May 4, 1992
____________________
No. 91-1750
IN RE:
CHRISTINA THOMPSON,
Debtor,
________
SANFORD A. KOWAL, ET AL.,
Appellants,
v.
CHARLES M. MALKEMUS,
Appellee.
____________________
ERRATA SHEET
ERRATA SHEET
The opinion of this Court issued on April 29, 1992, is amended as
follows:
Page 22, line 1 after block quote: delete "See."
___
April 29, 1992 ____________________
April 29, 1992 ____________________
No. 91-1750
No. 91-1750
IN RE:
IN RE:
CHRISTINA THOMPSON,
CHRISTINA THOMPSON,
Debtor,
Debtor,
________
SANFORD A. KOWAL, ET AL.,
SANFORD A. KOWAL, ET AL.,
Appellants,
Appellants,
v.
v.
CHARLES M. MALKEMUS,
CHARLES M. MALKEMUS,
Appellee.
Appellee.
____________________
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge]
[Hon. Edward F. Harrington, U.S. District Judge]
___________________
____________________
____________________
Before
Before
Campbell, Circuit Judge,
Campbell, Circuit Judge,
_____________
Bownes, Senior Circuit Judge,
Bownes, Senior Circuit Judge,
____________________
and Cyr, Circuit Judge.
and Cyr, Circuit Judge.
_____________
____________________
____________________
Sanford A. Kowal for appellants.
Sanford A. Kowal for appellants.
________________
Thomas J. Raftery with whom Ellen O. Harder and Sherin and Lodgen
Thomas J. Raftery with whom Ellen O. Harder and Sherin and Lodgen
_________________ _______________ _________________
were on brief for appellee.
were on brief for appellee.
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____________________
____________________
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CYR, Circuit Judge. The present appeal requires us to determine
CYR, Circuit Judge.
_____________
whether either the chapter 7 debtor or an unsecured creditor possesses
standing to appeal a bankruptcy court order authorizing the chapter 7
trustee to settle an adversary proceeding to which the appellants were
neither original nor intervening parties. We dismiss their appeal for
lack of standing.
I
I
BACKGROUND
BACKGROUND
__________
Appellant Christina T. Thompson, the chapter 7 debtor, and
appellee Charles M. Malkemus, alleged holder of a secured claim
against property of the chapter 7 estate, initiated divorce
proceedings in November 1985 after twelve years of marriage. In May
1986, the Probate and Family Court of the Commonwealth of
Massachusetts, Essex County, ("probate court") entered its judgment of
divorce nisi, incorporating the terms of a separation agreement
____
between Thompson and Malkemus. Following a hearing at which Malkemus
asserted that Thompson had withheld from the probate court relevant
provisions of their separation agreement, the probate court modified
its original divorce judgment to include the omitted provisions.
Thompson filed a chapter 11 petition in the United States
Bankruptcy Court for the District of Massachusetts during December
1988. One month later, the proceedings were converted to chapter 7.
Following the appointment of the chapter 7 trustee, Malkemus obtained
2
relief from the automatic stay permitting a continuation of the
probate court proceedings. Later, the probate court entered so-called
civil contempt judgments, imposing coercive fines against Thompson for
willful refusal to comply with the terms of the modified divorce
judgment.* During April 1989, Malkemus filed several proofs of claim
against the chapter 7 estate in amounts totalling approximately
$878,000 plus interest, based on judgments and liens obtained in the
probate court on property of the chapter 7 estate, including the
former marital home. Appellant Sanford A. Kowal, Esquire, who
represented appellant Thompson in the probate court proceedings, filed
a proof of claim against the chapter 7 estate for attorney fees.
In October 1989, the marital home, the principal asset of the
chapter 7 estate, was sold by the chapter 7 trustee for approximately
$1 million. The chapter 7 trustee filed objections to the Malkemus
claims and counterclaimed against Malkemus for breach of the
separation agreement. Following discovery and two days of trial
before the bankruptcy court in the ensuing adversary proceeding, the
chapter 7 trustee arrived at a settlement with Malkemus, whereby
____________________
*The judgments Malkemus obtained in the probate court following relief
*The judgments Malkemus obtained in the probate court following relief
from the automatic stay were captioned judgments of "contempt." The
from the automatic stay were captioned judgments of "contempt." The
bankruptcy court, after reviewing the comprehensive findings of fact
bankruptcy court, after reviewing the comprehensive findings of fact
made by the probate court, determined that most of the sums assessed
made by the probate court, determined that most of the sums assessed
against Thompson under the probate court judgments were amounts the
against Thompson under the probate court judgments were amounts the
probate court had found to be due Malkemus by appellant Thompson.
probate court had found to be due Malkemus by appellant Thompson.
Thus, the bankruptcy court in effect determined that, for the most
Thus, the bankruptcy court in effect determined that, for the most
part, the amounts awarded Malkemus under these judgments represented
part, the amounts awarded Malkemus under these judgments represented
prepetition obligations to Malkemus arising from appellant Thompson's
prepetition obligations to Malkemus arising from appellant Thompson's
disposition of property in violation of the terms of the divorce
disposition of property in violation of the terms of the divorce
judgment.
judgment.
3
Malkemus would receive approximately $700,000 in full satisfaction of
all claims against the chapter 7 estate and the chapter 7 trustee
would dismiss the counterclaim against Malkemus. Pursuant to
Bankruptcy Rules 2002(a)(3) and 9019(a), appellants Thompson and Kowal
were notified of the application to settle the adversary proceeding,
and filed written objection to the settlement accompanied by
objections to the Malkemus claims. Appellants objected to the
Malkemus claims on the ground that the probate court judgments were
invalid.** On December 3, 1990, following a hearing at which
appellant Kowal actively participated, the bankruptcy court approved
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**Appellants' written objections challenged the validity of the
**Appellants' written objections challenged the validity of the
Malkemus claims, and thus the soundness of the proposed settlement, on
Malkemus claims, and thus the soundness of the proposed settlement, on
numerous grounds. Appellants questioned the validity of the original
numerous grounds. Appellants questioned the validity of the original
and amended divorce judgments and, by extension, the contempt orders
and amended divorce judgments and, by extension, the contempt orders
premised on Thompson's alleged disregard of the divorce judgments, on
premised on Thompson's alleged disregard of the divorce judgments, on
the grounds that (1) the initial judgment was stayed by Malkemus'
the grounds that (1) the initial judgment was stayed by Malkemus'
timely motion to amend; (2) the amended divorce judgment did not
timely motion to amend; (2) the amended divorce judgment did not
formally incorporate the original divorce judgment or new findings of
formally incorporate the original divorce judgment or new findings of
fact; (3) the probate court award of attorney fees was unreasonable in
fact; (3) the probate court award of attorney fees was unreasonable in
amount; and (4) the probate court judgments resulted from a "pattern
amount; and (4) the probate court judgments resulted from a "pattern
of fraud and collusion" between Malkemus and the probate court judge.
of fraud and collusion" between Malkemus and the probate court judge.
As concerned the latter ground, appellants alleged that the probate
As concerned the latter ground, appellants alleged that the probate
judge had political and personal reasons for entering the judgments
judge had political and personal reasons for entering the judgments
against Thompson, and by denying appellants access to the probate
against Thompson, and by denying appellants access to the probate
court record the probate judge disabled Thompson from appealing the
court record the probate judge disabled Thompson from appealing the
probate court rulings.
probate court rulings.
Furthermore, appellants argued, even assuming the divorce
Furthermore, appellants argued, even assuming the divorce
judgments were valid, the coercive "contempt" decrees were not
judgments were valid, the coercive "contempt" decrees were not
enforceable since the divorce judgments did not contain sufficiently
enforceable since the divorce judgments did not contain sufficiently
clear terms to place appellant Thompson, the alleged contemnor, on
clear terms to place appellant Thompson, the alleged contemnor, on
notice that her conduct constituted contempt. In addition, since the
notice that her conduct constituted contempt. In addition, since the
various contempt decrees were subject to appeal, appellants urged the
various contempt decrees were subject to appeal, appellants urged the
bankruptcy court to delay hearing on the trustee's application for
bankruptcy court to delay hearing on the trustee's application for
approval of the settlement until their probate court appeals matured.
approval of the settlement until their probate court appeals matured.
Finally, appellants argued that the Malkemus attachment liens were
Finally, appellants argued that the Malkemus attachment liens were
rendered invalid under Massachusetts law for failure to execute or
rendered invalid under Massachusetts law for failure to execute or
levy within 30 days.
levy within 30 days.
4
the settlement of the adversary proceeding between the chapter 7
trustee and Malkemus.***
II
II
DISCUSSION
DISCUSSION
__________
Although appellants assert numerous jurisdictional and
constitutional challenges to the bankruptcy court order approving the
settlement of the adversary proceeding between the chapter 7 trustee
and Malkemus, we need address only their "standing" to appeal the
order. In re Dein Host, Inc., 835 F.2d 402, 404 (1st Cir. 1987)
_______________________
(court "duty bound" to determine appellate standing sua sponte)
___________
(citing Orr v. Orr, 440 U.S. 268, 271 (1979)). Appellants premise
___ ___
their right of appeal on (1) the bankruptcy court's disallowance of
their objections to the proposed settlement of the adversary
proceeding and (2) its implicit denial of their objections to the
Malkemus claims against the chapter 7 estate.
A. Standing to Appeal Settlement
A. Standing to Appeal Settlement
_____________________________
of Adversary Proceeding
of Adversary Proceeding
_______________________
Bankruptcy Rule 9019(a) provides that, "[o]n motion by the
trustee and after a hearing on notice to creditors, the United States
trustee, the debtor and indenture trustees as provided in Rule 2002
and to such other entities as the court may designate, the court may
____________________
***Contrary to appellants' contention, the December 3, 1990, order was
***Contrary to appellants' contention, the December 3, 1990, order was
not entered "against them"; in fact, it does not refer to them.
not entered "against them"; in fact, it does not refer to them.
5
approve a compromise or settlement." Fed. R. Bankr. P. 9019(a). All
"parties in interest," including the debtor, trustee, and creditors,
normally must be given twenty days' notice of the hearing on approval
of a compromise or settlement by the trustee. Fed. R. Bankr. P.
2002(a)(3). The general notice provisions in Bankruptcy Rule
2002(a)(3) enable interested entities to monitor the progress of the
bankruptcy case and to interpose timely opposition to the proposed
settlement. Appellants mistakenly presume, however, that their
entitlement to prior notification of the hearing on the approval of
the settlement of the adversary proceeding between the chapter 7
trustee and Malkemus ensured appellate standing to challenge the bank-
ruptcy court order entered over their objection after notice and
hearing.
Under the Bankruptcy Code of 1978, an adversary proceeding is a
subsidiary lawsuit within the larger framework of a bankruptcy case.
See Fed. R. Bankr. P. 7001.**** The parties to the instant
___
adversary proceeding were the chapter 7 trustee and Malkemus. The
opportunity broadly afforded all "parties in interest" to monitor the
administration of the bankruptcy case through the provision of notice
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****An adversary proceeding was commenced when the chapter 7 trustee
****An adversary proceeding was commenced when the chapter 7 trustee
joined his objection to the Malkemus proofs of claim with "a demand
joined his objection to the Malkemus proofs of claim with "a demand
for relief of the kind specified in Rule 7001." Fed. R. Bankr. P.
for relief of the kind specified in Rule 7001." Fed. R. Bankr. P.
3007. The chapter 7 trustee's counterclaim against Malkemus for
3007. The chapter 7 trustee's counterclaim against Malkemus for
breach of the separation agreement constituted a claim "to recover
breach of the separation agreement constituted a claim "to recover
money or property." Fed. R. Bankr. P. 7001(1).
money or property." Fed. R. Bankr. P. 7001(1).
6
under Bankruptcy Rule 2002(a)(3)***** does not confer on a debtor
or the individual creditors in a bankruptcy case the status of
"parties" to every adversary proceeding brought by or against the
chapter 7 trustee. Rather, the Bankruptcy Code and the Bankruptcy
Rules delimit the appellate standing of "parties in interest" under
Bankruptcy Rule 2002(a)(3) to challenge judgments entered in adversary
proceedings to which they were not proper parties.
In a typical civil case, there is a plaintiff and a
defendant, one of which loses at the trial level. It is
therefore unnecessary to set strict standards regarding
standing on appeal, because the person appealing is the party
to the action who lost below. On the other hand, bankruptcy
____________________
*****The commentary to Bankruptcy Rule 9019 suggests that the standing
*****The commentary to Bankruptcy Rule 9019 suggests that the standing
accorded "parties in interest" under Bankruptcy Rule 2002 is
accorded "parties in interest" under Bankruptcy Rule 2002 is
circumscribed. First, motions to compromise are to be "filed in the
circumscribed. First, motions to compromise are to be "filed in the
administrative file, as distinguished from the adversary proceeding
administrative file, as distinguished from the adversary proceeding
file, if the compromise comes about in the context of an adversary
file, if the compromise comes about in the context of an adversary
proceeding." William L. Norton, Jr., Norton Bankruptcy Law and
proceeding." William L. Norton, Jr., Norton Bankruptcy Law and
___________________________
Practice: Rules and Official Forms 845 (1990-91 ed.) (Fed. R. Bankr.
Practice: Rules and Official Forms 845 (1990-91 ed.) (Fed. R. Bankr.
___________________________________
P. 9019, editors' comment). Unlike an adversary proceeding, an
P. 9019, editors' comment). Unlike an adversary proceeding, an
administrative proceeding is warranted where the trustee's actions are
administrative proceeding is warranted where the trustee's actions are
essentially uncontested. See Lawrence D. King, 9 Collier on
essentially uncontested. See Lawrence D. King, 9 Collier on
___ ___________
Bankruptcy 9014-2-3 (15th ed. 1991) [hereinafter "Collier"]
Bankruptcy 9014-2-3 (15th ed. 1991) [hereinafter "Collier"]
__________ _______
(unopposed motion by trustee to sell property of the estate may be
(unopposed motion by trustee to sell property of the estate may be
handled in administrative proceeding). Although a creditor has the
handled in administrative proceeding). Although a creditor has the
right to object to a proposed compromise, objection will not preclude
right to object to a proposed compromise, objection will not preclude
court approval. In re A & C Properties, 784 F.2d 1377, 1382 (9th
court approval. In re A & C Properties, 784 F.2d 1377, 1382 (9th
________________________
Cir.), cert. denied sub nom. Martin v. Robinson, 474 U.S. 854 (1986);
Cir.), cert. denied sub nom. Martin v. Robinson, 474 U.S. 854 (1986);
____ ______ ___ ____ ______ ________
St. Paul Fire & Marine Ins. Co. v. Vaughn, 779 F.2d 1003, 1010 (4th
St. Paul Fire & Marine Ins. Co. v. Vaughn, 779 F.2d 1003, 1010 (4th
_________________________________ ______
Cir. 1985) (debtor's objection to settlement not controlling where
Cir. 1985) (debtor's objection to settlement not controlling where
settlement is in "best interests" of estate); In re Mobile Air
settlement is in "best interests" of estate); In re Mobile Air
__________________
Drilling Co., 53 B.R. 605, 607 (Bankr. N.D. Ohio 1985). The
Drilling Co., 53 B.R. 605, 607 (Bankr. N.D. Ohio 1985). The
_____________
commentary thus suggests that the right to notice normally accorded
commentary thus suggests that the right to notice normally accorded
all "parties in interest" under Bankruptcy Rules 2002(a)(3) and
all "parties in interest" under Bankruptcy Rules 2002(a)(3) and
9019(a) does not entail party status in the adversary proceeding to be
9019(a) does not entail party status in the adversary proceeding to be
settled or compromised. Second, the general notice requirement under
settled or compromised. Second, the general notice requirement under
Bankruptcy Rule 2002(a)(3) is not absolute, but can be dispensed with
Bankruptcy Rule 2002(a)(3) is not absolute, but can be dispensed with
"for cause shown." See In re Patel, 43 B.R. 500, 503-04 (N.D. Ill.
"for cause shown." See In re Patel, 43 B.R. 500, 503-04 (N.D. Ill.
___ ____________
1984).
1984).
7
litigation many times involves and affects the interests of
parties who are not formally parties to litigation . . . .
[Several] examples come immediately to mind: approval of a
________ __ _
compromise between a trustee and a third party, with an
__________ _______ _ _______ ___ _ _____ _____ ____ __
appeal taken by a creditor or by the debtor[] . . . . In none
______ _____ __ _ ________ __ __ ___ ______
of these instances [was] the . . . creditor[] [who is
appealing] or the debtor nominally a party. It might be said
that all of the creditors and the debtor are parties to every
order entered in a bankruptcy proceeding, but that does not
____ ____ ___
help in determining what parties have standing to take an
____ __ ___________ ____ _______ ____ ________ __ ____ __
appeal, because it would result in a rule that all parties
______
who are involved either directly, indirectly or tangentially
in the bankruptcy proceeding have the power to appeal from
almost any order entered by the bankruptcy judge.
Lawrence D. King, 9 Collier on Bankruptcy 8001.05, at 8001-12 (15th
_____________________
ed. 1991) (emphasis added) (citations omitted) [hereinafter
"Collier"].
_______
The formal procedural criteria for intervention prescribed in
Federal Rule of Civil Procedure 24 are made applicable to adversary
proceedings by virtue of Bankruptcy Rule 7024.****** Thus,
nonparty participation in an adversary proceeding is dependent on
intervention. See In re Latimer, 918 F.2d 136, 137 (10th Cir. 1990)
___ _____________
(debtor lacks standing to participate in adversary proceeding, absent
____________________
******Civil Rule 24(a) provides:
******Civil Rule 24(a) provides:
Upon timely application anyone shall be permitted to
Upon timely application anyone shall be permitted to
intervene in an action: (1) when a statute of the United
intervene in an action: (1) when a statute of the United
States confers an unconditional right to intervene; or (2)
States confers an unconditional right to intervene; or (2)
when the applicant claims an interest relating to the
when the applicant claims an interest relating to the
property or transaction which is the subject of the action
property or transaction which is the subject of the action
and the applicant is so situated that the disposition of the
and the applicant is so situated that the disposition of the
action may as a practical matter impair or impede the
action may as a practical matter impair or impede the
applicant's ability to protect that interest, unless the
applicant's ability to protect that interest, unless the
applicant's interest is adequately represented by existing
applicant's interest is adequately represented by existing
parties.
parties.
Fed. R. Civ. P. 24(a).
Fed. R. Civ. P. 24(a).
8
intervention), cert. denied, 112 S. Ct. 186 (1991).*******
____ ______
Permission to intervene as of right endows the intervenor with
appellate standing to challenge an adverse judgment entered in the
adversary proceeding. See, e.g., Karcher v. May, 484 U.S. 72, 77
___ ____ _______ ___
(1987) (while "[o]ne who is not an original party to a lawsuit may of
course become a party by intervention, substitution or third-party
practice, . . . we have consistently applied the rule that one who is
not a party or has not been treated as a party to a judgment has no
right to appeal") (Rule 24); Sandra Cotton, Inc. v. Bank of New York,
____________________ ________________
87 B.R. 272, 274 (W.D.N.Y. 1988) ("[w]ithout first having sought to
intervene in the [bankruptcy court, appellant] can not now be granted
standing to appear on the appeal").
Moreover, mere participation in a hearing on the approval of a
settlement or compromise in an adversary proceeding does not
constitute de facto intervention:
__ _____
[T]he fact that the appellants were given an opportunity to
be heard in the bankruptcy court does not provide a basis for
standing on appeal. . . . '[A]n interested party who had
taken part in the [compromise and settlement] proceedings and
had the right to intervene, but who had not formally done so,
____________________
*******The concentric arrangement of the various forms of proceedings
*******The concentric arrangement of the various forms of proceedings
within a bankruptcy case is reinforced in the Bankruptcy Rules. An
within a bankruptcy case is reinforced in the Bankruptcy Rules. An
entity asserting a protectable interest in an adversary proceeding,
entity asserting a protectable interest in an adversary proceeding,
yet not a "party in interest" to the larger bankruptcy case, must
yet not a "party in interest" to the larger bankruptcy case, must
first seek intervention in the bankruptcy case under Bankruptcy Rule
first seek intervention in the bankruptcy case under Bankruptcy Rule
2018. Whereas Bankruptcy Rule 7024 governs intervention in an
2018. Whereas Bankruptcy Rule 7024 governs intervention in an
adversary proceeding within the bankruptcy case. Thus, intervention
adversary proceeding within the bankruptcy case. Thus, intervention
must be separately permitted in the bankruptcy case and in an
must be separately permitted in the bankruptcy case and in an
adversary proceeding within the bankruptcy case. See In re Charter
adversary proceeding within the bankruptcy case. See In re Charter
___ _____________
Co., 50 B.R. 57, 61 (Bankr. W.D. Texas 1985); Fed. R. Bankr. P. 7024
Co., 50 B.R. 57, 61 (Bankr. W.D. Texas 1985); Fed. R. Bankr. P. 7024
___
advisory committee's note; 9 Collier 7024.01, at 7024-1.
advisory committee's note; 9 Collier 7024.01, at 7024-1.
________
9
was not capable of appealing, as such a party was not
properly on the record as an intervenor, and not being a
party to the record has no standing to appeal.
In re Central Ice Cream Co., 62 B.R. 357, 360 (N.D. Ill. 1986)
______________________________
(quoting In re South State Bldg. Corp., 140 F.2d 363, 367 (7th Cir.
_______________________________
1944)).********
A putative intervenor under Bankruptcy Rule 7024 must submit a
timely motion to intervene in the adversary proceeding, demonstrate a
direct and substantial interest which would be impaired were
intervention not permitted,********* and establish that its
____________________
********Similar limitations on participation by "parties in interest"
********Similar limitations on participation by "parties in interest"
are recognized elsewhere under the Code. Bankruptcy Code 1109(b),
are recognized elsewhere under the Code. Bankruptcy Code 1109(b),
11 U.S.C. 1109(b), which provides that "[a] party in interest,
11 U.S.C. 1109(b), which provides that "[a] party in interest,
including the debtor, the trustee [and] . . . a creditor . . ., may
including the debtor, the trustee [and] . . . a creditor . . ., may
raise and may appear and be heard on any issue in a case under
raise and may appear and be heard on any issue in a case under
[chapter 11]," does not afford a right to intervene under Rule
[chapter 11]," does not afford a right to intervene under Rule
24(a)(1), even though such "parties in interest" enjoy the general
24(a)(1), even though such "parties in interest" enjoy the general
right to "monitor" the progress of the chapter 11 case. See, e.g.,
right to "monitor" the progress of the chapter 11 case. See, e.g.,
___ ____
Fuel Oil Supply & Terminaling v. Gulf Oil Corp., 762 F.2d 1283, 1286-
Fuel Oil Supply & Terminaling v. Gulf Oil Corp., 762 F.2d 1283, 1286-
_____________________________ ______________
87 (5th Cir. 1985) (creditors' committee possesses no statutory right
87 (5th Cir. 1985) (creditors' committee possesses no statutory right
to intervene, but must establish lack of adequate representation); In
to intervene, but must establish lack of adequate representation); In
__
re Charter, 50 B.R. at 62-64. But cf. In re Neuman, 124 B.R. 155,
re Charter, 50 B.R. at 62-64. But cf. In re Neuman, 124 B.R. 155,
___________ ___ ___ _____________
157-60 (S.D.N.Y. 1991) (rejecting Fuel Oil analysis, and finding
157-60 (S.D.N.Y. 1991) (rejecting Fuel Oil analysis, and finding
_________
congressional intent to confer absolute statutory right of
congressional intent to confer absolute statutory right of
intervention by enactment of section 1109(b)).
intervention by enactment of section 1109(b)).
*********Generally speaking, a nonparty lacks appellate standing in
*********Generally speaking, a nonparty lacks appellate standing in
bankruptcy proceedings unless the nonparty is a "person aggrieved" by
bankruptcy proceedings unless the nonparty is a "person aggrieved" by
the challenged order. See In re El San Juan Hotel, 809 F.2d 151, 154
the challenged order. See In re El San Juan Hotel, 809 F.2d 151, 154
___ ________________________
(1st Cir. 1987); In re Fondiller, 707 F.2d 441, 443 (9th Cir. 1983); 9
(1st Cir. 1987); In re Fondiller, 707 F.2d 441, 443 (9th Cir. 1983); 9
_______________
Collier 8001.05, at 8001-11. The term "person aggrieved" delimits
Collier 8001.05, at 8001-11. The term "person aggrieved" delimits
_______
appellate standing to "those persons whose rights or interests are
appellate standing to "those persons whose rights or interests are
'directly and adversely affected pecuniarily' by the order or decree.
'directly and adversely affected pecuniarily' by the order or decree.
. . ." In re El San Juan Hotel, 809 F.2d at 154 (quoting In re
. . ." In re El San Juan Hotel, 809 F.2d at 154 (quoting In re
_________________________ ______
Fondiller, 707 F.2d at 442-43); see also In re Dein Host, 835 F.2d at
Fondiller, 707 F.2d at 442-43); see also In re Dein Host, 835 F.2d at
_________ ___ ____ _______________
403; In re Cosmopolitan Aviation Corp., 763 F.2d 507, 513 (2d Cir.
403; In re Cosmopolitan Aviation Corp., 763 F.2d 507, 513 (2d Cir.
__________________________________
1985), cert. denied, 474 U.S. 1032 (1986); In re Goodwin's Discount
1985), cert. denied, 474 U.S. 1032 (1986); In re Goodwin's Discount
____ ______ _________________________
Furniture, Inc., 16 B.R. 885, 888 (Bankr. 1st Cir. 1982). The "person
Furniture, Inc., 16 B.R. 885, 888 (Bankr. 1st Cir. 1982). The "person
_______________
aggrieved" standard substantially replicates the procedural requisites
aggrieved" standard substantially replicates the procedural requisites
10
interest is inadequately represented by existing parties. Caterino v.
________
Barry, 922 F.2d 37, 39-40 (1st Cir. 1990) (Rule 24); Amoco Oil Co. v.
_____ _____________
Dingwell, 690 F. Supp. 78, 81 (D. Me. 1988), aff'd sub. nom. Travelers
________ _______________ _________
Indem. Co. v. Dingwell, 884 F.2d 629 (1st Cir. 1989) (Rule
___________ ________
24).**********
Although the burden of demonstrating inadequate representation
remains with the putative intervenor throughout, see Jansen v.
___ ______
Cincinnati, 904 F.2d 336, 342-43 (6th Cir. 1990) (Rule 24); Dimond v.
__________ ______
District of Columbia, 792 F.2d 179, 192 (D.C. Cir. 1986), it is at its
____________________
most onerous where an existing party is under a legal obligation to
represent the interests asserted by the putative intervenor:
In the situation where one of the duties of the existing
parties is to represent the interests of the intervenor,
intervention will not be allowed unless a compelling showing
__________ _______
of inadequate representation is made. Application of this
principle in the bankruptcy context can be seen in those
cases holding that unsecured creditors seeking to intervene
_________ _________ _______ __ _________
in adversary proceedings begun by the trustee have 'a heavy
__ _________ ___________ _____ __ ___ _______ ____ _ _____
____________________
for intervention under Bankruptcy Rules 2018 and 7024, with a view to
for intervention under Bankruptcy Rules 2018 and 7024, with a view to
determining whether a nonparty appellant, whose interests were likely
determining whether a nonparty appellant, whose interests were likely
________
not represented by existing parties, and who may not have been
not represented by existing parties, and who may not have been
afforded prior notice, could have demonstrated so significant an
afforded prior notice, could have demonstrated so significant an
unrepresented interest as to require intervention.
unrepresented interest as to require intervention.
**********Absent intervention of right under Rule 24(a), permissive
**********Absent intervention of right under Rule 24(a), permissive
intervention is allowable under Fed. R. Civ. P. 24(b) if it is
intervention is allowable under Fed. R. Civ. P. 24(b) if it is
determined that (1) "the applicant's claim or defense and the main
determined that (1) "the applicant's claim or defense and the main
action have a question of law or fact in common," (2) the applicant's
action have a question of law or fact in common," (2) the applicant's
interests are not adequately represented by an existing party, and (3)
interests are not adequately represented by an existing party, and (3)
___
intervention would not result in undue delay or prejudice to the
intervention would not result in undue delay or prejudice to the
original parties. See In re Ionosphere Clubs, Inc., 101 B.R. 844,
original parties. See In re Ionosphere Clubs, Inc., 101 B.R. 844,
___ ______________________________
853-54 (Bankr. S.D.N.Y. 1989). As we conclude that appellants'
853-54 (Bankr. S.D.N.Y. 1989). As we conclude that appellants'
cognizable legal interests were adequately represented by the chapter
cognizable legal interests were adequately represented by the chapter
7 trustee, it is unnecessary to deal with the requisites for
7 trustee, it is unnecessary to deal with the requisites for
permissive intervention.
permissive intervention.
11
burden' to show inadequacy of representation.
______ __ ____ __________ __ ______________
9 Collier 7024.05, at 7024-7. The presumption of adequacy that
_______
attaches to representation undertaken in the performance of a
fiduciary duty is not overborne by mere conclusory speculation.
Moosehead Sanitary Dist. v. S.G. Phillips Corp., 610 F.2d 49, 54 (1st
_________________________ ___________________
Cir. 1979) (Rule 24); see also League of United Latin American
___ ____ __________________________________
Citizens v. Clements, 884 F.2d 185, 189 (5th Cir. 1989) (Rule 24).
________ ________
Rather, the putative intervenor must assert concrete facts which
________
demonstrate that (1) the existing representation of the putative
intervenor's interests is inhibited by the personal interests of the
existing representative, (2) the existing representative and the
opposing party are engaged in collusive activities, or (3) the
existing representative has failed or refused to fulfill the fiduciary
duty to protect the interests asserted by the putative intervenor.
Cf. Heyman v. Exchange Nat'l Bank, 615 F.2d 1190, 1194 (7th Cir. 1980)
___ ______ ___________________
(debtor did not meet "heavy burden" of proving inadequacy of chapter 7
trustee's representation in adversary proceeding for the recovery of
voidable preference); In re DeLap, 44 B.R. 21, 22 (W.D. Wis. 1984) (no
___________
intervention of right by general creditor in adversary proceeding to
set aside preferential transfer where "heavy burden" of proving
inadequacy of trustee's representation is not met); In re Baker, 22
____________
B.R. 791, 792-93 (Bankr. D. Md. 1982) (no right to intervene in
adversary proceeding where trustee was under "legal bond" and "duty"
to represent creditors properly and individual creditor "made no
12
showing that he [was] not being represented properly."); see also
___ ____
Purnell v. Akron, 925 F.2d 941, 949-50 (6th Cir. 1991) (Rule 24);
_______ _____
Bradley v. Milliken, 828 F.2d 1186, 1192 (6th Cir. 1987) (Rule 24);
_______ ________
Bottoms v. Dresser Indus., Inc., 797 F.2d 869, 872 (10th Cir. 1986)
_______ _____________________
(Rule 24); 7A Charles A. Wright & Arthur R. Miller, Federal Practice &
__________________
Procedure 1909 [hereinafter "Wright & Miller"].
_________ _______________
Leaving aside several problematic requirements of proof under
Bankruptcy Rule 7024,*********** including the establish-
____________________
***********There is no indication that the bankruptcy court ever
***********There is no indication that the bankruptcy court ever
regarded either appellant as a would-be intervenor or accorded either
regarded either appellant as a would-be intervenor or accorded either
appellant party status in the adversary proceeding. In an adversary
appellant party status in the adversary proceeding. In an adversary
proceeding, more so than in the conventional contested matter,
proceeding, more so than in the conventional contested matter,
existing parties are entitled to expect reasonable compliance with
existing parties are entitled to expect reasonable compliance with
procedural rules. See Shevlin v. Schewe, 809 F.2d 447, 450 (7th Cir.
procedural rules. See Shevlin v. Schewe, 809 F.2d 447, 450 (7th Cir.
___ _______ ______
1987) (intervenor may not entirely ignore Rule 24(a) procedural
1987) (intervenor may not entirely ignore Rule 24(a) procedural
requirements, particularly where parties settle case in meantime); In
requirements, particularly where parties settle case in meantime); In
__
re Beard, 112 B.R. 951, 954-55 (Bankr. N.D. Ind. 1990) (Rule 7024)
re Beard, 112 B.R. 951, 954-55 (Bankr. N.D. Ind. 1990) (Rule 7024)
________
(same, contrasting adversary proceedings and contested matters); cf.
(same, contrasting adversary proceedings and contested matters); cf.
___
In re Bicoastal Corp., 122 B.R. 771, 774 (Bankr. M.D. Fla. 1990)
In re Bicoastal Corp., 122 B.R. 771, 774 (Bankr. M.D. Fla. 1990)
_______________________
(formal intervention required under Rule 7024 not applicable to
(formal intervention required under Rule 7024 not applicable to
contested matters). A request for leave to intervene under Bankruptcy
contested matters). A request for leave to intervene under Bankruptcy
Rule 7024(c) must meet several formal criteria: (1) it must be by
Rule 7024(c) must meet several formal criteria: (1) it must be by
motion served on the existing parties pursuant to Fed. R. Civ. P. 5;
motion served on the existing parties pursuant to Fed. R. Civ. P. 5;
(2) the motion must state the grounds for intervention; and (3) the
(2) the motion must state the grounds for intervention; and (3) the
motion must be accompanied by a pleading setting forth the claim or
motion must be accompanied by a pleading setting forth the claim or
defense to be asserted on intervention. Fed. R. Bankr. P. 7024(c).
defense to be asserted on intervention. Fed. R. Bankr. P. 7024(c).
See also Wright & Miller, 1914.
See also Wright & Miller, 1914.
___ ____ _______________
It is clear from their written submissions that appellants never
It is clear from their written submissions that appellants never
contemplated a formal motion to intervene. Appellants merely
contemplated a formal motion to intervene. Appellants merely
requested a "continuation and broadening of the present proceeding to
requested a "continuation and broadening of the present proceeding to
permit [them] and others to contest in an evidentiary hearing
permit [them] and others to contest in an evidentiary hearing
Malkemus' claims and debts to the estate." Nevertheless, given the
Malkemus' claims and debts to the estate." Nevertheless, given the
policy favoring liberal intervention under Rule 24, on occasion courts
policy favoring liberal intervention under Rule 24, on occasion courts
have treated technically deficient applications as informal motions to
have treated technically deficient applications as informal motions to
intervene. See, e.g., Farina v. Mission Inv. Trust, 615 F.2d 1068,
intervene. See, e.g., Farina v. Mission Inv. Trust, 615 F.2d 1068,
___ ____ ______ ___________________
1075 (5th Cir. 1980). For present purposes, therefore, we assume
1075 (5th Cir. 1980). For present purposes, therefore, we assume
arguendo, without deciding whether the same degree of liberality
arguendo, without deciding whether the same degree of liberality
________
should obtain under Bankruptcy Rule 7024, that appellants' request was
should obtain under Bankruptcy Rule 7024, that appellants' request was
an informal motion to intervene, and we turn to a consideration of its
an informal motion to intervene, and we turn to a consideration of its
sufficiency.
sufficiency.
13
ment of a "significantly protectable interest" in the settlement of
the adversary proceeding,************ we conclude that
appellants in any event failed to allege concrete facts from which the
bankruptcy court could have inferred either a conflict of interest,
collusion, or nonfeasance on the part of the chapter 7 trustee.
First, appellants do not assert that the chapter 7 trustee had a
personal financial interest in the terms of the settlement, let alone
an interest adverse to the chapter 7 estate. Second, their veiled
allegations of fraud and collusion are all directed at the probate
court proceedings and participants, not at the chapter 7 trustee.
See, e.g., Point Pleasant Canoe Rental, Inc. v. Tinicum Township, 110
___ ____ _________________________________ ________________
F.R.D. 166, 169 (E.D. Pa. 1986) (to establish collusion, intervenor
____________________
************Under Bankruptcy Rule 7024, the putative intervenor must
************Under Bankruptcy Rule 7024, the putative intervenor must
show that he has a "significantly protectable interest" in the
show that he has a "significantly protectable interest" in the
adversary proceeding. See Donaldson v. United States, 400 U.S. 517,
adversary proceeding. See Donaldson v. United States, 400 U.S. 517,
___ _________ _____________
581 (1971) (Rule 24). A chapter 7 debtor generally is not considered
581 (1971) (Rule 24). A chapter 7 debtor generally is not considered
a "person aggrieved," as she lacks a pecuniary interest in the
a "person aggrieved," as she lacks a pecuniary interest in the
"property of the estate." In re El San Juan Hotel, 809 F.2d at 154-
"property of the estate." In re El San Juan Hotel, 809 F.2d at 154-
________________________
55; cf. 9 Collier, 8001.05, at 8001-12 n. 2b (chapter 7 debtor is
55; cf. 9 Collier, 8001.05, at 8001-12 n. 2b (chapter 7 debtor is
___ _______
insolvent, while chapter 11 debtor may have standing if plan
insolvent, while chapter 11 debtor may have standing if plan
contemplates reorganization of ongoing business); but cf. Heyman, 615
contemplates reorganization of ongoing business); but cf. Heyman, 615
___ ___ ______
F.2d at 1194 ("[chapter 7 debtor's] interest in a maximum recovery . .
F.2d at 1194 ("[chapter 7 debtor's] interest in a maximum recovery . .
. may differ in size, but not in kind from the interest of every other
. may differ in size, but not in kind from the interest of every other
creditor . . . where recovery of assets depends on a trustee's
creditor . . . where recovery of assets depends on a trustee's
diligence"). There are two exceptions: (1) if the debtor can show
diligence"). There are two exceptions: (1) if the debtor can show
that a successful appeal would generate assets in excess of
that a successful appeal would generate assets in excess of
liabilities, entitling the debtor to a distribution of surplus under
liabilities, entitling the debtor to a distribution of surplus under
Bankruptcy Code 726(a)(6), 11 U.S.C. 726(a)(6), see In re
Bankruptcy Code 726(a)(6), 11 U.S.C. 726(a)(6), see In re
___ ______
Cooperativa Cafeteros, 37 B.R. 952, 955 (D. P.R. 1984), or (2) the
Cooperativa Cafeteros, 37 B.R. 952, 955 (D. P.R. 1984), or (2) the
______________________
order appealed from affects the terms of the debtor's discharge in
order appealed from affects the terms of the debtor's discharge in
bankruptcy. Id. at 955 n.6. Although appellant Thompson, the chapter
bankruptcy. Id. at 955 n.6. Although appellant Thompson, the chapter
___
7 debtor, asserts that she could establish a surplus of assets if
7 debtor, asserts that she could establish a surplus of assets if
afforded an evidentiary hearing, she concedes that she made no attempt
afforded an evidentiary hearing, she concedes that she made no attempt
to demonstrate a potential surplus, either before the bankruptcy court
to demonstrate a potential surplus, either before the bankruptcy court
or in her appellate brief.
or in her appellate brief.
14
must demonstrate fraud, the use of fraudulent means, or the use of
lawful means to achieve an unlawful purpose).
Finally, appellants contend that the chapter 7 trustee refused to
perform various fiduciary duties imposed by the Bankruptcy Code.
Appellants argue that the settlement of the adversary proceeding
amounted to an improvident abandonment of property of the chapter 7
estate, see Bankruptcy Code 554(a), 11 U.S.C. 554(a), and a
___
failure and refusal by the chapter 7 trustee to act in the best
interests of the estate and "to act diligently [and] properly."
Additionally, appellants fault the chapter 7 trustee for failing to
"conduct effective discovery" or to "master the facts and claims" and
for not allowing appellants to attend and participate at important
discovery proceedings.
Appellants' conclusory assertions fall far short of the
creditable demonstration of fiduciary nonfeasance required to
establish lack of adequate representation. First, we strongly
disagree with their characterization of the challenged settlement as a
dereliction of fiduciary duty on the part of the chapter 7 trustee.
The trustee objected to the Malkemus claims, initiated an adversary
proceeding for affirmative relief, conducted extensive pretrial
discovery and litigated through two days of trial. Second, the
chapter 7 trustee proposed to settle the litigation, not to abandon or
______
withdraw all objections to the Malkemus claims. If a would-be
intervenor bears a "heavy burden" in circumstances where the trustee
proposes an outright relinquishment of all claims for relief in an
15
adversary proceeding, see, e.g., In re DeLap, 44 B.R. at 22 (unsecured
___ ____ ___________
creditor not entitled to intervene as of right where "subsequent legal
research convinced the Trustee" that transfer was not a voidable
preference, thereby warranting stipulation of dismissal), the
impediments to intervention in a case where the proposed compromise
results in substantial recoveries for the benefit of the chapter 7
estate are necessarily steepened. The chapter 7 trustee's prosecution
and settlement of the adversary proceeding with Malkemus worked a
substantial reduction, approximating not less than $175,000, in the
Malkemus claims against the chapter 7 estate, which the trustee
reasonably expected would permit payment of a 15-20% dividend to
holders of allowed unsecured claims, including appellant Kowal.
Appellants allege a lack of perseverance on the part of the
chapter 7 trustee, but we are unable to conclude that more would have
been required in the exercise of due diligence. Their objections to
the settlement are premised almost entirely on the decidedly problema-
tic contention that the underlying divorce judgment and "contempt"
decrees obtained by Malkemus were either tainted by fraud or subject
to reversal on appeal. As the bankruptcy court noted, however, their
vaunted appeals had been languishing in the state courts for between
two and four years prior to the settlement
hearing.************* Furthermore, the chapter 7 trustee
____________________
*************Moreover, as the chapter 7 trustee suggested to the
*************Moreover, as the chapter 7 trustee suggested to the
bankruptcy court, appellants' commitment to the efficient and
bankruptcy court, appellants' commitment to the efficient and
expeditious administration of the chapter 7 estate appears to have
expeditious administration of the chapter 7 estate appears to have
left something to be desired:
left something to be desired:
16
represented to the court at the settlement hearing that he had con-
cluded, based on an independent review, that the probate court judg-
ments were founded on "unassailable findings of fact." Thus, armed
only with a counterclaim for breach of the separation agreement,
predicated on appellant Thompson's allegations of misconduct by
Malkemus' in their divorce action, the chapter 7 trustee cannot
reasonably be faulted for compromising and settling objections to
claims grounded in facially valid judgments rendered in favor of
Malkemus by a state court of competent jurisdiction.
The baseline for appellants' opposition to the proposed
settlement rests in their readiness to second-guess the informed
judgment of the chapter 7 trustee, as well as the discretionary
determination of the bankruptcy court, that continued litigation would
not result in a net benefit to the chapter 7 estate. As the chapter 7
trustee is charged with the fiduciary duty to administer the chapter 7
estate expeditiously in the best interests of the estate, see In re
___ ______
Riverside-Linden Inv. Co., 925 F.2d 320, 322 (9th Cir. 1991)
___________________________
("trustee's duty to expeditiously close the estate [is] his 'main'
duty"); Bankruptcy Code 704(1), 11 U.S.C. 704(1), (duties of
trustee), the important policy favoring efficient bankruptcy admini-
stration normally will warrant judicial recognition that the chapter 7
____________________
We were presented with probably the most difficult probate
We were presented with probably the most difficult probate
record, in fact, when we asked the debtor and their counsel
record, in fact, when we asked the debtor and their counsel
early on, "Are you divorced?" They couldn't even give us an
early on, "Are you divorced?" They couldn't even give us an
answer, believe it or not. We sent a letter to the Probate
answer, believe it or not. We sent a letter to the Probate
Court, and I received very quickly, a judgment back saying
Court, and I received very quickly, a judgment back saying
they were divorced in 1986 or '87.
they were divorced in 1986 or '87.
17
trustee, as the duly appointed or elected representative of all
___
unsecured creditors, rather than the chapter 7 debtor or an individual
creditor, is the more appropriate arbiter of the "best interests" of
the chapter 7 estate.
Furthermore, a chapter 7 trustee, like other fiduciaries engaged
in complex litigation, realistically cannot be required to demonstrate
to the satisfaction of every individual creditor and the debtor, or to
any compelling degree of certitude, that the settlement benefit to the
chapter 7 estate and the value of the settled claim comprise a matched
set. Rather, a chapter 7 trustee is required to reach an informed
judgment, after diligent investigation, as to whether it would be
prudent to eliminate the inherent risks, delays and expense of
prolonged litigation in an uncertain cause. Appellants have made no
creditable demonstration to the contrary.
An unguarded conferral of nonparty standing to appeal settlement
________
orders entered in an adversary proceeding, after a full and fair
opportunity to all "parties in interest" to assert their opposition,
see Fed. R. Bankr. P. 2002(a)(3), would thwart the longstanding policy
___
of according due deference to bankruptcy court decisions governing the
orderly administration of the chapter 7 estate, see, e.g., In re
___ ____ _____
Weston, 110 B.R. 452, 458 (E.D. Cal. 1989) (bankruptcy court order
______
approving a compromise or settlement is reviewed for abuse of
discretion), and frustrate the traditional policies favoring com-
promise, see In re A & C Properties, 784 F.2d at 1381; see also 9
___ _______________________ ___ ____
Collier 9010.03, at 9019-3, and expeditious administration in
_______
18
bankruptcy cases, see In re Carla Leather, Inc., 44 B.R. 457, 472
___ ___________________________
(S.D. N.Y. 1984) (trustee's duty to investigate facts relating to
pending litigation is circumscribed by "concurrent duties of
expeditiously liquidating the estate and avoiding all unreasonable
expense," and "trustee is to exercise prudence and at the same time be
in a position so as to act on a settlement opportunity when that
opportunity arises.").
This rule of appellate standing is necessary to insure that
bankruptcy proceedings are not unreasonably delayed by
protracted litigation that does not serve the interests of
either the bankrupt's estate or its creditors. The nature of
bankruptcy litigation, with its myriad of parties, directly
and indirectly involved or affected by each order and deci-
sion of the bankruptcy court, mandates that the right of
appellate review be limited to those persons whose interests
are directly affected.
In re El San Juan Hotel, 809 F.2d at 154. See In re Carbide Cutoff,
_______________________ ___ ______________________
Inc., 703 F.2d 259, 264 (2d Cir. 1983) (the general rule regarding
____
appellate standing in bankruptcy proceedings, "followed by this and
other circuits," accords appellate standing to the trustee rather than
individual unsecured creditors and "facilitates the 'orderly
administration of . . . [debtor] estates.'" (citing In re Tyne, 261
__________
F.2d 249, 251 (7th Cir. 1958)); In re Schultz Manufacturing &
_________________________________
Fabricating Co., 110 B.R. 384, 388-89 (N.D. Ind. 1990) (individual
_______________
creditors lack appellate standing where chapter 7 trustee, as proper
party to adversary proceeding, refuses to challenge its settlement);
In re Central Ice Cream Co., 62 B.R. at 361 ("only the Trustee has
____________________________
standing to appeal from a bankruptcy court order on behalf of
19
creditors' rights."); cf. In re Blumer, 66 B.R. 109, 112 (Bankr. 9th
___ ____________
Cir. 1986) (unsecured creditor possesses standing to appeal section
364 order authorizing chapter 11 trustee to obtain unsecured credit in
ordinary course of business). But see In re Carbide, 703 F.2d at 266
___ ___ _____________
(unnecessary to invoke general rule and deny appellate standing to
non-trustee, provided it is clear that the bankruptcy court
specifically accorded appellant the inherent and collateral authority
to appeal).
It is important to note that the interests of the chapter 7
estate, as represented by the chapter 7 trustee, are not coextensive
with the interests of the chapter 7 debtor. Securing the settlement
in hand surely and directly benefitted the chapter 7 estate and its
unsecured creditors, including appellant Kowal, whereas it brought no
direct financial benefit to the chapter 7 debtor. Conversely, a
prolongation of the Malkemus adversary proceeding, as appellants urge,
inevitably would entail relinquishment of the settlement in hand in
favor of the more amorphous and elusive litigation prospects in the
bush.
The chapter 7 trustee made an informed judgment that the proposed
settlement of the Malkemus adversary proceeding would be in the best
interests of the chapter 7 estate and all its creditors. Considering
their radically diverse perspectives, it is not surprising that
appellants are attracted by the glitter of further litigation financed
at the expense of the chapter 7 estate, whereas the chapter 7 trustee
spurned the prospects of further litigation in favor of the settlement
20
offer. Moreover, it is apparent that appellants' intuitive confidence
in their own ability to outguess the chapter 7 trustee's settlement
decision, as well as the bankruptcy court's settlement order, has more
than a mite to do with the insignificance of their stake in the
settlement. Thus, appellants' purpose is inapposite to the duty
imposed on a chapter 7 trustee under the Code, since it is not so much
the interests of the chapter 7 estate, as it is their self-interest,
which appellants would have the chapter 7 trustee champion by refusing
to settle the Malkemus litigation.
We conclude, therefore, that appellants have demonstrated neither
nonfeasance nor misfeasance in the performance of the chapter 7
trustee's fiduciary duty to the chapter 7 estate and its creditors.
Accordingly, appellants were not entitled to intervene in the Malkemus
adversary proceeding and lack appellate standing to challenge the
settlement order.
B. Standing to Appeal Dismissal of
B. Standing to Appeal Dismissal of
_______________________________
Objections to Malkemus Claims
Objections to Malkemus Claims
_____________________________
Finally, notwithstanding that the settlement order contemplates a
partial allowance of the Malkemus claims, appellants were not relieved
of the requirement to intervene in the adversary proceeding merely by
virtue of their written objections to the Malkemus
claims.**************
____________________
**************An objection to a proof of claim, without more, merely
**************An objection to a proof of claim, without more, merely
commences a contested matter, not an adversary proceeding. In re
commences a contested matter, not an adversary proceeding. In re
_____
Beard, 112 B.R. at 955.
Beard, 112 B.R. at 955.
_____
21
Bankruptcy Code 502(a), 11 U.S.C. 502(a), provides that any
proof of claim "is deemed allowed, unless a party in interest . . .
objects." Unlike a proof of claim, which must be filed before the bar
date, an objection to a proof of claim may be filed at any time. See,
___
e.g., In re Kolstad, 928 F.2d 171, 174 (5th Cir.), cert. denied, 112
____ _____________ ____ ______
S. Ct. 419 (1991). Nevertheless,
"the needs of orderly and expeditious administration do not
permit the full and unfettered exercise of [a creditor's]
right to object to the allowance of another creditor's claim.
The most important qualification attached to the right of a
creditor to object is that it is the trustee who acts as the
spokesman for all the creditors in discharge of the trustee's
duty unless the trustee refuses to take action."
_______ __ ____ ______
In re Morrison, 69 B.R. 586, 589 (Bankr. E.D. Pa. 1987) (emphasis
_______________
added) (citing 3 Collier 502.1, at 502-13) (although unsecured
_______
creditor probably lacked standing to object to claim, objection dis-
missed on alternate ground); In re Werth, 54 B.R. 619, 622 (D. Colo.
___________
1985) (no res judicata effect attached to compromise in bankruptcy
___ ________
case where only the trustee possessed standing to object to claims);
Fed. R. Bankr. P. 3007 advisory committee's note.
As a general rule, absent leave of court, the chapter 7 trustee
alone may interpose objections to proofs of claim. Leave to object is
not generally accorded an individual creditor unless the chapter 7
trustee refuses to object, notwithstanding a request to do so, and the
bankruptcy court permits the creditor to object in the trustee's
stead. See Bankruptcy Code 704(5), 11 U.S.C. 704(5), ("if a
___
purpose would be served, [the trustee shall] examine proofs of claim
22
and object to the allowance of any claim that is improper."); see also
___ ____
In re Dominelli, 820 F.2d 313, 317 (9th Cir. 1987) (trustee "optimal
________________
party" to object); In re Weeks, Thomas & Lysaught, Chartered, 97 B.R.
_________________________________________
46, 47 (D. Kan. 1988) (once trustee is appointed, debtor may not
object to claims as a "party in interest"); In re Charter Co., 68 B.R.
_________________
225, 227 (Bankr. M.D. Fla. 1986); In re Fox, 64 B.R. 148, 151 (Bankr.
_________
N.D. Ohio 1986) (although a creditor is a "party in interest" under
section 502, "needs of efficient administration" require that trustee
control); In re Mobile Air Drilling, 53 B.R. at 608-09; In re Parker
__________________________ ____________
Montana Co., 47 B.R. 419, 421 (D. Mont. 1985) (as the representative
____________
for the chapter 7 estate, the trustee is the proper party to bring
action for equitable subordination); In re Silverman, 37 B.R. 200, 201
_______________
(S.D.N.Y. 1982) (chapter 7 debtor may object to claim only if
disallowance would result in estate surplus). But cf. In re Parker
___ ___ _____________
Montana, 47 B.R. at 421-22 (secured creditors generally enjoy standing
_______ _______
to object to unsecuredclaims without firstrequesting trustee to doso).
The chapter 7 trustee did not decline or refuse to challenge the
Malkemus claims. Rather, the trustee objected to the Malkemus claims
and counterclaimed for affirmative relief in behalf of the chapter 7
estate. The ensuing adversary proceeding settlement significantly
benefitted the chapter 7 estate and all its general creditors. That
it did not result in an estate surplus for appellant Thompson, the
chapter 7 debtor, is not only unsurprising in a liquidation proceeding
but also immaterial except insofar as it tends to corroborate the
absence of a direct pecuniary interest on the part of the chapter 7
23
debtor in the allowability of the Malkemus claims. See In re
___ ______
Vreugdenhil, 773 F.2d 213, 215 (8th Cir. 1985) (unless there has been
___________
an abandonment of the encumbered property by the trustee, the chapter
7 debtor lacks standing to challenge the validity or priority of
encumbrances).
III
III
CONCLUSION
CONCLUSION
__________
Absent a compelling showing that the chapter 7 trustee failed or
refused to perform a fiduciary duty imposed by the Bankruptcy Code,
once the trustee arrives at an informed judgment that further
prosecution of an objection to a proof of claim would be unavailing or
counterproductive to the chapter 7 estate, the chapter 7 debtor and an
individual unsecured creditor are without appellate standing to
challenge a bankruptcy court order approving a compromise or
settlement of the claim-related litigation. As appellants were not
entitled to intervene in the adversary proceeding, nor participate in
a contested matter in lieu of the chapter 7
trustee,*************** they lack standing to appeal
____________________
***************Of course, unsecured creditors, as well as the chapter
***************Of course, unsecured creditors, as well as the chapter
7 debtor, enjoy limited participatory rights short of formal
7 debtor, enjoy limited participatory rights short of formal
intervention. First, as previously noted, the chapter 7 debtor and
intervention. First, as previously noted, the chapter 7 debtor and
creditors normally are entitled to notice of any administrative
creditors normally are entitled to notice of any administrative
proceeding conducted on the approval of a compromise or settlement.
proceeding conducted on the approval of a compromise or settlement.
Fed. R. Bankr. P. 9019(a), 2002(a)(3). See also In re Baker, 22
Fed. R. Bankr. P. 9019(a), 2002(a)(3). See also In re Baker, 22
___ ____ ____________
B.R. at 793 (creditor denied leave to intervene may file amicus brief
B.R. at 793 (creditor denied leave to intervene may file amicus brief
below). Second, creditors may petition the bankruptcy court to remove
below). Second, creditors may petition the bankruptcy court to remove
the trustee "for cause." See Bankruptcy Code 324, 11 U.S.C. 324.
the trustee "for cause." See Bankruptcy Code 324, 11 U.S.C. 324.
___
Finally, an action may lie to surcharge a trustee's bond for failure
Finally, an action may lie to surcharge a trustee's bond for failure
to discharge statutory duties. See Bankruptcy Code 322, 11 U.S.C.
to discharge statutory duties. See Bankruptcy Code 322, 11 U.S.C.
___
24
the settlement order.
Appeal dismissed.
________________
____________________
322; see also In re San Juan Hotel Corp., 847 F.2d at 937.
322; see also In re San Juan Hotel Corp., 847 F.2d at 937.
___ ____ __________________________
25