The bankruptcy process is often long and arduous for clients, whether debtor or creditor, and their counsel. Bankruptcy courts feel the pain, too. So, when we finally reach the glorious goal of plan confirmation, most revel in the conclusion of the plan process. Though often considered anathema, appeals of plan confirmation orders are sometimes pursued. Recognizing the public policy desire for finality in bankruptcy proceedings, the Eighth Circuit applies the “person-aggrieved” doctrine in determining whether an appellant has standing to appeal a plan confirmation order. Recently, the Eighth Circuit had the opportunity to review whether a debtor – the proponent of the plan and the champion of its confirmation – can be a person aggrieved with standing to appeal its own plan. In re: O&S Trucking, Inc., No. 15-2048 (8th Cir. Jan. 22, 2016).
O&S Trucking, owner and operator of a fleet of commercial trucks, filed a voluntary petition for chapter 11 in May 2012. O&S filed a motion to determine the value of the secured claim held by the financing company for its truck fleet. The bankruptcy court found that the secured claim value was the combination of the present value for the trucks and the projected net income from their use. Unsatisfied with the bankruptcy court’s calculation of the present value of the trucks because it failed to take into account previously made adequate protection payments, O&S asked for reconsideration of the order and, when unsuccessful, appealed the bankruptcy court’s order to the Bankruptcy Appellate Panel for the Eighth Circuit.
While the appeal was pending, O&S filed its proposed plan of reorganization, incorporating the bankruptcy court’s order on the value of the secured claim, but noting that the claim was subject to adjustment based on the pending appeal of that order. The bankruptcy court found the pending dispute on the present value of the collateral moot because O&S had already returned the trucks to the financing company. The bankruptcy court then determined the remaining secured claim based on the projected net income portion of the valuation order, and proceeded to confirm the O&S plan.
O&S appealed the confirmation of its own plan. The BAP found that O&S lacked standing to appeal its own plan, and, on further appeal, the Eighth Circuit agreed.
Standing for Appeal
In determining who has standing to bring an appeal of a bankruptcy court order, the Eighth Circuit has adopted the person-aggrieved doctrine, under which the appellant must demonstrate that the order being appealed directly and adversely affects its interests. The person-aggrieved doctrine is more limited than Article III standing in recognition of the public policy goal of not unnecessarily prolonging bankruptcy proceedings.
Generally, under this doctrine, a debtor lacks standing to appeal a plan confirmation order because it is an order entered in favor of the debtor. The Eighth Circuit recognizes an exception to this general rule, however, when an error prejudicial to the debtor is made, or when the debtor requested, but did not receive, all the relief to which it was entitled.
Recognizing the tension between the public policy favoring the finality of plan confirmation orders and the noted exceptions to the general rule, the Eighth Circuit developed a procedure for a debtor to seek review of a confirmed plan – specifically, by objecting to its own plan and, thus, preserving the issue for appeal. By objecting to plan confirmation and having the bankruptcy court confirm the plan over the debtor’s objection, the debtor may be an aggrieved party with standing to appeal.
Where O&S Went Wrong
The Eighth Circuit first noted that O&S failed to raise an objection at plan confirmation regarding the value of the secured claim. In its defense, O&S argued that it included language in the plan noting that the amount of the secured claim was subject to adjustment based on the pending appeal of the bankruptcy court’s valuation order – an appeal that was ultimately dismissed by the BAP and was not further appealed by O&S to the Eighth Circuit. The Circuit Court, however, found the language imprecise and insufficient to meet the requirement that the debtor object to the plan to preserve the issue for appeal.
At plan confirmation, debtors need to create a record for potential appeals, including those that it may ultimately want to bring. In re O&S Trucking is a straight-forward map on how to preserve objections as issues for appeal in the Eighth Circuit.
Brenda Funk is an Associate at Weil Gotshal & Manges, LLP in Houston.