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In re Capital Contracting Co.

United States Court of Appeals, Sixth Circuit

May 21, 2019

In Re: Capital Contracting Company, Debtor.
Kenneth A. Nathan, Trustee, Appellee. Carl F. Schier PLC, Appellant,

          Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:18-cv-11227-Denise Page Hood, Chief District Judge.

          United States Bankruptcy Court for the Eastern District of Michigan at Detroit; No. 2:14-bk-58920-Mark A. Randon, Judge.

         ON BRIEF:

          Carl F. Schier, CARL F. SCHIER PLC, Ypsilanti, Michigan, for Appellant.

          Howard S. Sher, JACOB & WEINGARTEN, P.C., Southfield, Michigan, for Appellee.

          Before: MOORE, SUTTON, and MURPHY, Circuit Judges.



         Explaining that "jurisdiction" "is a word of many, too many, meanings," the Supreme Court in recent years has criticized the cavalier way in which earlier cases invoked the term. Arbaugh v. Y&H Corp., 546 U.S. 500, 510 (2006) (citation omitted). The Court has sought to clarify the divide between truly jurisdictional requirements (those that concern whether a court has the power to resolve a dispute) and non-jurisdictional merits requirements (those that concern whether a party has asserted a valid claim). Id. at 510-12. The decision in Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014)-which jettisoned the label "prudential standing"-suggests that the Court has started down the same path for the word "standing." Id. at 125. In this case, a bankruptcy court held that a law firm lacked standing to object to a trustee's final report in a Chapter 7 bankruptcy case, and the district court held that the firm also lacked standing to appeal under a test tailored to bankruptcy appeals. Given the post-Lexmark uncertainty about various standing concepts, we hold that the firm lacked the one type of standing that Lexmark undoubtedly does not affect: Article III standing. We affirm the district court's order dismissing the appeal on that basis.


         Carl F. Schier PLC represented Capital Contracting Co. in a suit filed by Longhorn Estates, LLC, in Michigan state court. The litigation did not turn out well for Capital Contracting. It was hit with over a $5-million judgment and landed in bankruptcy a month later. Its proceedings under Chapter 7 of the Bankruptcy Code stayed its litigation against Longhorn with post-trial motions pending. But that state-court judgment turned Longhorn into Capital Contracting's biggest creditor, so Longhorn filed a claim in the bankruptcy proceedings. When Schier also filed a claim for unpaid legal fees owed by Capital Contracting, the trustee representing the estate countered with a malpractice suit against Schier for its handling of the Longhorn litigation. The trustee and Schier eventually settled. Schier agreed to pay the estate $600, 000 and to withdraw its attorney's fees claim; the trustee released Schier of further malpractice liability. The bankruptcy court approved this settlement, and Schier formally withdrew its claim. All's well that ends well.

         Or so it seemed. When the trustee filed a final report detailing the distribution of Capital Contracting's assets, 11 U.S.C. § 704(a)(9), Schier reemerged with an objection. The firm alleged that Capital Contracting's right to appeal the state-court judgment in the Longhorn suit qualified as an "asset" of the estate that the trustee should have administered or abandoned. Cf. Croft v. Lowry (In re Croft), 737 F.3d 372, 376-77 (5th Cir. 2013). The bankruptcy court overruled Schier's objection and approved the final report. It explained that Schier should have raised this issue by objecting to Longhorn's claim when Schier had a pending fees request-a point in time at which Schier remained a "creditor" with "standing." Because Schier had withdrawn its claim for attorney's fees, the bankruptcy court continued, the firm failed to qualify as a "party in interest" with a "pecuniary interest or stake in the outcome," and did not "have standing to object to the trustee's final report and account."

         Schier appealed to the district court. The district court dismissed its appeal on a related but distinct "standing" ground-that Schier lacked standing to appeal. "It is well-established law," the district court reasoned, that "[i]n order to have standing to appeal a bankruptcy court order, an appellant must have been directly and adversely affected pecuniarily by the order." Carl F. Schier, PLC v. Nathan (In re Capital Contracting Co.), No. 18-11227, 2018 WL 4492240, at *2 (E.D. Mich. Sept. 19, 2018) (internal quotation marks omitted). This "person-aggrieved" test for appeals, the district court continued, demands more than Article III standing. Id. The court concluded that Schier could not meet that test because its "direct and immediate interest in the bankruptcy proceeding ceased when" it withdrew its attorney's fees claim. Id.


         This case's many "standing"-related issues would make it worthy of inclusion in a final exam for a federal-courts class. As a refresher, Article III of the Constitution delegates the "judicial Power" to the Supreme Court and any "inferior Courts" that Congress may create, and it allows these courts to decide "Cases" or "Controversies." U.S. Const. art. III, §§ 1-2. For a suit to qualify as a "case" falling within Article III, the party who seeks relief must have standing. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 101-04 (1998). This Article III standing requires a party to have "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016). In addition to Article III's standing floor, the Supreme Court also once adopted "judicially self-imposed limits on the exercise of federal jurisdiction" that Article III otherwise would permit. Allen v. Wright, 468 U.S. 737, 751 (1984). While the Court used to refer to these limits collectively as the "'prudential' branch of standing," it has since called that generic label "misleading" because each of these limits raises distinct ...

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