.” Order (Aug. 12, 2016) at p. 2. The order 11 required Brown to return the $10,000 retainer to the estate. The 12 order further specified that any compensation to be paid to 13 Allegrucci was subject to the fee oversight provisions set forth 14 in §§ 329, 330 and 331. Five Lots timely filed a notice of 15 appeal. 16 JURISDICTION 17 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 18 §§ 1334 and 157(b)(2)(A), and we have jurisdiction under 19 28 U.S.C. § 158. 20 ISSUE 21 Does Five Lots have standing to appeal the bankruptcy 22 court’s ruling that the retainer (and any other third-party funds 23 paid to cover Five Lots’ attorney’s fees) are property of its 24 bankruptcy estate? 25 STANDARD OF REVIEW 26 We review de novo questions regarding the appellant’s 27 standing to appeal. Giesbrecht v. Fitzgerald (In re Giesbrecht), 28 429 B.R. 682, 687 (9th Cir. BAP 2010).
4 1 DISCUSSION 2 We must satisfy ourselves that we have jurisdiction over 3 this appeal and that we should exercise jurisdiction. See West 4 v. United States, 853 F.3d 520, 522 (9th Cir. 2017); Mastro v. 5 Rigby, 764 F.3d 1090, 1093 (9th Cir. 2014). Here, jurisdictional 6 concerns stem from the fact that Five Lots has consistently 7 emphasized that it appeals only the bankruptcy court’s ruling 8 that the $10,000 (and any other funds paid by third parties to 9 cover Five Lots’ legal expenses) are property of Five Lots’ 10 bankruptcy estate. The limited scope that Five Lots has imposed 11 on its own appeal raises questions regarding its standing to 12 appeal and whether this appeal has been rendered moot. In an 13 order issued on October 2, 2017, we directed the parties to 14 address the standing and mootness issues, and each party duly 15 responded to our order. 16 A. Standing Issue 17 There are two broad aspects of the standing doctrine. The 18 first, constitutional standing, is derived from the case and 19 controversy requirement of Article III of the Constitution and 20 requires a plaintiff to demonstrate “injury in fact, causation 21 and redressability.” Republic of Marshall Islands v. United 22 States, 865 F.3d 1187, 1199 (9th Cir. 2017) (citing Lexmark 23 Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 24 1386 (2014)). The second broad standing aspect, prudential 25 standing, is a set of “‘judicially self-imposed limits on the 26 exercise of federal jurisdiction.’” Veal v. Am. Home Mortg. 27 Servicing, Inc. (In re Veal), 450 B.R. 897, 906 (9th Cir. BAP 28 2011) (quoting Sprint Commc’ns Co. v. APCC Servs., Inc., 554 U.S.
5 1 269, 289 (2008)). Five Lots bears the burden of establishing its 2 standing. Max Recovery, Inc. v. Than (In re Than), 215 B.R. 430, 3 434 (9th Cir. BAP 1997). 4 There is little doubt that in the bankruptcy court, Five 5 Lots met the relatively minimal requirements of constitutional 6 standing. As the debtor, it had a vested interest in whether or 7 not the bankruptcy court would approve the employment 8 of Allegrucci as its bankruptcy counsel and whether or not the 9 $10,000 retainer was property of the estate. 10 On appeal, however, Five Lots only challenges the bankruptcy 11 court’s property of the estate ruling. The limited scope of Five 12 Lots’ appeal implicates the facet of prudential standing known as 13 the “person aggrieved” standard: an appellant seeking review of a 14 bankruptcy court’s judgment or order must be a “person aggrieved” 15 by the order appealed. Lehman Commercial Paper, Inc. v. 16 Palmdale Hills Prop., LLC (In re Palmdale Hills Prop., LLC), 17 423 B.R. 655, 662 (9th Cir. BAP 2009), aff’d, 654 F.3d 868 (9th 18 Cir. 2011). Under this standard, only “those persons who are 19 directly and adversely affected pecuniarily by an order of the 20 bankruptcy court” have standing to appeal. Id. (quoting 21 Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442 (9th 22 Cir. 1983)). At bottom, the person aggrieved standard presents a 23 question of fact. Int’l Ass’n of Firefighters, Local 1186 v. 24 City of Vallejo (In re City of Vallejo), 408 B.R. 280, 299 (9th 25 Cir. BAP 2009) (citing Paine v. Dickey (In re Paine), 250 B.R. 26 99, 104 (9th Cir. BAP 2000)). Thus, Five Lots needs to show that 27 the order on appeal diminished its property, increased its 28 burdens or otherwise detrimentally affected its rights. See
6 1 In re Fondiller, 707 F.2d at 442-43. 2 Five Lots has not persuaded us that its pecuniary interests 3 have been directly and adversely affected by the bankruptcy 4 court’s ruling that the retainer is property of its estate. To 5 the contrary, the court’s ruling increased Five Lots’ property by 6 classifying third-party payments made to Allegrucci as estate 7 property. There is no readily apparent detriment to its rights 8 or increase in its burdens resulting from this ruling. Five Lots 9 has not presented anything on appeal that would permit us to find 10 that it is a person aggrieved and, hence, has standing to appeal. 11 B. Mootness Issue 12 Because we have concluded that Five Lots lacks standing to 13 appeal, we decline to address the mootness issue. 14 CONCLUSION 15 For the reasons set forth above, we DISMISS this appeal for 16 lack of standing. 17 18 19 20 21 22 23 24 25 26 27 28