- No. 12-6065 (B.A.P. 8th Cir. July 2, 2013)
- A debtor lacks standing to set aside an order approving a trustee’s settlement of litigation when the debtor does not have a pecuniary interest in the litigation. To establish standing by way of a pecuniary interest, the debtor must show a direct injury resulting from the order. The Bankruptcy Appellate Panel for the Eighth Circuit (the “BAP”) held that the debtor failed to meet her burden because she could not show that after payment of all the claims in her bankruptcy, there would be a surplus of funds from the litigation under § 726(a). The BAP rejected the debtor’s argument that the potential value of the litigation should be the basis for determining standing, noting that standing could not be conferred when the interest alleged is speculative or contingent. Thus, the BAP affirmed the order of the bankruptcy court (the “BC”) approving the trustee’s settlement of the litigation.
- Procedural context:
- The debtor filed a motion to set aside the bankruptcy court’s order approving the settlement of the litigation. The BC held a hearing. No exhibits or witnesses were offered by any party. The parties to the settlement contended that the debtor held no interest in the pending litigation. The BC denied the debtor’s motion and the debtor appealed.
- Prepetition, the debtor filed an employment discrimination lawsuit against her former employer, a municipal police department. The debtor then filed her chapter 7 bankruptcy petition and failed to list the lawsuit on her schedules. Her case was later closed. Subsequently, the debtor reopened her case and listed the pending litigation on her schedules. The trustee determined that the litigation was an asset of the estate and filed an application to employ an attorney to represent the estate in the negotiation and recovery of the proceeds related to the litigation. The trustee’s application was approved, and the trustee then filed a motion to approve the compromise of the litigation for $20,000. The motion set forth the basis for the settlement and that it was unlikely that any surplus funds would be available for distribution to the debtor after the payments of expenses and claims. The debtor failed to timely object to the motion, and the court granted the trustee’s motion.
- Kressel, Saladino and Shodeen, Bankruptcy Judges.
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